Instant incrimination

By Steven Syre, Globe Columnist, 8/12/2003

E-mail really was the killer app. Electronic mail, the most useful application ever created for the wired world, has been responsible for more smoking guns than Clint Eastwood as regulators investigate malfeasance at brokerage and investment banking firms during the stock market's boom-and-bust years.

The latest forehead-slapper, coming out of the investigation of mutual fund sales at Morgan Stanley's Back Bay office by Massachusetts regulators, urges brokers to avoid writing e-mail about a questionable sales promotion. "Please DO NOT put anything in writing via E-mail or fax on the current promotional part of our current campaign. Walk your team through it VERBALLY!" one electronic message said. Duh!

A lack of technical awareness and a false sense of privacy led many people to write stupid and incriminating messages via e-mail, digitally enshrined on computer servers. Without e-mail, Eliot Spitzer would be a trivia answer, Jack Grubman's girls would have been just two more preschoolers at the 92d Street Y, and the explicit intent behind many of the worst stock market hustles would be lost in a haze of plausible deniability.

The obvious question: Don't they get it? Well, perhaps many people do now.

"I've talked to a lot of people who tell me they use instant messaging [instead of e-mail] and we can't get it," says Matthew Nestor, chief of the secretary of state's securities division. "It is not recoverable."

Unlike e-mail, instant messages sent immediately to other computer screens via services such as AOL Instant Messenger can be extremely hard to recover from electronic hardware. The messages appear and then they are gone, sort of.

To update a famous bit of wisdom from the hallways of the State House: Never print when you can e-mail, never e-mail when you can IM.

"I honestly suspect the days of e-mail are over," says Nestor, referring to the era when electronic mail produced evidence for securities investigations. "Today, nobody is going to sit down and write this stuff, `Let's go out and commit fraud,' over e-mail anymore."

E-mail is stored on computer servers dedicated to electronic mail, recording all of the information needed to track and retrieve the contents of each piece of correspondence. Instant messages are usually handled by Web servers that retain little, if any, data for tracking purposes.

But technology and regulation are adapting quickly to instant messaging by brokers. The National Association of Securities Dealers told members in June that many instant messages are considered business records and must be retained for three years. The New York Stock Exchange told its members the same thing this summer.

"Because regulators view business-related instant messages the same as correspondence, firms must retain those messages and are obligated to monitor and perhaps limit their use," says Jeffrey Himstreet, a lawyer in the Washington office of Bingham McCutchen.

Technology companies can be retained to capture and store instant messages, but it is an expensive proposition. Trade publications speculate that some brokerages might simply tell employees to lay off instant messaging.

But e-mail became a bonanza for regulators long after brokers were first ordered to retain those records in 1997. People wrote things they came to regret because e-mail was simple and informal, so much like casual office talk. If anything, instant messaging is even simpler and more informal.

Perhaps everyone learned a lesson from the e-mail era, maybe not. Instant gratification can be hard to resist.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.