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Electronic Evidence on Hand-Held Devices Critical in Stock Manipulation Case

SEC Indicates Need for Additional Forensics Tools in War Against Fraud

The Background
The Wall Street trader was, according to the SEC, seeking a creative way to manipulate stock prices and profit from short selling. The hightech answer? Circulate negative rumors via instant text messages about a company and then dump the stock…making thousands from the resulting dive in the stock’s price. Perhaps and old trick, but one that has taken on a high-tech flavor in our world of instant messaging.

The Allegations
The trader, Paul S. Berliner had a lot to gain by spreading false rumors about Blackstone Group’s pending acquisition of Alliance Data Systems (“ADS”). Through various instant messages sent to numerous Wall Street professionals at brokerage firms and hedge funds, Berlinger allegedly circulated false rumors that the deal between ADS and Blackstone was being renegotiated at a substantially lower purchase price because of credit difficulties in ADS’s consumer banking unit and that ADS’s board was meeting to consider a revised proposal even as the messages were being sent.

The Result
The rumors had their intended effect…Within a half an hour of Berlinger’s first instant message, ADS share price tanked by 17% and Berlinger profited by shorting ADS stock. The SEC has charged Berlinger with securities fraud and market manipulation.

The Take-Aways

  1. Never underestimate the investigative power of targeting handheld devices when litigating or investigating fraud cases. BlackBerries and other portable instant messaging devices can be rich sources of Electronically Stored Information (ESI).
  2. Just a short time ago, ESI stored on hand-held digital devices might have been considered “Inaccessible” vs. “Accessible” under the Federal Rules, because of technology limitations. Today, this evidence is clearly accessible because of emerging computer forensics technologies that enable the capture, preservation, and retrieval of these often – critical messages.
  3. This electronic data can have a very short “shelf life”. If you believe the defendants may have important ESI on their hand held devices…move quickly to go after it as this evidence can quickly disappear.

Need more information? Call Jeff Hartman RGL Forensics at 312-251-4500 x 1220. RGL maintains a state of the art computer forensics lab including the tools and hardware necessary to perform forensics imaging and analysis of ESI on a wide-variety of portable hand-held devices.

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About Jeff Hartman

Jeff is a 30 year veteran of the corporate security, computer forensics, and eDiscovery community and a co-founder and partner at 4Discovery. 4Discovery is a leading provider of computer incident response and computer forensics services to attorneys, corporate security executives, and the information protection community.