In the June/July issue of Executive Counsel magazine, Michael Arkfeld spells out the various reasons why companies, corporate counsel and law firms can no longer ignore the myriad forms of evidence that are now presented in audio (and video) recordings. But he doesn’t mention one very important fact, especially critical if you or your clients routinely record any type of energy or financial services trading activity.
The Regulators are AHEAD OF THE GAME and are asking for this content, and they are already using sophisticated tools to help quickly process and review these files in their investigations.
Just last week, Nexidia announced that the US DOJ Criminal Division has licensed its audio discovery software to help with investigations managed by that division. It joins the SEC, the CFTC, the FTC and FERC as leading government agencies that have deployed Nexidia solutions to support the growing body of audio content under investigation.
And these investigations can have very meaningful (and financially painful!) consequences. In a 2007 review of trading practices from Energy Transfer Partners, the FERC used trading floor recordings to uncover evidence of fraudulent practices that led to $97M in penalties and a $67M disgorgement of unjust profits. Pulling from a report of the incident:
“The investigation uncovered voice recordings that show senior managers at ETP were aware of the situation and directed the company’s manipulative strategy …
In one such recording …the company officer in charge of trading at the hub, told at least one trader that ‘as long as we sell as much as we can sell, it ought to push Ship down.’ The phrase ‘push Ship down’ means to suppress the price at the Houston Ship Channel… thereby increasing the value of its financial derivative positions.”
Why should you care about any of this?
As the saying goes, when in Rome…!
Now is the time for any firm engaged in trading floor activity – frankly, any firm that routinely records conversations that could be subject to regulatory review or electronic discovery – to enact a program for compliance with these types of activities. As the Regulators have discovered, solutions do exist that let you quickly and accurately find content in even the largest collections of audio recordings, so the old “overly burdensome” argument will no longer let you off the hook.
And since the Regulators are using these tools to find what your people are saying, wouldn’t you like to know IN ADVANCE what that is so you can be prepared?