Kelli Moll and Richard Rabin Discuss Electronic Communications and Privacy Rights for Employees of Hedge Fund Managers
Kelli Moll and Richard Rabin, partners in Akin Gump’s investment management and labor and employment practices, respectively, are quoted in The Hedge Fund Law Report article “How Can Hedge Fund Managers Reconcile Effective Monitoring of Electronic Communications with Employees’ Privacy Rights?” The article, the first in a three-part series, looks at the compliance challenges for hedge fund managers raised by electronic communications and the best practices for surmounting those challenges.
Moll points out that the Investment Advisers Act of 1940 requires the maintenance of “certain books and records and, in particular, information about advice you are rendering to client accounts, such as hedge funds and managed accounts.” This includes emails, she adds, which are “part of the records that advisers maintain to satisfy requirements under the Advisers Act.” Managers’ confidential obligations, Moll says, are routinely included in “non-disclosure agreements or confidentiality agreements on prospective target companies being researched by investment professionals.”
In a discussion of when hedge fund managers might monitor or archive electronic communications, Rabin says they “generally aren’t out there affirmatively looking for potential harassing situations. Rather, they have rigorous policies for prohibiting harassment, discrimination and retaliation, and offer training on these issues as well.” He adds that firms have internal compliance procedures in place and will investigate complaints they receive, which “could include reviewing e-mails or other documents.”
The second article, “Three Best Practices for Reconciling the Often Conflicting Sources of Privacy Rights of Hedge Fund Manager Employees,” looks at the primary sources of employee privacy rights and offers some best practices for reconciling these often conflicting sources.
Rabin notes that conflicts do arise “where a federal law will say one thing and the state law will say another.” California, for example, took up legislation on a password protection law to which the Financial Industry Regulatory Authority (FINRA) objected, but the law was still ultimately passed.
Moll says there is a “real tension” regarding the prohibition of “personal devices to conduct firm business and a related obligation to monitor compliance with the policy, but at the same time a law prohibiting access to personal devices.”
Regarding federal law, Rabin says hedge fund managers should be cognizant of the National Labor Relations Act and the rights granted under it to non-supervisory employees who use social media for “concerted protected activities.” He suggests managers should always “ensure their compliance with the Advisers Act first, and then turn to other state and federal statutes.”
The series concludes in the third article, “Six Privacy-Related Topics to Be Covered by a Hedge Fund Manager’s Compliance Policies and Procedures.”
Rabin offers a compromise solution for those who favor banning the use of personal computers for business purposes and those who want unlimited access. Among other things, he says managers “should make clear that such devices are subject to inspection and monitoring” and they should clarify “that employees have no expectation of privacy in personal devices to the extent they are used for business purposes.”
Regarding mobile devices, Moll notes that recordkeeping remains more challenging than on desktop computers or laptops as there is typically “no way to capture e-mail records or other documents generated on a personal device,” which is often required by law.
Rabin also discusses password protection on devices, commenting that firms could not permit employees to “put in passwords to prevent their employer from accessing their device,” and the monitoring of electronic communication, which he says is permissible assuming “a firm’s searches, reviews and inspections logically flow from its obligations under the Advisers Act or other applicable law.”