The limits of proactive e-discovery policies


Why was Moody's spared when Standard & Poor's was targeted for prosecution over tainted ratings for various CDOs that included mortgage-backed securities?

I suggested off-handedly that the evidence against Standard & Poor's was likely superior than the evidence against other ratings companies. The Wall Street Journal also weighed in with an interesting answer, suggesting that proactive policies to limit potential evidence may have played a role.

"The Moody's Corp. unit took careful steps to avoid creating a trove of potentially embarrassing employee messages like those that came back to haunt S&P in the U.S.'s lawsuit, the former employees say. Moody's analysts in recent years had limited access to instant-message programs and were directed by executives to discuss sensitive matters face to face, according to former employees," the WSJ reported.

"In contrast, there would appear to be a wealth of email and IM evidence in the S&P case; one IM by an employee said a deal "could be structured by cows and we would rate it."

In the end, the power of policies that aim to limit communication--the type that the company is required to store for legal purposes--may not be enough to stave off an indictment all together. Many people assume that the sins of Moody's are on par with those of Standard & Poor's and that an enforcement action is coming at some point. Fitch may also be in line for a suit. There are plenty of inquiries going on at the state level, and it would be premature to say that Moody's and Fitch dodged a bullet completely.  

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