E-discovery Challenges for Fraud Examiners

black-signI returned from the beach last Friday to find a question in my in-box from one of our Chapter members relating to several E-discovery issues (electronically stored information) she’s currently encountering on one of her cases.  The rules involving E-discovery are laid out in the US Federal Rules of Civil Procedure and affect not only parties to federal lawsuits but also any related business (like the client of our member).  Many fraud professionals who don’t routinely work with matters involving the discovery of electronically stored information are surprised to learn just how complex the process can be; unfortunately, like our member’s client company, they sometimes have to learn the hard way, during the heat of litigation.

All parties to a Federal lawsuit have a legal responsibility, under the Rules of Civil Procedure and numerous State mirror statutes, to preserve relevant electronic information.  What is often not understood by folks like our member’s client is that, when a party finds itself under the duty to preserve information because of pending or reasonably anticipated litigation, adjustment in the normal pattern of its information systems processing is very often required and can be hard to implement.  For example, under the impact of litigation, our member’s client needs to stop deleting certain e-mails and refrain from recycling system backup media as it’s routinely done for years.  The series of steps her client needs to take to stop the alteration or destruction of information relevant to the case is known as a ‘litigation hold’.

What our clients need to clearly understand regarding E-discovery is that the process is a serious matter and that, accordingly, courts can impose significant sanctions if a party to litigation does not take proper steps to preserve electronic information.  The good news is, however, that if a party is found to have performed due diligence and implemented reasonable procedures to preserve relevant electronic data, the Rules provide that sanctions will not be imposed due to the loss of information during the ‘normal routine’ and ‘good faith’ operations of automated systems; this protection provided by due diligence is called the ‘safe harbor’.

To ensure that our clients enjoy the protections afforded them through confirmation of due diligence, my recommendation is that both parties to the litigation meet to attempt to identify issues, avoid misunderstandings, expedite proper resolution of problems and reduce the overall litigation costs (which can quickly get out of hand) associated with E-discovery.  The plaintiff’s and defendant’s lawyers need some sort of venue where they can become thoroughly familiar with the information systems and electronic information of their own client and those of the opposing party.  Fraud examiners can be of invaluable assistance to both parties in achieving this objective since they typically know most about the details of the investigation which is often the occasion of the litigation.  Both sides need to obtain information about the electronic records in play prior to the initial discovery planning conference, perhaps at a special session, to determine:

–the information systems infrastructure of both parties to the litigation;
–location and sources of relevant digitized information;
–scope of the electronic information requirements of both litigants;
–time period during which the required information must be available;
–the accessibility of the information;
–information retrieval formats;
–costs and effort to retrieve the required information;
–preservation and chain of custody of discover-able information;
–assertions of privilege and protection of materials related to the litigation.

Technical difficulties and verbal misunderstandings can arise at any point in the E-discovery process.  It often happens that one of the litigants may need to provide technical support so it that digital information can even be used by the opposing party … this can mean that metadata (details about the electronic data) must be provided for the data to be understandable.  This makes it a standard good practice for all parties to test a sample of the information requested to determine how usable it is as well as to determine how burdensome it is to the requested party to retrieve and provide.

It just makes good sense to get the client’s information management professionals involved as soon as possible in the E-discovery process.  A business will have to disclose all digitally stored information that it plans to use to support its claims or defenses.  When faced with specific requests from the opposing side, your client will need to determine whether it can retrieve information in its original format that is usable by the opposition; a question that often only skilled information professionals can definitively answer.

Since fraud examination clients face E-discovery obligations not only for active Federal litigation but also for foreseeable litigation, businesses can be affected that merely receive a Federal subpoena seeking digital information.   Our questioner’s client received such a subpoena regarding an on-going fraud investigation and was not ready to effectively respond to it, leaving the company potentially vulnerable to fines and adverse judgments.

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