At a time when most technology companies are staggering, Providence-based Ibis Consulting has carved out what seems like an ironclad niche: investigating white-collar crime.
With a steady stream of front-page stories chronicling probes into corporate America’s shady accounting practices and accusations of insider trading, demand for Ibis’s data-mining technology could remain strong for years to come. The 25-employee firm, founded 10 years ago by president and CEO Jay McNally, provides solutions for electronic discovery, a fast-evolving field that has become a staple of corporate litigation cases.
McNally’s recent work on the investigation of Arthur Andersen’s role in the Enron accounting scandal was one of a number of cases of white-collar crime that he has helped piece together over the past decade. He has worked on both civil and criminal cases involving insider trading, securities violations, insurance scams, embezzling, racketeering and corruption and product liability.
In each case, McNally is called on by legal defense teams to help sift through huge caches of electronic data that could end up as deciding factors in a lawsuit or criminal case. He is tightlipped about specific cases, bound by confidentiality agreements. But he says he is content to fly below the radar of media scrutiny.
“For 15 years I’ve been doing this work and nobody knows about it,” McNally said. “That’s because I’m pretty good at keeping my mouth shut.”
In only a few instances, such as the Andersen investigation, has McNally’s role become a matter of public record through court filings. Two other high-profile cases: the investigation into a rogue Daiwa Bank Ltd. bond trader in 1995 and the Democratic National Committee’s fundraising scandal unearthed in 1996.
In the Daiwa Bank case, McNally said he uncovered a 28-page letter from New York-based Daiwa bond trader Toshihide Iguchi, who confessed to losing more than $1 billion of the bank’s money in unauthorized trades. McNally was hired by Daiwa’s defense team to help prove that the bank was oblivious to Iguchi’s illicit trades.
McNally declined to discuss the Andersen case, for which he was hired by Andersen’s law firm, Davis Polk & Wardwell.
Electronic discovery: a burgeoning field
Kenneth J. Withers, a research associate at the Federal Judicial Center in Washington, D.C., who lectures regularly on the topic of electronic discovery, said the federal judicial system has been anticipating an onslaught of electronic evidence for nearly three decades.
But only in recent years has an explosion of digital communications brought electronic evidence to the fore of business litigation, effectively replacing boxes stuffed with photocopied documents. A two-year-old study by University of California at Berkeley found that 93 percent of all documents generated worldwide are digital rather than paper.
“You have a whole new industry being developed called electronic discovery, or computer forensics,” said Withers, who counts Ibis among roughly 30 private companies that are nationally known in legal circles for electronic-discovery work. “Companies rely on these experts to reconstruct in a coherent way what actually happened, and explain it in a way that will make the evidence intelligible to the judge and jury.”
One problem, Withers said, is that very few corporations have their information systems in order. Either they let useless data pile up on far-flung servers, hard drives and backup tapes, or they delete too much information – potentially destroying data that might be requested by a judge or legal team.
Regardless, Withers said such electronic bumbling presents companies with “a tremendous expense” to have an outside firm such as Ibis come in and untangle the electronic mess for discovery purposes.
“But you don’t have a whole lot of choices, because that’s where all the evidence is,” Withers said
Although courts are becoming more accustomed to the presentation of electronic evidence, there still is a sizable learning curve, according to Alan Brill, senior managing director of Kroll-Ontrack Inc., a New York-based electronic-discovery firm.
“The courts are still sorting out issues like who pays for electronic discovery, when there’s a risk it might become a fishing expedition, in what circumstances is it unreasonable to disrupt a company’s operation in order to seize assets,” Brill said.
A tedious process
McNally said defense attorneys rely on his services to “draw an edge around the problem,” discerning how many employees might be involved in alleged improprieties and what electronic assets were used. The process often is sweeping, given the sprawling operations of most multinational corporations.
Teams of attorneys and technologists might be sent on site of the company under investigation to seize refrigerator-sized servers. Individual hard drives usually are seized – sometimes thousands of them from dozens of locations. Gateways between corporate servers might be scanned for pockets of deleted e-mails or analyzed for data traffic patterns. Rogue e-mail systems or unauthorized devices on the corporate network sometimes are uncovered.
Next comes the computer-forensics process: McNally said investigators create a secured library of electronic assets where tedious electronic logs track who accesses the data. McNally helps manage the analysis of the electronic data that is culled. Hard drives and computer backup tapes are probed for incriminating documents; recorded voice-mail messages and phone logs are scanned; servers are scoured for deleted e-mail messages.
“E-mail is always the first place you look,” McNally said. “It makes very good evidence, and it has a habit of proliferating.”
Eventually, a picture of the primary players in the investigation begins to emerge. McNally likens it to an archery target, with the likeliest suspects in the bullseye, with supporting actors spreading out from the center.
But in cases involving a high degree of scrutiny, technologists are compelled to cast as wide a net as possible in their quest for electronic evidence. And McNally said that often means innocent bystanders get snared.
“The collateral damage, the effect that this has on people’s lives, is enormous,” he said. “Somebody who just happened to be in a certain meeting a few months ago, all the sudden their home computer is taken away, they may be put on administrative leave and they get a call from the Department of Justice. There are very few things more terrifying than all of those things happening to you within a few hours.”
‘Behind the screen’
Ultimately it is the job of electronic-discovery firms to decipher a chain of command: Who was privy to key information? When did they first access it? Who did they share it with? To unearth that electronic paper trail, technologists often burrow deep into data to uncover buried information.
Matt Deniston, product manager for Fios Inc., an electronic discovery firm in Portland, Ore., said one e-mail message can contain as many as 60 “metadata” fields, or tidbits of information such as where it originated or whether it was read.
Even in word-processing documents and spreadsheets, McNally says the importance of “behind-the-screen” data – perhaps a fragment of a deleted document or a doctored file – can far outweigh the words or numbers on the surface.
Ibis’s proprietary technology was developed to crunch all of the disparate data into a form that makes sense for lawyers, judges and juries, while revealing electronic evidence that was never intended for the light of day.
“The Ibis technology translates data from their native states and puts it in image form, so that lawyers can work with it,” McNally said. “(This is stuff that) relates directly to the front line of the lawsuit.”
While a few pieces of the millions of bits of information uncovered during the discovery process are certain to be more valuable than others, Withers of the Federal Judicial Center downplays the notion of a “smoking gun.”
“The smoking gun usually fizzles,” said. “What it really gets down to is the grunt work of finding out who knew what when, and what they did with the information. That’s what these companies like Ibis do best; they automate that grunt work.”
