Business Litigation Alert: "Did They Really Say That?"

by Porter Hedges LLP
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E-Mails Continue to Be the Modern "Smoking Gun"

The recent financial collapse and bankruptcy of former mega-law firm Dewey & LeBoeuf has captivated the attention of the legal industry, but are there lessons to be learned for a broader audience?

Answer: “Yes.”

Earlier this month, the SEC charged five former Dewey & LeBoeuf executives, including the firm’s former chairman, with misrepresenting and manipulating the firm’s financial condition prior to a $150 million private debt offering that they hoped would fix the firm’s financial problems.

In a parallel proceeding, the Manhattan District Attorney’s Office announced a 106-count indictment of several of the same individuals.

What makes this particularly instructive, however, is the fact that most of the incriminating evidence comes from e-mails. The New York Times reported that the e-mails openly discuss “fake income,” “accounting tricks,” and “cooking the books.”

In discussing the firm’s outside auditor, one e-mail asks: “Can you find another clueless auditor for next year?” The response, “That’s the plan. Worked perfect this year.”

According to the New York Times, “[e]ven agents with the FBI were surprised by the brazenness with which the former law firm executives discussed their plan in e-mails.”

The lesson here: Common sense should always be used when communicating electronically, as any electronic communication is subject to discovery and often to misinterpretation. Specifically:

  1. Talk, Don’t Type: When discussing sensitive or confidential information, set up a face to face meeting or pick up the phone. This helps ensure that nothing is lost in translation, and it prevents an e-mail from being viewed by prying eyes.
  2. Who Needs to Know: Consider who you are sending information to electronically. We are all used to the “reply to all” button, but you should carefully select the recipients of any information you send out.
  3. Train Employees: Make sure that anyone who has access to confidential information is properly trained on how to distribute that information, when it should be distributed, and who it should be distributed to.

Remember, e-mails and other types of electronic communication are always subject to discovery. Be wary of sensitive information sent through e-mail, as your intended recipient may not be the only one ultimately reading it.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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