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DMA: A lesson from the Goldman case: "Shut Up!"

Monday, April 19, 2010
Opalesque Industry Update - Getting a Better Handle on E‐mail Communications

Whatever the merits of the SEC case against Goldman Sachs, one thing is clear from the complaint: a significant basis of the SEC's position revolves around sloppy and unprofessional e‐mail traffic. There is no need to belabor this point: Sloppy, thoughtless, and "cute" e‐mails can create impressions that can cost a firm (or an employee) dearly.

Here are some suggestions for internal policies that go beyond the use of swear words and the typical hot list of problematic terms:

1. Editorializing. Employees should not editorialize in e‐mails (whether about the merits of a deal or the conditions of the current market that might affect a deal, among other things). Any editorializing should be done in a proper forum and through proper organs of the firm, and or should be accompanied by appropriate hedging language.

2. Showboating. A certain gentlemen at Goldman referred to himself as "fabulous," where his "fabulousness" would be proven‐out at the the possible expense of investors. Showboating, especially by an officer of a firm, may be at the expense of the firm. Just what is showboating? Just read the complaint, and go back and listen to the Enron trader tapes. Each firm will have to work‐out its own standards, but certainly celebrating one's own prowess at the expense of clients is an easy mark.

3. E‐mail Signatures. Though it may be of limited utility, global e‐mail signatures might be amended to state that "opinions expressed by the sender of this e‐mail should not necessarily be construed as representing the opinion of the firm, any of its affiliates, or any issuer discussed herein, and certain opinions expressed may be based upon limited knowledge of the facts and circumstances of the matters about which the opinion is addressed." Again, this may be of limited help in a crisis (just like other statements in e‐mail signatures), but it is better than nothing.

4. Conflict of Interest Reviews. Firms should consider expanding the use of conflict of interest questionnaires and inquiries in connection with deals. Compliance Officers and Risk Officers need to brainstorm about the types of conflicts of interest that can arise from deal to deal and product to product. This would be a good risk management exercise for any firm, regardless of size.

5. Professionalism Reviews. In conjunction with points 1 and 2, above, those charged with reviewing emails should assess them based upon the level of professionalism exhibited. Too subjective? Maybe, but internal, written standards can serve as a guide. If this is made part of e‐mail review policies of the firm, it will alert employees that their business communications are under an assortment of modal reviews.

David E. McClean, Principal - David E. McClean & Associates // DMA - Corporate website.

See today’s related article: SEC files civil fraud suit against Goldman Sachs in connection with selling of synthetic CDO which Paulson & co was shorting Source.


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