Finance - Finance Scholars Group

Bank Compliance

Breakdowns in management oversight and internal controls, and failures in enterprise-wide risk management programs have become the strategic focal point of many litigation and regulatory actions. In such circumstances, management is under scrutiny to explain and defend their approaches and solutions to complying with internal controls practices, industry standards and regulatory requirements.

The industry and academic experts of Financial Scholars Group have decades of experience working with lawyers, and their clients, on compliance issues relevant to banking litigation. Many of our professionals have prior experience in banking management, banking regulations and operations. Our professionals have consulted or testified on a broad range of compliance issues, including:

Credit and operational risk
Risk quantification and evaluation
Risk mitigation and monitoring frameworks, including policies, procedures and controls
Valuation of risks using derivative financial instruments
Lending practices, including fair lending and HDMA compliance programs
Banking mergers and acquisitions, including impact on regulatory capital requirements

Bankruptcy/Reorganization

The 2007 mortgage crisis triggered a financial crisis that extended beyond financial market participants. Few industries and businesses have proven immune to the impact of the economic crisis. Many businesses were forced to take unprecedented steps to secure their future prospects and subsequently turned to Chapter 11 bankruptcy and other out-of-court restructuring options. And often, the factors that led to their financial demise or the subsequent strategies taken to turn the company around have triggered substantial litigation against corporations, management and trustees.

The professionals at FSG have been retained by lawyers, creditors and trustees to provide litigation advisory and expert testimony services in conjunction with many of the largest bankruptcy-related litigation matters in the U.S. With backgrounds in accounting, finance and economics, our professionals have been retained by counsel to address a variety of issues, such as:

Valuation of/or assessment of deterioration in tangible and intangible assets and asset portfolios, including real estate assets and securitizations
Evaluation of board oversight and procedures
Deepening insolvency
Calculation of termination payments or obligations
Credit/risk analysis
Analysis operating results
Damages analysis
Macro- or micro-economic factors
Assessment of asset/business disposition strategies

Commercial Banking

The industry and academic experts of Financial Scholars Group have decades of experience working with lawyers and their clients, on compliance issues relevant to banking litigation. Many of our professionals have prior experience in banking management, banking regulations and operations. Our professionals have consulted or testified on a broad range of compliance issues, including:

Credit and operational risk
Risk quantification and evaluation
Risk mitigation and monitoring frameworks, including policies, procedures and controls
Valuation of risks using derivative financial instruments
Lending practices, including fair lending and HDMA compliance programs
Banking mergers and acquisitions, including impact on regulatory capital requirements

Corporate Finance

The role of corporate management, officers and directors is to increase the value of the firm while observing applicable laws and corporate responsibilities. The reality is that sometimes these decisions can result in litigation or regulatory investigations. The challenge is that these strategic financial decisions are scrutinized in hindsight. Lawyers and their clients are asked to explain or defend the rationale and financial impact of a variety of corporate finance decisions such as capital-raising efforts, investment decisions, mergers, acquisitions or dissolution and the financial reporting related thereto.

With our experienced finance, economics and accounting professionals nationwide, FSG is a premier consulting and expert testimony solution for lawyers, investors, creditors and lenders seeking to understand the complex, corporate finance issues pertaining to commercial disputes and investigations. We employ MBA’s, CFA’s, CPA’s and PhD’s who specialize in financial and economic valuation matters involving securities and derivatives, intangible assets, intellectual property, ownership interests and business combinations. Our affiliates include Professors of Finance who have published or contributed to leading corporate finance textbooks, and finance, economics and management journals. We have advised on growth, turnaround, risk management, value creation and corporate governance approaches and strategies across a variety of industries. Our professionals include former CFO’s and venture capital professionals who have provided financial management and valuation services to venture capitalists, investment bankers, commercial bankers, boards of directors and senior counsel.

Corporate Governance

Corporate Governance is the vital link between share ownership and representation in the boardroom. It is central to claims of improper practice relating to SOX and ERISA compliance, executive compensation, change of control transactions, insider transactions, related party transactions and numerous other matters.

The topic of corporate governance has received tremendous media attention following the scandals of the past decade and the recent financial crisis. The principles underlying solid corporate governance, however, are not new and are solidly grounded in the theoretical and empirical academic literature. The fundamental concept is inherently simple: corporate governance seeks to align the best interest of owners (shareholders) and managers (executives). The techniques for this alignment include an array of agreements with executives, including employment agreements, change in control agreements, and other incentive agreements. Such agreements must be properly designed to reward value-creating actions, and must include vigilant board oversight as well as internal auditing. Also playing a role in the aligning the best interests of owners and managers are the nation’s laws and regulations, the market for corporate control, external analysts and the stock market itself.

FSG professionals have a proven record of providing valued advice and support to firms in all areas of corporate governance. Our consultants and academic experts have considerable expertise in the economic, financial, accounting, and valuation issues that are crucial to proper corporate governance. They recognize the interrelated nature of corporate governance with other functional areas and specific corporate decisions. For example, claims of improper compensation structures require the coordinated expertise in governance procedures as well as a solid understanding of key financial principles related to compensation.

Executive Compensation

Through our leading affiliates, FSG conducts research and provides advisory services, including expert testimony, in corporate governance and management compensation matters. Our professionals include academics at leading colleges and business schools, and have been published in premier academic journals and business periodicals.

We are retained by lawyers, boards and special committees, including compensation committees, to consult on complex compensation-related matters, including high-profile matters involving the reasonableness of compensation. Our professionals are experts in restricted stock and option agreements, alternative compensation structures, taxes, and stock purchase programs. Our consulting experience extends to equity plan design and interpretation on behalf of individuals and sometimes, classes of individuals, and in regard to performance factors or compensation triggers.

Financial Markets

The reputation of FSG and our consultants was first built on high-stakes litigation matters within the financial markets industry. And in today’s times, with the growing docket of litigation matters involving purchasers and underwriters of troubled real estate assets and securities, and investment losses across a variety of market sectors, FSG in uniquely positioned to advise lawyers, investors, trustees and financial institutions on related litigation matters. With our powerful combination of seasoned litigation consulting experts, industry experts and renowned academics, leading law firms have continually turned to our professionals to advise on some of the most complex, high-dollar financial market disputes and regulatory investigations of the past decades. Our professionals include former large accounting firm partners, Chairmen of finance departments and former officials holding senior positions with the SEC, OCC and FRB.

Within the market, our expertise includes commercial and investment banking, savings and loans, hedge funds, mutual funds and exchanges. We have consulted or testified on a variety of financial market issues involving underwriting, trading, asset pricing, securitization, financing, credit, pricing risk, operating strategies and risk management. Leading lawyers have retained FSG to advise both plaintiffs and defendants’ liability and damages theories including fraud on the market, market efficiency, impact of trades, impact of financial disclosures and deepening insolvency. We have expertise analyzing and mining large datasets and large volumes of documents involving complex transactions in futures, options, government securities, repurchase agreements, CMO’s, CDO’s and other structured products.

Investment Banking

FSG employs and affiliates with a number of ex-investment banking professionals who have held positions at major investment banks, such as Goldman Sachs and Bear Stearns. Accordingly, our experts are intimately familiar with investment banking processes, standards, and analyses involved in many litigation disputes. We can provide accurate and credible analyses and opinions on issues including standards of care, due diligence, underwriting, and conflicts of interest, among others.

Investment Management

Allegations of ponzi schemes, fraud, insider trading, market timing and a host of other offenses have made investment management firms and their employees the targets of increased regulatory scrutiny, criminal investigations, and civil litigation. FSG experts have extensive experience analyzing large volumes of trading data and financial transactions. We understand the regulatory environment within which investment management firms operate, and we can draw upon a multi-disciplined team of consultants to provide expert consulting services on issues such as disclosures, the suitability of investments, asset valuations, and trading models, among others. We have assessed damages and opined on liability issues in a number of mutual fund and other investment management related cases. As always, our analyses and expert opinions on these matters are thoroughly grounded in case facts, sound research and unparalleled industry knowledge and experience.

Mergers and Acquisitions

Financial Scholars Group offers a multi-disciplinary team of consultants to address a wide range of litigation and non-litigation issues related to mergers and acquisitions. Our top-flight economists, accountants, appraisers, valuation professionals, financial markets experts, and investment banking experts can provide sophisticated analyses, sound advice, and credible expert testimony on topics such as:

Acquisition strategies;
Post acquisition disputes;
The competitive effects of a proposed merger; and
The expected accretion of proposed acquisition targets.

Our experts have provided advice, analysis and expert opinions on many sizeable mergers and proposed mergers, including Exxon-Mobil, BP-Arco, Time Warner-EMI, and US Air-United Airlines.

Real Estate Finance

From California to Dubai, the current recession has severely battered the residential and commercial real estate markets. Perhaps more than ever, valuation of mortgage-backed securities, the financial structure of real estate investment trusts, the agency issues associated with real estate financing agreements, and the efficiency of real estate investment markets are taking center stage in litigation matters. FSG’s industry and academic experts are at the forefront of thought leadership in the area of real estate finance. As such, we can provide our clients with sound advice and thorough analysis, and credible testimony in all areas of real estate finance.

Risk Management

In today’s markets, firms must employ sophisticated risk management tools and techniques if they are to optimize their opportunities and minimize the probability and impact of unfortunate events; standardized, “cookie-cutter” models are no longer sufficient. FSG professionals and academic affiliates are thought leaders in the field of risk management. In fact, we’ve written a number of important books and articles on the subject. We have the expertise and experience to proactively develop effective and comprehensive risk management strategies, processes, infrastructure, and controls. Moreover, we are adept at performing ex-ante analysis of risk management tools and techniques to determine whether or not sufficient systems were operational during specific time periods.

Securities and Derivatives

FSG experts and affiliates have deep experience in all areas of state and federal securities litigation and derivative actions. We have been involved in many of the largest matters involving alleged violations of Section 11 of the Securities Act of 1933 and Rule 10(b)(5) of the Securities Exchange Act of 1934. Our extensive knowledge and understanding of the economic, operational, structural and behavioral aspects of the financial markets provides us with the insight and ability to address a broad range of complicated questions in securities-related litigation.

Structured Finance

Financial products, such as mortgaged-backed securities, syndicated loans, collateralized debt obligations and collateralized bond obligations are the backbone of structured finance. These products have been involved in some of the most highly complex and hotly disputed financial transactions in recent times, and they often get blamed for the current economic crisis. Our Finance Practice experts and academic affiliates not only fully understand the complex nature of structured finance products, processes and, inter-dependencies, but we also have significant experience analyzing, evaluating, and valuing them in a litigation setting.

Practice Area Contact: Marc Vellrath, Ph.D., CFA

What We’ve Done

With the growing docket of litigation involving stressed financial institutions, structured securities, troubled real estate assets, and complex financial transactions, FSG is uniquely positioned to assist lawyers, investors, trustees, auditors, insurers, and directors and officers on litigation matters. With our proven combination of consulting experts, industry experts, and academics, law firms have turned to our professionals to advise on some of the most complex, high-dollar financial disputes and regulatory investigations of the past decade.

Illustrative matters include:

In Amaranth v. J.P. Morgan, FSG was retained to analyze risk issues and damages arising form the unwinding of this hedge fund’s massive position in natural gas options and futures in the wake of losses totaling several billion dollars. An FSG academic affiliate testified in deposition on risk-related and damages issues in the fund’s action against its futures commission merchant. Matter is pending.
In Lehman Bros. v. Barclays, FSG was retained by Boies Schiller and Flexner on behalf of Barclays Bank in defense of a $13 billion claim brought by the Lehman Estate and other parties in conjunction with an approximately $50 billion acquisition of the Lehman North American broker dealer business. Of the $5 billion damages sought by the plaintiff, the Judge awarded $0 damages against Barclays and specifically cited the clear and convincing testimony of the FSG expert.
In separate engagements, two FSG experts were retained in the In re: Fannie Mae Securities Litigation on behalf of certain directors and officers of FNMA in conjunction with various class action matters. Trial in this matter is pending.
In SEC v. Mozilo (Countrywide), FSG experts were retained by the SEC to quantify damages and assess certain liability issues in connections with the Commission’s claims of civil fraud and insider trading against Countrywide executives, Angelo Mozilo, David Sambol and Eric Sieracki. The case was settled for approximately $72 million, $67.5 of which was levied against Mr. Mozilo, comprising the largest financial penalty ever assessed against a company’s senior executive.
An FSG Managing Director was hired as an expert for one of the secured lenders and adversary defendants in the Adelphi Communications Corporation Chapter 11 Bankruptcy case. The case entailed the review and analysis of a number of structured financial transactions and the impact that the transactions had on the company’s securities and financial position.
An FSG academic affiliate was retained by the DOJ’s Enron Task force to quantify the harm caused by the “Nigerian Barge” transaction at Enron and testified as to his findings at the criminal trial of Enron executives involved in the transaction
An FSG expert was retained by a banking defendant in the Enron Newby class action case to quantify damages. Our primary task was to analyze the inflationary effect of certain pre-paid transactions on Enron’s stock price and bond prices. FSG developed a model to separate and apportion the inflationary effects due to earnings manipulation from those case flow manipulation.
An FSG Managing Director was retained by the Enron Task Force to assist with financial issues arising in two other Enron criminal proceedings. In one matter, our expert estimated the harm suffered by investors who bought Enron shares at inflated prices after Enron made allegedly false statements about the status of and outlook for Enron Broadband Services. In the other matter, he quantified the financial effects of the alleged fraudulent conduct of Jeffrey Skilling for consideration by the court in determining Mr. Skilling’s sentence under applicable federal sentencing guidelines.
FSG economists and academic affiliates have conducted a series of investigations of distressed and failed savings and loan associations for the U.S. Department of Justice, related to “supervisory goodwill” cases arising form the passage of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Most recently, two academic affiliates testified at trial in the “Carteret Savings’ matter. One affiliate testified on the damages caused by the government’s change in goodwill accounting rules, while the other testified as to whether Carteret would have been able to raise sufficient capital to avoid closure, but for the change in those rules.