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E-Commerce Escalation: Commands Greater Backup


WASHINGTON Electronic communication, the way of life and doing business that it has become, demands greater vigilance on the part of mutual fund IT and legal experts.

That was the message from John Walsh, associate director and chief counsel with the SECs Office of Compliance, Inspections and Examinations, at the Investment Company Institutes annual convention. Joining Walsh on an e-communication panel were: Raad Siraj, CIO and VP for Eaton Vance; Christine Carsman, VP and chief regulatory counsel, Affiliated Managers Group; and moderator Sarah McCafferty, VP and associate legal counsel, T. Rowe Price.

Current SEC regulations on electronic forms of communication and an update to them in 2001 do not recognize or clearly define how mutual fund legal departments should treat e-mails. Rather, the SEC has largely left this up to the individual firms, dictated by their discretion and resources, Walsh said.

But e-mails, IMs and BlackBerry text messages will continually be replaced by future electronic forms of communication that will test the operations and regulatory divisions of fund companies, Siraj warned. Just take a look at what new gizmos your children are using to get a look into the future of communication in cyberspace, he added.

New York Attorney General Eliot Spitzer based the crux of his immediate case against Canary Capital Partners on a series of candid e-mail exchanges between Bank of America and Canary, Carsman noted. In light of this, she added, and the SECs Walsh agreed, that it behooves fund companies to beef up their e-mail and other electronic and voice surveillance.

E-mails are electronic books of record, Walsh said, and they are and will continue to be top of mind among SEC examiners, who will be on the lookout for abuse, things on the tail [and] unusual patterns.

With e-mails, he continued, we are getting to a level where the organization becomes much more transparent, so we can actually see how you do your business.

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