Finance

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 FSG 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

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 FSG 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 dissolutions 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 MBAs, CFAs, CPAs and PhDs 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 CFOs 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, CMOs, CDOS 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

FSG 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. FSG’s Finance Practice experts and academic affiliates not only fully understand the complex nature of structured finance products, processes and, interdependencies, but we also have significant experience analyzing, evaluating, and valuing them in a litigation setting.

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 transations 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.

Jeffrey S. Andrien
President
MBA, McCombs School of Business, University of Texas – Austin

Jeffrey S. Armstrong
Principal
Ph.D. in Economics, University of California – Los Angeles

Jason Bass
Affiliate and Principal, Resort Advisory Group International
CFA, M.Sc. in Resource Economics, University of California – Davis

M. Cary Collins
Trustee Professor of Entrepreneurship, Associate Professor, Finance, Bryant University
Ph.D., Finance, University of Georgia

Elizabeth Kroger Davis
Managing Director, Former Large Accounting Firm Partner
CPA, CGMA, MBA in Finance, Booth School of Business, University of Chicago

Kenneth B. Dunn
Professor of Financial Economics, Tepper School of Business, Carnegie Mellon University
Ph.D. in Industrial Administration, Purdue University

Jay Hartzell
Chair of Department of Finance, Executive Director of McCombs Real Estate Finance and Investment, Center McCombs School of Business, University of Texas – Austin
Ph.D. in Finance, McCombs School of Business, University of Texas – Austin

Alan C. Hess
Professor of Finance and Business Economics, Foster School of Business, University of Washington
Ph.D. in Economics, Carnegie Mellon University

Adrian P. Kingshott
Affiliate and CEO of Adson, LLC
MBA in Finance, Harvard Business School

Hilary Kramer
Affiliate and Stock Market Analyst, Author and Commentator on PBS Nightly Business Report
MBA, Wharton School of Business, University of Pennsylvania

Keiichi Kubota
Professor of Finance and Management Accounting, Graduate School of Strategic Management, Chuo University
Ph.D. in Economics, Osaka University

Michael LaCour-Little
Professor of Finance, California State University – Fullerton
Ph.D. in Business Administration, University of Wisconsin – Madison

Terry Lloyd
Managing Director
CPA, CFA, MBA in Finance, David Eccles School of Business, University of Utah

John J. Lynch
Affiliate, Former Large Accounting Firm Audit Partner
CPA

Joe Moravy
Managing Director and Former Large Accounting Firm Audit Partner
CPA, MBA in Accounting, Ross School of Business, University of Michigan

Peter J. Nigro
Sarkisian Chair in Financial Service, Bryant University
Ph.D., Economics, Boston College

Paul Pfleiderer
C.O.G. Miller Distinguished Professor of Finance, Stanford University
Ph.D., Economics, Yale University

Bruce C. Pollock
Affiliate
J.D., Boalt Hall School of Law, University of California at Berkeley

Ramesh K.S. Rao
Professor of Finance, McCombs School of Business, University of Texas – Austin
D.B.A. in Finance, Indiana University

Joshua Ronen
Professor of Accounting, Stern School of Business, New York University
Ph.D. in Business Administration, Stanford University

Michael A. Sadler
Senior Lecturer in Economics, Department of Economics, University of Texas – Austin
Ph.D. in Economics, University of Texas – Austin

Atulya Sarin
Professor, Finance, Leavey School of Business, Santa Clara University

Ronald H. Schmidt
Affiliate
AVA, Ph.D. in Economics, University of Wisconsin – Madison

Prateek V. Shah
Principal
MPA, McCombs School of Business, University of Texas – Austin

Chester Spatt
Professor of Finance, Director of the Center for Financial Markets, Tepper School of Business, Carnegie Mellon University
Ph.D. in Economics, University of Pennsylvania

Gary W. Stahlberg
Principal
MBA, Graduate School of Business, Columbia University
MBA, Haas School of Business, University of California – Berkeley

Richard H. Stanton
Professor of Finance, Former Chair of Finance Group, Haas School of Business, University of California – Berkeley
Ph.D. in Finance, Stanford University

Sheridan Titman
Professor of Finance, Executive Director, Energy Management and Information Center, McCombs School of Business, University of Texas – Austin
Ph.D. in Economics, Carnegie Mellon University

Marc Vellrath
Chairman and Chief Executive Officer
Ph.D. in Economics, Carnegie Mellon University

Torben Voetmann
Managing Director
Ph.D. in Finance, Copenhagen Business School

Ralph A. Walkling
Professor of Finance, Executive Director for Corporate Governance, Lebow College of Business, Drexel University
Ph.D. in Finance, University of Maryland

James Walling
Affiliate and Founding Principal, Accretive Strategies Consulting Group LLC
CFA, MBA, Leavey School of Business, Santa Clara University

Lawrence P. Weiner
Affiliate and Fixed Income Specialist
M.S., Industrial Administration (MBA), Carnegie Mellon University

James A. Wilcox
Professor of Finance, Haas School of Business, University of California – Berkeley
Ph.D. in Economics, Northwestern University

Karen H. Wruck
Associate Dean, Professor of Finance, Fisher College of Business, Ohio State University
Ph.D. in Finance, Accounting and Economics, University of Rochester

FSG Helps the IRS Win Important Tax Shelter “Test Case”

The Internal Revenue Service recently won a high-profile tax shelter case involving a complex Structured Trust Advantaged Repackaged Securities (STARS) transaction between the Bank of New York (BoNY) and Barclays Bank.  FSG provided consulting assistance and expert testimony in deposition and at trial on behalf of the IRS related to finance and banking issues in the case.  Among other things, FSG’s expert showed that the loan’s pricing did not reflect the risk inherent in the transaction and more generally that the loan fundamentally deviated from attributes of a standard business transaction.

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FSG Managing Director Torben Voetmann Presenting at The Bar Association of San Francisco

FSG Managing Director Torben Voetmann is speaking at The Bar Association of San Francisco on May 29, 2013 from 12:00pm to 1:30pm.  The presentation is “Securities Litigation Trends Impacting Expert Analysis and Testimony.”  Topics include damage theories and analysis, recent cases and developments and forecast of emerging issues.

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FSG Chairman and CEO, Marc Vellrath prepares expert reports related to the Deepwater Horizon oil spill for Halliburton

FSG Chairman and CEO Marc Vellrath recently prepared reports analyzing two settlements between BP and various plaintiffs related to economic and property damages caused by the Deepwater Horizon oil spill and effects of the oil spill on the health of cleanup workers and Gulf region residents. Vellrath concluded, among other things, that the proposed economic and property damages settlement class is “sprawling and inherently fragmented,” comprising “an arbitrary aggregation of potential claimants with very different circumstances, very different claims, very different interests, and very different kinds of injuries.” Vellrath also concluded that payments to claimants under the proposed settlements are not reasonably related to injury suffered and that the alleged losses and medical conditions addressed by the settlements were not clearly caused by the Deepwater Horizon spill. Vellrath was assisted by FSG Managing Directors Jeff Andrien, Elizabeth Davis, and Mark Glueck and FSG Principal Gary Stahlberg and other members of the FSG consulting staff. Halliburton Energy Services, Inc., filed objections to the proposed settlements, relying in part on Vellrath’s reports.

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Consulting firm FSG doubles expert roster, strengthening its Economics, Accounting and Finance practices nationwide

 Company opens its fifth office, in Washington DC, led by recognized antitrust economists

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FSG Affiliate, Chester Spatt, chosen as member of Systematic Risk Council

Chester Spatt, an FSG Affiliate, has been chosen as a member of the Systematic Risk Council (SRC).  To read more about this recent appointment, click below:

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FSG Affiliate, Chester Spatt, named to the Federal Reserve Board’s new Model Validation Council

Chester Spatt, an FSG affiliate, has been named to the Federal Reserve Board’s new Model Validation Council.  This board will provide the Federal Reserve with expert and independent advice on its process to rigorously assess the models used in stress tests of banking institutions.

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FSG Chairman and CEO, Marc Vellrath, offers his opinion on economic research funding

Marc Vellrath, FSG Chairman and CEO, offers his opinion in The Wall Street Journal letter, “Economist Subsides Make No Sense, Especially Now.”

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FSG expands capabilities in consumer protection

Company grows roster of fair lending & compliance, credit risk & scoring and regulatory compliance experts

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FSG Academic Affiliate, Sheridan Titman, speaks at UT

UT Academics Talk About Effects of Gulf Oil Spill.

In an auditorium of the University of Texas’ West Pickle Research Building on Tuesday, May 18 , about 650 miles from the site of an oil spill endangering coastal shores on the Gulf of Mexico, some of the university’s petroleum engineering, public policy and legal scholars convened to talk about the implications of the spill.

The forum, called “Oil in Troubled Waters,” included panelists who touched on the future of deep-water drilling, the environmental consequences for the Gulf and liability issues for the companies involved in the spill.

The April 20 explosion of the Deepwater Horizon oil rig and its aftermath demonstrated how systems with safety redundancies can still fail, revealing the complexity of drilling operations and the intense pressure under which such operations take place, said Tad Patzek and Paul Bommer , who teach petroleum engineering.

“Bigger systems are essentially different than smaller ones, but we tend to ignore this profound truth,” Patzek said. One of the first attempts to stop the leak — using a box to contain the oil, which was unsuccessful — was a further example of “engineering under stress, to get things done and delivered,” he said.

Sheridan Titman, a finance professor at UT’s McCombs School of Business, said stock dips over the past month suggest the market is punishing deep-water drilling, rather than oil companies in general. He said stocks of BP, whose rig is involved in the spill, and Petrobras, which also has major deep-water drilling operations, have dived recently.

But, Titman said, “I don’t think we’re going to decide we don’t permanently want to drill in deep water.  “By drilling in the Gulf, we’re limiting the monopoly power of (the Organization of Petroleum Exporting Countries), and there are economic reasons to do so,” he said.

Among other environmental issues, the oil spill is putting attention on the delicate nature of the Louisiana wetlands. Should the spill infiltrate them, it could hasten the decades-long deterioration of a region that serves as a nursery for wildlife. “We’re tending to deconstruct wetlands, not construct them,” said Charles Groat , a professor at UT’s Jackson School of Geosciences.

Source: American-Statesman, May 18, 2010.

FSG Affiliate, Chester Spatt, Addresses Senate Subcommittee Hearing

FSG Affiliate, Chester Spatt, addresses Senate subcommittee hearing on “Derivatives Clearinghouses: Opportunities and Challenges.”

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FSG Affiliate, Paul Pfleiderer, supported by FSG Managing Directors, Marc Vellrath and Elizabeth Davis, Praised by Bankruptcy Court in Barclays/Lehman Dispute

NEW YORK, New York – Monday, February 28, 2011

FOR IMMEDIATE RELEASE Media Contact: Jeff Andrien 512-703-4600

Court issues its decisions regarding $13 billion in claims by Lehman arising from Barclays’ September 2008 acquisition of Lehman’s North American broker-dealer business

The U.S. Bankruptcy Court overseeing the acquisition of the North American businesses of Lehman Brothers, Inc. (“Lehman”) by Barclays Capital, Inc. (“Barclays”) issued a long-awaited order that presents a number of the Court’s major decisions in the $13 billion dollar dispute pertaining to Barclays’s acquisition of Lehman’s broker-dealer business during the height of the 2008 financial crisis. Plaintiffs had sought relief from defendant Barclays for multiple causes of action, including a claim that Barclays had inappropriately received a $5 billion “windfall” on the fair value of the financial assets by acquiring them at an allegedly undisclosed discount from Lehman’s valuations. Professionals at FSG, a national financial and economic consulting firm, were retained by Barclays’ counsel, Boies Schiller & Flexner (“BSF”), to provide analytical, litigation, and trial support and testimony on the matter. Writing for the Court, Judge James M. Peck highlighted the effectiveness of expert witness testimony offered by FSG Affiliate Paul Pfleiderer, C.O.G. Miller Distinguished Professor of Finance at Stanford University’s Graduate School of Business. Professor Pfleiderer and the FSG team investigated a broad array of issues relating to Barclays’ accounting treatment of the acquisition and the valuation of the assets acquired from Lehman.

The Court found that Professor Pfleiderer’s testimony “tied together all of the evidence relating to valuation in a most persuasive and comprehensive manner.” Lauding Professor Pfleiderer as “an especially credible witness,” the Court “found his testimony to be most helpful” in evaluating a primary accusation leveled against Barclays by Lehman. As the Court wrote:

“Largely on the strength of the testimony of Professor Paul Pfleiderer, who was the final witness for Barclays and who testified for two days, Barclays was able to convincingly establish its defense to the allegation that it obtained a windfall in connection with the acquisition.”

In discussing the bases for his findings, Judge Peck specifically highlighted the compelling scrutiny of Lehman’s expert witnesses by counsel for Barclays, noting that several Lehman witnesses on valuation issues were “effectively challenged on cross-examination.” The Court concluded that their opinions were “not convincing,” citing a successful effort on the part of Barclays’ counsel to “challenge the methods used and conclusions reached” by Lehman’s experts.

Significantly, of the $5 billion alleged “windfall” on the fair value of financial assets acquired by Barclays, Judge Peck awarded the Plaintiffs $0 damages.

The full text of Judge Peck’s decision is available through the website of the United States Bankruptcy Court for the Southern District of New York.

FSG Affiliate, Ralph Walkling, authors article for Journal of Financial and Quantitative Analysis on the recently passed Say-on-Pay Bill

Ralph Walkling, an FSG Affiliate, has co-authored the article, “Shareholders’ Say on Pay: Does it Create Value?” for the Journal of Financial and Quantitative Analysis.  This article looks at the recently proposed Say-on-Pay Bill which gives shareholders a say (vote) on executive pay.  This article finds that when the House passes the Say-on-Pay Bill, the market reaction was significantly positive for firms with high abnormal CEO compensation, with low pay-for-performance sensitivity, and responsive to shareholder pressure.  However, activist sponsored say-on-pay proposals target large firms, not those with excessive CEO pay, poor governance, or poor performance.  The market reacts negatively to labor sponsored proposal announcements and positively when these proposals are defeated.

The findings suggest that say-on-pay creates value for companies with inefficient compensation, but can destroy value for others.

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FSG Affiliate, Ralph Walkling, quoted in the Wall Street Journal Article, “A New Target at Yahoo”

Ralph Walking, an affiliate at the firm, was quoted in the Wall Street Journal article, “A New Target at Yahoo,” as a corporate-governance expert.  Walkling commented on the discontentment and disapproval of Yahoo Chairman Roy Bostock.  He states that recent actions by Mr. Bostock “appear to be too little too late.”

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FSG Experts Assist in High Profile Church-State Dispute

FSG financial experts are assisting a San Francisco-Bay Area church in its high profile dispute with a local municipality over zoning restrictions.  The lawsuit, which was described on page one of the Wall Street Journal, alleges that San Leandro’s denial of a zoning waiver violated the rights of Faith Fellowship Foursquare Church.  The FSG team has calculated the financial impact of the alleged denial, focusing primarily on the number of congregants the church would have gained in a larger facility.  Final resolution of the matter is still pending.

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Results of a FSG Study Highlight Economic Options for City with Pension Woes

Results from a study by FSG’s President, Jeff Andrien and Academic Affiliate, Chester Spatt, was released Friday, September 24^th.  FSG won a bid to review and analyze ways for Pittsburgh to monetize their parking assets when the State of Pennsylvania ordered the city to bring its pension into 50% solvency by the end of 200.

Mr. Peduto, a city council member, noted ahead of the report release that the FSG study will be council’s baseline for making decisions.  “First and foremost, it will be independent of anybody who has an interest in the deal,” he said.  “It will be an expert opinion.”

FSG’s study considers various options, including the mayor’s proposal of a long-term lease of the assets to a private company; the outright sale of parking facilities; privatizing the Pittsburgh Parking Authority with revenue sharing; transferring the parking assets to the pension funds; and issuing bonds.

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Finance Scholars Group sought by Pittsburgh city council to complete parking monetization study.  Results will inform one of the most important votes in the lifetime of council.

September 20, 2010 Update: Pittsburgh receives offer in excess of $450 million to run the city’s parking meters and garages, exceeding expectations and solving the city’s pension woes.

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