Last week, the U.S. Securities and Exchange Commission filed suit against the Estate of J. David Salinas. Salinas is accused of bilking clients – including a number of prominent college basketball coaches – out of millions of dollars through an alleged Ponzi scheme. Salinas committed suicide in July just days after being interviewed by federal investigators and reportedly left an undated note in which he claimed to be “fully responsible” for the allegedly criminal transactions. The SEC requested that a federal court in Houston freeze the assets of Salinas’ estate. The court granted the SEC’s request.
The court also entered an order prohibiting the defendants in the case from destroying documents related to the questioned transactions. The court’s order highlights a potential area of liability for the executor of the estate of someone accused of unlawful acts.
If a decedent is accused of criminal conduct or acts for which there may be civil liability, then, when marshalling estate assets, the executor should make an effort to collect documents and electronic information potentially relevant to the litigation.
The executor should also quickly act to preserve those documents and electronic information. Litigation does not necessarily need to be ongoing; if a dispute is reasonably foreseeable, then the executor should begin preserving the material. Some categories in which these materials may fall are:
1. Hard copies of documents and files;
2. Electronic data stored on computers (e.g., MS Word, Excel, etc.);
3. Voice mails and electronic messages, including emails sent or received through work and personal email accounts;
4. Data on social networking sites;
5. Data contained in organized databases, such as customer databases; and
6. Any other data (e.g., MP3s, image files, etc.).
If any of the electronic information may be subject to an automatic deletion policy or application, then it is important to take efforts to immediately suspend application of that policy or program until conclusion of the litigation.
If there is reason to believe that criminal or civil litigation is coming, an executor shouldn’t sit around waiting for a court order like the one in the Salinas case to act. There are plenty of cases in which courts have found that a party failed to preserve potentially relevant material even in the absence of a court order.