PraxIS
Nov. 2008
08-11 Contents: Lawyers' mistake,
Lehman's assets, Barclays' court case
ISSN
1649-2374 This issue online at http://www.sysmod.com/praxis/prax0811.htm
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Welcome to PraxIS
One story this month covers IT risk and spreadsheet use.
Patrick O'Beirne
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IT Risk
Barclays plead lawyers' mistake in Lehman purchase
http://abovethelaw.com/2008/10/the_case_for_sleep_what_happen.php
The tabloid blog "Above the Law" on Oct 10 broke the story
about the
mistakes in valuing the Lehmans assets that may cost Barclays dear. The
story has been covered well in the other media, so I'll focus on what
could have been done to prevent or mitigate this risk. And no, it's
nothing to do with a Microsoft bug. I have redacted the names of the
people quoted.
http://abovethelaw.com/Declaration%20of%202nd%20Year%20Cleary%20Associate.pdf
Affadavit by 2nd year associate law clerk
"2. On the
evening of
September 18, 2008, my colleague [..] asked me to
help [..] reformat an Excel spreadsheet and convert it into a PDF
document. A true and correct copy of that spreadsheet, in printed form,
is attached to the Declaration of Eszter Farkas, dated October 9, 2008
(the “Farkas Declaration”), as Exhibit A."
1) Is a print out a "true
and correct" copy of a spreadsheet that has hidden rows? The clerk does
not say. What is truth here?
"3. Some of the rows of
the original Excel spreadsheet were spaced too close together or too
far apart, making it difficult to read when printed or converted to PDF
format. I therefore globally re-sized all the rows in the document to
make it easier to read when printed or converted to PDF format. I also
removed certain columns that I understood were not needed on the final
PDF document."
2) It is not clear whether
the rows were fully hidden or simply of small height. Or hidden by Data
Filter or by manually hiding. But when the
clerk noticed it, it would have been good to query the colleague as to
whether it was intentional that they were not visible, rather
than
unilaterally deciding to make them visible.
"4. I converted the
reformatted spreadsheet into a PDF document [and
sent] both documents at 11:36 p.m."
3) There is a
known risk of mistakes when working late. The partners should have
been aware of that possibility and managed it.
"5. I was not aware that
the original Excel spreadsheet included rows that were hidden from view
or that there were any “N” designations. I also was not aware that
these hidden rows were exposed when I globally re-sized the rows in the
spreadsheet on September 18 or that, once exposed, they would appear
without the original designations."
4) And yet
the clerk was aware that rows were too close together? It is
clear that the significance of the "N" designations was not explained,
but that was not in the clerk's remit, even one with an MBA.
http://abovethelaw.com/Declaration%20of%203rd%20Year%20Cleary%20Associate.pdf
Affadavit by 3rd year associate counsel
"3. At 7:48 p.m. on September 18, 2008, [...] (then of Lehman, now of
Barclays) sent me, via email, an Excel spreadsheet containing the list
of non-IT contracts designated by Barclays as Closing Date
Contracts.[...]"
5) With the instruction to
get it done that night? Client pressure, yes; but then, they were under
pressure too. The person who hid the rows knew what they meant by that.
At what point was that knowledge lost? Did they assume that it was
obvious that the law firm would know they meant to exclude these rows?
Certainly they claim that in their court motion. Before Excel, would
they have crossed out the rows, Tippex'd them out, or prepared a new
clean listing?
"4. I opened the
spreadsheet and saw only “Y,” for “Yes,” in each of the rows in Column
Z, labeled “Critical.”"
6) The first mistake was
the client's, to think that hiding rows was an adequate exclusion
method. When sending a document out, all redundant data should be
removed. Or, if it is important to retain the distinction, to more the
N rows to a second sheet. Did the person who created it and hid the
rows communicate
that fact to the recipients?
"5. [Clerk] sent it to
me, via email, at 11:36 p.m. on September 18, and I sent it, via email,
to be posted to the Website at 11:37 p.m." "6. On October 1, 2008, I
discovered
that, [..] the spreadsheet I received [..] also contained approximately
179 contracts that Barclays [..] had in fact specifically designated
not to be Closing Date Contracts.[..]The hidden rows each contained
“N,” for “No,” in Column Z, labeled “Critical.”"
7) A maximum of
one minute checking time, then. If you delegate work, you have the
responsibility to check it. Spotting 179 differences in 1000 rows is
not that hard. Lawyers always work with paper evidence, so a simple
check would have been to print the excel sheet as received, print the
PDF, and visually compare the pagination. If they
had had to do it by midnight, then at least the largest
numbers could be checked in 15-20 mins. After all, even with the late
submission by the client, counsel had nearly four hours just to look at
it
and convert it to PDF. If the check had been done on Sept 18,
much embarrassment would have been spared.
http://chapter11.epiqsystems.com/lehman Schedules
posted to
web site
http://computerworld.co.nz/news.nsf/mgmt/6F029D457D594675CC2574EC00010F62
"Actually, just
spot-checking the finished list against the original spreadsheet would
have caught the foul-up: 22 of the 70 items on the first page weren't
supposed to be there. (Yes, I counted them myself.)"
http://abajournal.com/news/excel_error_by_a_cleary_gottlieb_associate_alters_lehman_asset_deal1
8) Other commentators have
pointed out that there were no affadavits from the partners, who bear
the responsibility for the work. Many are critical of the way that it
appears the associates have been pillloried. The totals of the
contracts was $75M original, $45 revised. If this was so important to
Barclays that they go to court over it, it would have been important
enough for a partner to manage the process by at least
verifiying whether the counsel had checked the
conversion.
"In the e-discovery
courts, the judges have made clear that the protests of lawyers they
don’t understand “this computer stuff” must be evaluated
under the ethical rules of competency; should we not ask the same of
lawyers handling business deals in the 21st century? "
"I’m not
shocked. Stuff happens. But blaming it on a first
year? Does the firm think that relieves them of
responsibility? Clients are never impressed by that sort of
thing. Back when I was in practice (longer than most profs), if one of
my associates screwed up in a way that required an apology to the
client, I made sure that I told the client that *I* or *we* screwed
up. Minimal excuses, sincere apology, and move quickly to how
we are going to fix (cut hours, etc). I never placed the
blame on associates or staff, but I made sure the associate was there
to watch me eat crow on his/her behalf. Not only was this the right way
to deal with things, but it sent the right messages all
around: To the client, you show integrity and a focus on
fixing problems rather than shifting blame. To the associate,
you teach lessons about owning up to mistakes, duty to clients, that
loyalty runs both ways, and that the buck stops somewhere. "
9) Let's look at the
interface between client and lawyer. Clients should be able
to expect well-paid lawyers to exercise vigilance and help protect the
clients against themselves. As well as their first job which is to
review the substantive content of documents, it should be standard
practice in to review all received files for metadata and hidden data.
It could be hidden text in a Word document, blacked-out text in a PDF,
or file properties in an Office document that reveal identities.
However, lawyers are rather expensive IT reviewers,
so for one's own protection, one should review documents both in
content and form before release. Form includes not just hidden data,
but anything that is not manifestly clear to the parties involved and
could be a source of confusion. Is "Y/N" in column Z a
sufficient indicator, and was its significance made plain?
http://abovethelaw.com/2008/10/the_case_for_sleep_what_happen.php
Comments:
"This rush-job mistake
will be corrected by the court. No one wil get fired. End of story."
"In fairness, this deal
went so quickly that the final purchase agreement was a hand markup
(had to beat market opening). So it really wasn't a "triple-check"
scenario. If this was the only mistake, it's a MIRACLE."
"The
court will fix it and the client won't suffer, but their bonuses and
performance reviews will, and they'll have to deal with a thoroughly
undeserved reputation within the firm that will affect their ability to
get good work. "
"The partner here is
plainly trying to pin it on "mistake" only to minimize his
embarrassment over appealing to "excusable neglect." If I was
the court, I'd deny it, finding that the 1st and 2nd year associates
didn't make a "mistake" -- they did exactly what they intended to do,
which is not a mistake. My last line would invite a motion based on
excusable neglect."
http://abovethelaw.com/Barclays%20Relief%20Motion.pdf
"Barclays
unequivocally designated them as not being Closing Date Contracts by
inserting the letter “N” in the “Critical” column for each of them."
10) I wonder if
"unequivocally" is a correct term if the designation was then hidden?
The key question is, as so often, who knew what when? When was the
information about the significance of the hidden rows and 'Critical'
column lost?
"13.
In light of these exigent circumstances, the error that resulted in the
inclusion of the contracts Barclays did not designate on the list of
Closing Date Contracts is precisely the type of “mistake” or “excusable
neglect” that this Court is authorized to correct under Fed. R. Civ. P.
60(b), which is made applicable to bankruptcy cases by Fed. R. Bankr.
P. 9024. Rule 60(b)(1) authorizes a court to “relieve a party or its
legal representative from a final judgment, order, or proceeding” in
cases of “mistake, inadvertence, surprise, or excusable neglect.”
The judge decides on this
motion on Nov 5.
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Spreadsheets
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FEEDBACK
Simply send your comments to FEEDBACK (at) SYSMOD (dot) COM
Thank you! Patrick O'Beirne,
Editor
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http://www.rifters.com/real/progress.htm
It's November, the month of the dead, so for you fans of hard
science fiction, here is Peter Watts' "Vampire Domestication"
In both Flash and .PDF illustrated transcript.
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