Litigating in the Wake of SEC or FTC Enforcement Actions

By Jim Parrish


Private law suits often follow in the wake of SEC or FTC enforcement actions. Plaintiffs must think carefully before accepting a defendant's offer to produce materials provided to the government. The temptation is to accept the offer as the quickest way to obtain defendant's data. However, there can be serious problems in accepting this offer. Here are some points to remember when evaluating whether to accept the same data as given to the government.

Focus of Investigation.Government enforcement actions typically focus on proving violations – not proving private damages or the identity of people damaged by defendants' actions. Hence the records produced to the government may fall short of identifying potential class members or showing the damages suffered by plaintiffs. Obtaining such records may involve additional record custodians, modifying the time period and type of search terms and methods on which the initial government production was based.

Form of Production.Government agencies often specify that records be produced in the form of Concordance load files linked to TIFF or PDF images. The load files may have some but not all of the metadata associated with ESI. The advantage of this form of production is that it can be readily adopted to load into virtually any review platform used by plaintiff. The disadvantage of images is that some electronic records, especially spreadsheets, are not nearly as useful as the native format. Images of spreadsheets seldom display formulas or hidden rows or columns. Also, they do not show how values were calculated, making it difficult to analyze them. Depending on the production agreement between the government and defendant, the defendant may have produced only some of the metadata pertaining to the records they produced (e.g., 'date created'or 'date modified'). Further, defendants may not have had to produce other types of metadata fromWord or Excel files.

Under FRCivP34(b) (2) (E) (ii), a party is only obligated to produce ESI in one form. Plaintiffs need to be careful not to cut off their right to obtain the most meaningful form of records by accepting load files and TIFF renditions of the records. Plaintiffs may want to demand production of the original native files along with all associated metadata. Defendants should be required to identify which custodians produced the original files, and the location, physical or virtual from which they originated.

Email Attachments.One recurring problem in working with records produced is that the email attachments are not included. Sometimes they are produced where the user can not readily identify which attachments were associated with which emails. Email provided by the defendants should always include attachments contiguous to the parent email.

Non-textual data.The government may not have wanted to go through the time and expense of dealing with nontextual sources of data, e.g. voice messages.

Best Practices.Plaintiffs should always have an agreement with defendant that obtaining discovery given to the government is only the beginning of the discovery process. Plaintiffs have the right to request additional records and/or alternative forms of production for records produced to the government.Acompany that has been the target of a government investigation ismore at risk of going out of business or being acquired than most companies. Preservation letters need to be sent to any entity in possession of the target's computer or voice systems – including any government agency that may have seized those digital assets or information sources.

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