The headlines are awash with news of the Galleon trial and the federal prosecutors’ use of wire tapping to seal the verdict against Raj Rajaratnam. In other news, the CFTC is flexing its new Dodd-Frank muscles with prosecutions against, among others, Parnon Energy Inc., Arcadia Petroleum Ltd. and Arcadia Energy (Suisse) SA for price manipulation in the crude oil market. Given that regulations require that investment banks and hedge funds record telephone conversations taking place on trading floors, audio recordings now clearly fall within the CFTC’s subpoena power over all commodities and derivatives trading.
The critical role of audio evidence in the Galleon trial and CFTC prosecution highlights a new avenue of potential risk for many in the financial services industry. Increased regulation and hundreds of thousand of audio hours malingering in backup tapes worldwide force us to ask: Are you ready for the onslaught of regulatory requests for recordings? If your answer to this question is “I don’t know,” then consider the following:
- Where are your traders located? Where are your recordings kept? Are they in a jurisdiction (like the UK or the EU, for example), where there is heightened sensitivity to protecting private information?
- How are your recordings retained? Are they digitally recorded?
- What is your retention policy? Does your company abide by that policy, or are there volumes of archived, archeological data waiting to be requested?
- Are you aware of technology you could use to assist you in processing and reviewing the recordings? Can your recording and retention system easily integrate into the technology you intend to use for review?
- Is there dead space in the recordings? Can you technologically eliminate it from the recordings requiring human review? Do you have the ability to run search terms against your recordings?
- Where are your reviewers located? Aside from the privacy considerations mentioned above, do your reviewers speak the same language as your traders? If so, do they understand “trader talk,” or the abbreviations and jargon traders use to describe their transactions?
The considerations for audio review are not so different than for document review – you need a documented plan to address requests in a timely and thorough manner. This involves a combination of technology, process and review experts who can partner with you to develop a defensible, efficient workflow to address audio recordings and other non-text files that are likely to be subject to discovery requests.