Financial fraud and breach of contract analysis

Overview
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Our experts have worked on numerous high profile financial fraud and breach of contract cases analyzing issues of foreseeability, causation, materiality, damages, and apportionment. Our case work has involved allegations of aiding and abetting, breach of contract, misrepresentation, and fraudulent inducement. We have developed financial and econometric models to quantify the impact of alleged accounting and financial fraud to assess and apportion associated damages. We also have estimated damages and evaluated damage claims resulting from alleged breaches of contract in complex litigation cases. Our engagement work integrates key causal mechanisms, valid measures of harm, and defendable apportionment concepts into a cohesive framework to assist in the successful resolution of high-stakes, complex litigation. 

Financial Fraud

  • In the matter Federal Home Loan Mortgage Corp. v. Deloitte & Touche LLP, served as testifying expert on behalf of Freddie Mac in its dispute with Deloitte & Touche LLP (Deloitte) over improperly performed audits on Taylor Bean & Whitaker Mortgage Corporation (TBW). Freddie Mac alleged that, as a result of these audits and Deloitte’s failure to detect that TBW’s financial condition was fraudulently represented, Deloitte was responsible for the losses Freddie Mac sustained from loans purchased from TBW. Freddie Mac further claimed that many of these loans were in breach of the representations and warranties TBW made to Freddie Mac and, as a result of TBW’s collapse, it was unable to fulfill its repurchase obligations associated with those loans. Estimated damages to compensate Freddie Mac for all losses due to its purchase or guarantee of TBW loans, and for TBW’s failure to repurchase loans that breached the associated representations and warranties. The parties agreed to a settlement.
  • In Ambac v. EMC, served as testifying expert on behalf of Ambac Assurance Corporation (Ambac) in a dispute with JPMorgan Chase over residential mortgage-backed securities (RMBS). Ambac alleged that 11 RMBS sponsored by EMC Mortgage LLC (EMC), a subsidiary of JPMorgan Chase, were knowingly securitized with defective mortgage loans. Estimated damages to Ambac caused by insuring EMC-sponsored RMBS. Reconstructed the payment waterfalls and forecasted future loan performance to create a “but-for” model in which EMC bought back all significantly defective loans. JPMorgan Chase agreed to a $995 million settlement.
  • Retained in litigation matters involving extensive accounting and financial fraud by executives at a top-ten cable company. As testifying and consulting experts, Bates White evaluated claims that certain financial institutions aided and abetted breach of fiduciary responsibility and accounting fraud committed by company insiders. Assessed and measured potential damages related to the aiding and abetting claims, and also apportioned damages between various types of wrong-doing. Evaluated complicated issues of causality and foreseeability.
  • On behalf of the unsecured creditors committee of a multibillion dollar, multinational debtor operating under Chapter 11, assessed damages attributable to defendants’ aiding and abetting a breach of fiduciary duty by debtor insiders. Conducted forensic analysis of debtor transaction records. Adjusted transaction records to restate debtor’s reported revenues, debt, and cash flows consistent with the economic substance of subject transactions. Quantified damages associated with the destruction of debtor equity value. Computed as-is and but-for profitability, coverage, leverage, and cash flow ratios to determine the effect of as-is financial reporting on debtor’s credit rating, established causal link between defendants’ actions and damages sustained by the plaintiff, and apportioned damages amongst defendants.
  • Evaluated whether compensation paid to the management of a publishing firm charged with breach of fiduciary duty was reasonable given the historical financial performance of the company and its industry peers. Performed event studies to assess the impact on the company’s stock price of disclosures of management’s strategic initiatives, buyout, resignation, and related litigation.

Breach of Contract Analysis

  • Testified as the damages expert on behalf of plaintiffs in Mastr Adjustable Rate Mortgages Trust 2006-OA2 v. UBS Real Estate Securities, a residential mortgage-backed securities (RMBS) matter. Calculated damages suffered by trusts or certificate holders as a result of UBS’s alleged failure to repurchase mortgages that breached the representations and warranties.
  • In the matter United States v. Wells Fargo Bank, served as testifying expert on behalf of the Department of Justice in connection with allegations that Wells Fargo defrauded the Federal Housing Administration (FHA) on loans that Wells Fargo underwrote and submitted for FHA endorsement. Determined damages arising from insurance claims on loans that allegedly failed to meet FHA-mandated underwriting guidelines. Wells Fargo agreed to a $1.2 billion settlement.
  • Retained as a testifying expert by multiple financial institutions in disputes over the quality of mortgages pooled into various mortgage-backed securities. Providing statistical analysis to estimate the fraction of mortgage loans in the securitized pools that failed to meet the originator’s stated guidelines. Analyzing the underlying risk of the pools and securities, examining loss causation issues, and estimating current damages and future losses.
  • Submitted an expert report in state court on damages alleged to have been caused by various employees leaving one corporation for a competitor. Estimated potential damages after controlling for appropriate business and economic factors and analyzed issues related to economic causation.
  • Submitted an expert report on and provided testimony about consequential damages resulting from the failure of the market for Auction Rate Securities (ARS). Analyzed the investment opportunities for a corporation that had invested most of its financial assets in ARS marketed as a means for investors to gain the traditionally higher returns of asset-backed securities while preserving the liquidity of cash. When the ARS market failed in 2008, the corporation was unable to convert their ARS securities to cash for business development purposes. Testimony analyzed the effect of this unexpected loss of liquidity on investment opportunities and developed a discounted cash flow (DCF) model to estimate the damage associated with the loss in liquidity.
  • Submitted expert reports for and provided expert testimony on behalf of an insurance company in a dispute between the company and its auditor. Analyzed the company’s subprime commercial lending portfolio and estimated losses on various high–risk loans. Developed damage calculations pursuant to two damage theories: one related to losses on a specific set of loans and a second related to losses on the entire portfolio of borrowing and investments.