Experience
A selection of our client experience includes:
RMBS Litigations
Residential Mortgage Backed Securities Litigations
Cambridge Finance Partners has been involved in numerous litigations related to issuance of RMBS securities, related underwriting, trustee performance, and investor losses at the collateral and tranche levels. These matters involve private and government actions as well as class actions. Our involvement has been extensive and is ongoing.
Overdraft Fees
Actions Related to Overdraft Charges and Transactions Posting
Cambridge Finance Partners has been involved in a number of overdraft fee litigations and regulatory matters. These data-intensive cases require significant technical expertise as well as knowledge of bank data processing methods. We have the ability to manage vast amounts of customer transaction data, to re-post daily transactions for bank customer accounts, and to estimate the impact of posting order on fees. We have developed the storage and computing capability to apply analytical tools for banks with millions of customers, years of data, and billions of transactions with no limitations due to sampling.
California Energy Crisis
Analysis of Market Manipulation
For two years Cambridge Finance Partners helped Duke Energy respond to allegations arising out of the California energy crisis of 2000 and 2001. The energy crisis was characterized by record prices and rolling blackouts and resulted in the bankruptcy of one of California’s three investor-owned utilities. Power generators and energy marketers were alleged to have caused the crisis by physically and economically withholding energy.
As part of this engagement, CFP analyzed numerous aspects of the Western energy markets including capacity utilization, pricing, and bidding behavior. We worked closely with both Duke and outside counsel to prepare extensive testimony and economic analysis given before the Federal Energy Regulatory Commission, the California Senate, and offices of the State’s Attorney General. At the conclusion of the engagement, lead outside counsel offered this endorsement: "On a matter of extraordinary length and complexity, Cambridge Finance Partners provided our client with outstanding service. Their ability to frame clear and compelling narratives from large amounts of data is impressive. I highly recommend them."
Losses Related to Foreign Currency Hedging
Middlesex Retirement System v. Boston Safe Deposit and Trust Company et al
CFP’s Dr. Noah worked with defendant Mellon Financial Corp. and counsel to analyze losses related to a foreign currency overlay program implemented by a third party manager hired by Middlesex Retirement. We provided daily value calculations for a portfolio of hundreds of bilateral purchased and written foreign currency options contracts. Our analysis included calculation of portfolio sensitivities to market conditions as well as identification of periods of improper trading behavior given basic hedging concepts and written trading guidelines provided to the manager. Our work both measured historical losses as they occurred and allowed our clients to see exactly when improper trading took place. Additionally, we estimated total trading costs and compared these costs to those of a properly implemented hedging program. The case settled prior to trial.
Forward Markets for Energy
Valuation of a Terminated Forward Power Contract
In a dispute between a major power generator and an investor-owned utility, CFP’s Dr. Fenn, working with the law firm of Simpson Thacher, offered testimony regarding the valuation of a large forward power contract that had been lawfully terminated. The difference between the two sides’ valuations was in the tens of millions of dollars.
Over the course of a one week arbitration in Los Angeles, CA, Dr. Fenn testified for nearly a full day before retired federal judge John Martin. Dr. Fenn offered testimony on the distinction between price-takers and market-makers in forward energy markets, the price-impact of large trades, and the relationship between trading activity and price volatility. Following arbitration the parties entered into a confidential settlement.
Risk Management Consulting
Improving Internal and External Communications
Careful communications about a corporation’s financial risk management program can be as important as the design of the program itself. Cambridge Finance Partners worked with a major merchant power generator to better communicate its hedging strategy, internally and externally. For example, we stressed education about the dynamic nature of hedging and the dissemination of relevant performance metrics.
Numerical Analysis for Risk Management
Software for Hedging Simulation, Option Pricing, and Risk Management
Simulation tools are necessary for understanding many problems related to valuation of complex securities, risk management, and hedging. In addition, simulations are often the only way to address intra-portfolio correlations that cannot be captured by closed-form mathematical solutions. We provide a full range of solutions, from programming of mathematical models to development of rich user interface designs that allow managers and attorneys to see how solutions work. We use a range of tools, programming languages and database systems to produce results efficiently and with necessary integration with client data and existing systems.
Executive Life Insurance Company
Complex Business Litigation
CFP’s Dr. Fenn testified on behalf of Credit Lyonnais and the French government in an extraordinarily complex $6 billion lawsuit brought by the losing bidders for U.S. life insurance company Executive Life, which had failed under the weight of its junk bond holdings. Dr. Fenn’s testimony, which drew on his experience as the life insurance industry expert at the Federal Reserve Board, went to the issue of loss causation: Specifically, whether any of the losing bids satisfied then-California Insurance Commissioner John Garamendi’s requirements for protecting policyholders against further losses. On the eve of trial, the parties settled for approximately $600 million.
ICC Dispute
Damages Related to Capital Structure
In an arbitrated dispute before the International Chamber of Commerce, Claimants alleged that an undisclosed tax liability in connection with an acquisition adversely affected their ablity to issue debt, and sought damages related to the use of a “sub-optimal” capital structure. Working on behalf of the Respondents, and for the law firm of White and Case, CFP’s Dr. Fenn analyzed the acquired firm’s debt capacity and the value of issuing additional debt. Dr. Fenn concluded that damages were, at most, equal to 10% the level claimed by Claimant’s expert. Following the submission of several rounds of expert reports, Claimants withdrew their expert.
Enron Securities Litigation
Consulting Experts in Securities Class Action
In one of the largest securities cases in U.S. history, Cambridge Finance Partners provided consulting services to counsel for a top-10 international bank in addition to assisting a testifying expert. This multi-year litigation, with plaintiffs’ total damages claim nearing $50 billion, involved a wide array of finance and economic research efforts. Typical for a 10b(5) securities case, we conducted a day-by-day event study, constructed trading models in order to replicate and critique plaintiffs’ damages claims, and analyzed financial reports, analysts’ reports, stock, bond, and options trading data, and other public information in order to identify curative disclosure events. We developed indices of industry performance that transformed over time along with the firm’s underlying business segments. We constructed bottom-up measures of enterprise value. In addition to these analyses, we assisted counsel in a multi-defendant coordinated defense effort, and we provided analysis and explanation of several financial structures including securitizations, swaps, derivatives, and other complex structures.
Analysis of Claims Trading Order
Dana Corp. Bankruptcy
In proceedings in U.S. Bankruptcy Court in Manhattan, investor Carl Icahn’s effort to assert greater control over Dana Corp. was based, in part, on how a court-issued trading order impacted the market for the company’s debt. Attorneys for Dana Corp. asked Robert Noah of Cambridge Finance Partners to analyze the impact of a Bankruptcy Court issued claims trading order. Leading up to a scheduled hearing in August, 2006, Dr. Noah analyzed tick-by-tick trading in Dana Corp. bonds both before and after the issued trading order. In addition, he performed the same analysis for several comparable firms that had been through bankruptcy under claims trading orders. An agreement between Icahn’s group and Dana Corp. was reached shortly before the scheduled hearing.
Event Study and Valuation Related to Acquisition
Sprint-Nextel Merger
Cambridge Finance Partners assisted counsel for Sprint-Nextel in a matter related to a contractual obligation to acquire Nextel Partners. The purchase obligation was triggered by the Sprint-Nextel merger, and at issue was the purchase price for shares of Nextel Partners not already owned by Sprint-Nextel. While publicly traded, Nextel Partners’ share price was affected by a price-markup provisions of an existing purchase agreement as well as by expectations of acquisition. Cambridge Finance Partners provided event study analysis related to the share price of Nextel Partners and assisted counsel with determination of the impact of expectations of acquisition and the existing purchase agreement on share price.
Long-Term Capital
Long-Term Capital Holdings, et al. v. United States of America
At one time, Long-Term Capital was the largest hedge fund in history with more than $100 billion in assets. Its partners included legendary bond trader John Meriwether, and Nobel Prize-winning economists Robert Merton and Myron Scholes. Following Long-Term’s demise, its partners sued the U.S. government over a substantial tax dispute. Cambridge Finance Partners was retained by the U.S. Department of Justice to provide economics and finance consulting services in this highly publicized matter. CFP assembled a team of experts, including Nobel Prize winner Joseph Stiglitz, and assisted the government attorneys with all aspects of the case. Following a four and one-half week trial, the Court subsequently ruled in favor of the United States.
"Son of Boss" Tax Shelter
Transactions Involving Exotic Options
The "Son of Boss" tax shelter was one of the most widely used tax shelters of the late 1990s. Cambridge Finance Partners was retained by the Department of Justice to provide consulting support, and to support the expert testimony of Stanford finance professor Steven Grenadier, in a case involving two prominent Los Angeles real estate investors. At issue in the case was a package of exotic Asian-style options written against a basket of REIT stocks. The taxpayers claimed that the options were intended to shield them against losses from a second terrorist attack in the wake of the 9/11 attacks.
Following a four-day trial, U.S. District Judge John F. Walter ruled in favor of the U.S., and found that the option transactions had no real economic substance and were simply designed to fabricate tax basis in certain partnerships. Among the factors he cited was Professor Grenadier’s "persuasive" testimony that the option package offered virtually no likelihood of a payoff to investors and that investors dramatically overpaid for the transactions.
This case marked the third time that Cambridge Finance Partners has assisted the Department of Justice with tax shelter cases that have gone to trial. Earlier cases include the widely publicized 2003 trial against the partners of Long-Term Capital. The government has won all three trials.
Corporate Owned Life Insurance (COLI)
Complex Valuation and Risk Analysis
Xcel Energy v. United States of America was slated to become the fifth Corporate Owned Life Insurance (COLI) case to reach trial. Among the hotly contested issues was the pre-tax profitablity and valuation of life insurance policies extending out over 40 years. Finance experts for the taxpayer argued that the policies contributed hundreds of millions in value even absent the contested tax deductions on policy loan interest. Testifying for the United States, CFP’s Dr. Fenn countered that the policies had negative value absent the disputed tax deductions, and that the taxpayer’s experts had employed grossly flawed discount rate and valuation assumptions. CFP also performed complex simulations for Nobel Prize winner Joseph Stiglitz, who testified that there was no aggregate transfer of risk to the life insurance company. The parties settled following the completion of expert and fact discovery.
Currency Hedging and Tax
Procter & Gamble et. al. v. The United States of America
Robert Noah, an expert witness for the United States, was asked to address the purported non-tax business purpose of a series of transactions involving an inter-company transfer payment, pre-payment for goods, and related impacts on risk management and foreign currency hedging. Dr. Noah's analysis addressed valuation, hedging efficiency, hedging costs, and business purpose for transactions related to significant claimed tax reduction. The Court ruled in favor of the United States in summary judgment.