Spinelli Corporation Newsletter
Spinelli Report
Volume No. 1
Issue No. 1
October 2002
Background Investigations
Getting to Know All About You
Hoping to reverse rampant public suspicion and investor mistrust, publicly held companies are thoroughly vetting the professional and private lives of candidates for top executive positions. Back in the days before CEOs were forced to do the "perp walk" before news cameras, corporations allowed investment bankers, search firms or high-level executives to choose senior executives. Now that company board members are increasingly being held responsible for the conduct of top management, they often insist on hiring accounting, security and investigative firms to scour court documents, search federal databases and interview everyone from long-lost college girlfriends and ex-spouses to former employers, business partners and secretaries - even apartment doormen and clergy. In addition to such public records as arrests and personal bankruptcies, computer forensics experts can examine computers the executive used at a previous posting to dig up such hard-to-get information as gambling or drinking problems, disparities in lifestyle and salary, infidelity and quietly settled sexual harassment complaints.
"Companies Dig Deeper Into Executives' Pasts," The New York Times, August 19, 2002

And Here's Why
Meanwhile, Business Week reports eye-opening results of a 28-question test given to more than 1,400 managers at large US corporations that was designed to gauge their level of integrity. Based on the resulting psychological profiles, executive-search firm Russell Reynolds and personality-testing firm Hogan Assessment Systems conclude that one in eight executives can be termed "high-risk" - which they define, in part, as believing that the rules do not apply to them. Compounding the problem, they rarely feel the pangs of guilt that keep the wayward impulses of the other 7 in check.
"Another Crop of Sleazy CEOs?,"  Business Week Online August 26, 2002
Computer Forensics
Using Computer Forensics in Employment Law
A computer forensics specialist should be on hand whenever an employee is investigated for potential wrongdoing, is downsized, or terminated for cause - especially when a wrongful termination lawsuit is anticipated or when litigation against a terminated employee is being considered. Computer forensics is not a job for the IT department. A computer forensics expert will be familiar with a wide range of computer hardware, applications and operating systems, and offer expertise in the specialized tools and techniques used to examine a hard drive and its contents. Recovery of deleted e-mail and other electronic files and records is crucial evidence in cases involving fraud, embezzlement, white-collar crime, discrimination, sexual harassment, and theft of trade secrets. The best computer forensics specialists are also experienced investigators who have considerable trial experience, and are well-versed in criminal and civil procedure and evidentiary rules. The expert will establish and maintain an unbroken chain-of-custody of the employee's computer, and preserve the state of the hard drive at the moment the notice of termination is given to prevent accidental or intentional deletion of the contents of the hard drive. If a hard drive has not been properly preserved or investigated, the evidence retrieved will be compromised and could be inadmissible.
"Here's How to Avoid Nasty Bytes: Employee Lawsuits,"  Law Technology News, August 2002
Executive Protection
Kidnappings of Key Personnel a Growing Problem for Corporations
With bombings and kidnappings and terrorist threats in the headlines on an almost daily basis, American International Group (AIG) and Chubb Group are doing a brisk business selling insurance policies that provide negotiators to deal with kidnappers and to make ransom payments. In addition to abductions, kidnapping insurance also covers hijacking and extortion and, in some policies, terrorist attacks. Since Sept. 11, multinational companies that already had this coverage are increasing it and companies that did not have it are buying it. Some insurers are also hiring security companies to teach executives how to analyze home and office security. An AIG study in Mexico City found that people taking the half-day course were far less likely to be victimized than those who did not. The greatest risk of being kidnapped are in Colombia, Venezuela, Mexico and other Latin American countries.
"Among Executives, Fear of Kidnapping Rises,"  The New York Times, July 2, 2002
Regulatory Complience
16 Companies Miss SEC Certification Deadline
Executives at 16 of the 691 companies required to swear that they told the truth, the whole truth and nothing but the truth in their financial statements missed the Securities and Exchange Commission (SEC) Aug. 14 deadline. Another 256 companies have until December to certify their SEC filings. According to the SEC, among the 16 companies that failed to certify their financial reports: Enron and WorldCom, whose CEOs took the helm after their companies' scandals came to light; Adelphia Communications Corp.; CMS Energy Corp.; Consolidated Freightways Corp.; Dynegy Inc.; Gemstar-TV Guide Inc.; Qwest Communications International Inc.; LTV Corp.; and TruServ Corp. Securities lawyers believe that noncompliance could hurt a company's stock price or credit rating - or prompt an SEC investigation. In any case, the one-time SEC requirement can be considered a dry run: The July 2002 Sarbanes-Oxley Act requires all public companies' CEOs and CFOs to certify every quarterly and annual report filed with the agency.
"16 of 691 Firms Missed Deadline,"  Washington Post, August 22, 2002

SEC Wants Brokerages to Archive Instant Messaging Conversations
Once a teen fad, consumer instant-messaging (IM) software - typically downloaded from AOL Time Warner Inc., Yahoo Inc. and Microsoft Corp. - has invaded corporate America, in part because business users like being able to chat with co-workers in real time and to check which of them are online and at their desks. But IM is becoming increasingly problematic at Wall Street firms, which are required by the SEC to archive any records, phone calls and e-mail related to "business as such" for three years. Unlike e-mail, which can be archived on corporate servers, consumer IM typically leaves no paper trail, has few security features and offers weak safeguards against viruses. Consequently, SEC rules have pushed brokerages to switch to heavy-duty IM that maintains a paper trail, which can be crucial when allegations of fraud or other improprieties arise.
"Instant Messages' Popularity Pushes Brokerages Into Action,"  The Wall Street Journal, June, 17, 2002
Security Programs
Hardening the Target to Protect Against Tornadoes and Terrorists
Before Sept. 11, the biggest threats to most buildings were hurricanes, tornadoes and earthquakes. Now, products and materials originally developed to protect against natural disasters are being repurposed to protect against terrorist attack: Safety glass that withstands the impact of a tree branch hurtled through the air by hurricane-force winds also will remain intact during a bomb blast; superstrong plastic that holds down a roof during a tornado can reinforce doors and other structures; and synthetic fabrics used to fortify roads and dikes against floods can make building walls and floors stronger. Building owners and property managers nationwide looking for ways to "harden the target" have a variety of options ranging from extensive retrofits - including, stronger steel, concrete and glass, and thicker layers of fireproofing insulation - to less expensive measures, such as controlling access to buildings, installing surveillance cameras and implementing stricter procedures to monitor visitors and deliveries.
"Building Owners 'Harden the Target',"  The Wall Street Journal, March 11, 2002
White-Collar Crime
Money-Laundering Rules Expand
An outgrowth of legislation to combat terrorism after Sept. 11, federal money-laundering rules went into effect in April that require firms to designate a special compliance officer, commission independent audits, and implement policies and procedures to identify risks and to minimize opportunities for abuse. The new anti-money-laundering measures cover not just banks and securities, but also credit-card companies, mutual funds, wire-transfer firms and commodities dealers, all of which are vulnerable to organized criminal activity. In addition, international terrorists use both credit cards and wire services to move money. Treasury also is considering new anti-laundering rules for travel agents dealers in automobiles, planes, boats, gems and precious metals.
"New Money-Laundering Rules To Go Beyond Banks, Wall Street,"  The Wall Street Journal, April 23, 2002
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