Lawyers Say Disclosure Key to Reducing Year-2000 Liability
An avalanche of legal action related to the year-2000 problem may be headed banks' way, said experts at a conference this week.
Companies that experience year-2000 failures without having properly disclosed their state of readiness may be vulnerable on several fronts, including securities fraud and breach of fiduciary duty lawsuits brought by shareholders or customers.
Directors and officers may be named in the lawsuits, said lawyers at a seminar for financial institutions on year-2000 compliance and liability. The program was co-sponsored by American Banker.
Several bankers said their outside auditors declined to provide year- 2000 guidance for fear of being sued.
Speakers at the conference said that banks may find protection through proper disclosure, documentation, and insurance.
Institutions should document every step of their year-2000 planning and testing, they said, including the failures of their systems to accommodate the date change. Correspondence with vendors should be retained for three to seven years in case bugs develop down the road.
Speakers differed on how much disclosure is necessary. Reed R. Kathrein, a partner in Milberg Weiss Bershad Hynes & Lerach of San Francisco, which has already brought several year-2000 suits, said companies should say exactly where they stand.
"The more you disclose, the better," Mr. Kathrein said.
Carl A. Salisbury, a founding partner of Killian & Salisbury, East Hanover, N.J., recommended that businesses take advantage of attorney- client privilege to protect certain documents from disclosure. …