Expert witness review of derivatives accounting in relation to a prominent global firm’s failure

The bankruptcy of this US-based global investment firm triggered substantial potential losses for a large number of counterparties globally, attracting international media attention.

The US trustee in bankruptcy had to explore all options for securing contributions to the pool of assets available for distribution from potentially liable parties, these included the firm’s management (and their D&I insurers) and auditors. The trustees legal representatives required expert opinions on management decisions on the continued investment in derivatives which ultimately caused the firm to fail, and on the accounting treatment recommended for these derivatives by the firm’s auditors.

Working with the two different law firms pursuing cases against the firm’s management and auditors and in association with a niche US consultancy, we carried out a detailed analysis of the fact patterns underlying the derivatives investments.

Liability issues were potentially different for the management and auditor claims. This meant there were potential divergences between the case arguments being presented by the two law firms, although they had instructed our work jointly.

We navigated these potential conflicts and consequent complexity together with the highly detailed investment patterns and Board and management decision points to provide a clear analysis of the issues suitable for presentation to the law firms and courts.

Our analysis enabled the law firms to understand and articulate the fact patterns relating to the contentious investments sufficiently to present coherent arguments in support of their claims.

These claims were settled out of court by negotiation.