Expert witness review of asset management portfolio accounting and investment decisions in relation to a failed firm’s management.
This was a highly unusual UK criminal prosecution following the imposition of civil penalties on various members of the management of a failed investment firm. The failure led to significant losses for investors.
Following the successful civil case, the prosecuting authority concluded that there was a potential criminal negligence case against certain management.
We were appointed to analyse the fact patterns in relation to management decisions on investment strategy and investment valuation (both for accounting and fund valuation / NAV purposes). In common with English expert witness appointments, we had a duty of care to the court.
While the underlying investments were relatively few, many were back to back derivative instruments with slight differences in maturity dates. Key points of contention were:
– whether the management decisions in relation to these investments (these had become fatally loss making following the financial crisis) could have been rational had the financial crisis not occured; and
– whether decisions to close down these positions post-insolvency had exacerbated the losses, these might otherwise have been far smaller (and therefore suggesting that the original management decisions were less negligent).
We conducted a detailed analysis of the open position portfolio against the actual market movements scenario, and various alternative scenarios reflecting the arguments from the prosecution and defence in relation to the impact of the financial crisis and post-insolvency decisions.
Our analysis was able to demonstrate with clarity the range of outcomes possible across all of the various scenarios and communicate these succinctly and persuasively to the opposing legal teams and court.
Based in part on our analysis, the two legal teams were able to identify the critical legal issues and arguments and determine their respective strategies for the case more clearly. The case was disposed of promptly and without controversy.
