Those Pesky E-Mails! | Financial Engineering News
Intellectual property lawyers have long been familiar with nefarious uses of e-mail. For example, Steven L. Davis, an engineer working for a contractor to Gillette, pled guilty under the Economic Espionage Act to criminal theft of trade secrets. Davis had been working to develop production equipment for a new shaving design. Davis downloaded data and drawings from the Gillette project and then distributed the information to competitors by e-mail.
More recently, labor lawyers discovered that use of e-mail can expose the company to damages. For example, Chevron settled a case filed by four female employees for $2.2 million. The employees alleged that sexually harassing e-mails caused a threatening work environment. One of the sexually offensive messages was a "joke" titled "25 reasons why beer is better than women."
And now the financial sector is getting its own taste of the devastation e-mails can wreak. One of the smoking guns that convicted Martha Stewart was her attempt to first change, then undo the changes, to an e-mail that evidenced her knowledge of insider trading.
Even lawyers are not immune. Nancy Temple, an Arthur Andersen in-house attorney, sent an e-mail to Michael Odem, a Houston manager, that reminded him of Anderson's record retention policy. This message was then forwarded to partner David B. Duncan, the prosecution's star witness, who claims it spurred the shredding.
Perhaps the most insightful case relying on e-mail evidence is crusading New York Attorney-General Eliot Spitzer's probe into illegal trading that enables hedge funds to buy mutual fund shares at prices not available to most investors. The investigation is focused on practices known as "late trading" and "market timing."
"Late trading" involves buying fund shares at the 4 p.m. price after the market has closed. It is prohibited by New York State and by Securities & Exchange Commission (SEC) regulations, as it allows favored investors to take advantage of events not reflected in the closing share price. "Timing" allows investors to exploit inequities when the net asset value of fund shares is set at the 4 p.m. close and does not reflect the market value of the stocks in the fund. Eric Zitzewitz, a professor at Stanford University, estimates that long-term fund holders lose about $5 billion a year to late trading and timing.
In the opening salvo in a widespread investigation, Canary Capital Partners, a New Jersey hedge fund, agreed to return $30 million in profit and pay a $10 million fine for such violations. According to Spitzer, financial companies including Bank of America, Bank One, Janus Capital Group, and Strong Capital Management gave Canary illegal trading access in exchange for investing in their funds.......
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