Expert Witness | Derivatives | Leslie Rahl | Peter Niculescu — CMRA
Capital Market Risk Advisors
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Expert Witness and Litigation/Dispute Resolution Services

Your Lifeline in a Risky World

 

Expert Witness, Consulting, and Dispute Resolution Services

CMRA  collaborates extensively with its clients to provide comprehensive litigation support at any stage of a commercial dispute. CMRA can offer early stage insight through pre-litigation support and analysis, but can also step in as seasoned expert witnesses experienced in court testimony, trial preparation, and expert report production. Law firms and corporate legal departments have sought out our services because of our ability to harness CMRA's collective hands-on experience to investigate and deconstruct unique and challenging client problems.  

Our practice is balanced between sharing our expertise with clients who are trying to avoid/solve problems and those who are litigating/investigating problems, making us uniquely qualified to provide advice and testimony.

CMRA's partners and senior professionals have provided expert and consulting services for over 75 disputes and have testified in courts across 4 jurisdictions. The firm's involvement in investigations and disputes encompasses most of the financial meltdowns in the past 25+ years. We have prepared expert reports and/or testified in numerous high profile cases involving complex financial instruments and have participated in several high profile investigations. Explore the full breadth of our litigation support services on this page or contact us to discuss how our experts can help fortify your case.

Leslie Rahl and Peter Niculescu are both recognized as P.R.I.M.E. Finance Experts

P.R.I.M.E. Finance is an institution that was established to assist judicial systems resolve and attain resolutions regarding disputes of complex financial transactions. With the backing of international regulators, P.R.I.M.E. finance asserts a complementary role in the process of reforming financial market regulations.

Selected Expert Witness Testimony and Reports

  • CMRA's seasoned experts leverage decades of direct experience in the capital markets, sterling academic credentials, and the demonstrated ability to navigate successfully the challenges of cross examination and direct testimony to offer expert reports and court testimony, on assessments of both liability and damages. Some of our representative expert witness engagements include:
    • Assisted over 15 clients in the negotiation of derivatives-related bankruptcy claims with the Lehman estate.
    • Served as expert in litigation involving a $20 billion portfolio of Agency CMOs funded through repo, with $1bn in dispute.
    • Provided pivotal expert reports and testimony in Judge's $600 MM+ ruling in Barclays/Devonshire litigation
    • Served as an expert in a $300mm dispute between a hedge fund and bank regarding the valuation of a TRS on a portfolio of loans and bond, as well as additional hedging derivative transactions.
    • Provided expert testimony on the complex commodity derivatives involved in Sumitomo's trading scandal on behalf of a large bank.
    • Provided expert consulting in a $600mm+ CVA/FVA dispute
    • Advised in litigation concerning margin calls and liquidation of exchange traded commodity futures and options
    • Provided expert advice on appropriate risk disclosure related to a variable annuity meltdown
    • Provided an expert report and testimony in a London-based arbitration regarding interpretation of ISDA documents in the Russian debt crisis
    • Served as expert in $1.5B dispute regarding definition of "bankruptcy" and "limited 2 way payment" litigation
    • Advised on valuation in event of default on municipal swap
    • Served as expert on liquidation of 40K OTC derivatives in a 1998 bankruptcy
    • Served as expert in SEC enforcement action based on lack of purported diversification in a fund of fund
    • Provided expert testimony for a large European bank in an arbitration regarding the valuation and profitability of an unusually long-term exotic option
    • Provided an expert report and testimony in a Federal Tax Court regarding a complex derivatives structure
    • Analyzed a complex CLO and provided an expert report in a dealer/investor dispute
    • Served as an expert in multiple TRS litigations, addressing restructuring, damages, collateral calls, and TRS events of default on a bespoke portfolio of loans
    • Served as expert in a monoline CDS litigation
    • Provided expert testimony and analysis in a Federal Court trial regarding FX options
    • Provided valuation and market practice expert report and testimony in Askin/Granite Funds meltdown
    • Served as expert in exotic fx derivatives $1B+ litigation
    • Advised on valuation of ABS/MBS portfolio that was liquidated
    • Provided expert reports, court testimony, and trial preparation services on both liability and damages by seasoned experts with many years of market background as well as academic credentials and testifying experience.

Critique of Opposing Expert Analysis and Assistance with Cross-Examination

  • We partner with our legal clients to identify critical yet sometimes subtle flaws in opposing experts' analysis and to highlight those in depositions or cross-examination.

Review of Pleadings, Depositions, and Other Court Documents

  • We efficiently canvass the wealth of documents filed by either side in a commercial dispute to assess the merits of the case and to track the development of the case.
  • CMRA leverages its capital markets and expert witness experience to assist legal teams with a wide range of big-picture dispute resolution and litigation strategy issues. For example, we have partnered with legal clients to reframe client complaints/counter-complaints, to guide prioritization of case-specific issues, to allocate discovery resources, and to introduce new theories to the case based on the available evidence.

Dispute Resolution/Arbitration/Mediation

  • We advise clients who are pursuing alternatives to litigation, such as arbitration and mediation, and are committed to fair and efficient dispute resolution. Our expertise in litigation matters helps our clients assess the value of alternatives, and to balance the costs and benefits of pre-litigation resolution. We specialize in crisis management, pre-litigation analysis and advice, trial strategy analysis and review by experts with extensive hands on OTC derivatives and structured finance trading, structuring, risk management, valuation, and risk governance experience.
    • Advised sovereign wealth fund on the unwinding of an emerging market fund and redemption valuation of over 100 derivative positions
    • Advised on issues related to losses incurred in short duration bond fund
    • Assisted multiple clients in the negotiation of derivatives values with the Lehman estate
    • Advised bank in
    • Advised several clients to accept Lehman's valuations
    • Advised several clients that we found their suitability complaints unsustainable.
    • Recommended settlement negotiations vs. litigation in several derivatives disputes.

Pre-litigation Analysis of Merits

Review and Advise on ISDA Issues, Disputes, and Market Practice

  • We provide not only risk education, but can also serve as a SWAT team of experienced experts that assists clients by quickly assessing problems, evaluating alternatives and solving problems. We help clients navigate common or unique pitfalls and maximize the value of OTC derivatives, structured finance transactions, and collateral issues in a wide range of situations including: close out under the ISDA master agreement, global portfolio analysis assessment, cross default, valuation benchmarking, and options available with respect to timing and valuation of entire portfolios (including CDOs, CDS, energy, FX, rates), all ISDA transaction types, and complex quantitative and legal risk management assessment.
    • Advised the Buy-Side Risk Managers in the creation of "Risk Practices for Asset Managers", published February 2008.
    • Served as expert witness on operational "Best Practices" for CDS
    • Advised on policies, committee structure and charters, Risk Appetite Statements, and Benchmarking of Board Risk Practices
    • Advised in legal disputes regarding interpretation of 1987, 1992 and 2002 ISDA Master Agreements, providing expert perspective including the practitioner's definition of insolvency and default under ISDA

Assistance and Pre-Trial Discovery, Document Review, and Discovery Strategy

  • Our unique, in-depth knowledge of financial institutional structure, policy, and procedures allows us to provide insightful advice.

Assistance with Witness Preparation

  • Our wealth of experience in the hot seat as witnesses helps us to advise clients on the nuances of witness preparation. We collaborate with clients to review documents that witnesses may be shown and to anticipate difficult questions that witnesses may be confronted with during cross examination.

Investigations and Forensic Reviews

  • In the aftermath of a potential lapse of controls, diagnosing potential causal factors, understanding the impact, and remedying any deficiencies are key to the interatively improving process of risk management. CMRA has been retained to conduct independent investigations and forensic reviews in a number of matters. Although many such matters are confidential, we have also had our work publicly featured in several high profile matters.
    • Retained by the Federal Reserve, SEC, CFTC and NYS Banking Commission to conduct a comprehensive review of Bankers Trust's derivatives business
    • Analyzed the circumstances surrounding margin calls on Orange County’s investment pool (pre-bankruptcy) and blew the whistle (see WSJ article) on what was, at the time, the largest case of insolvency by a municipal entity in American history
    • Experienced in conducting internal investigations and in conducting investigations/reviews for the Federal Reserve, SEC, FINRA, NYSBD, DOL, GAO, etc.

Enforcement Remediation

  • CMRA has been hired as monitor in regards to research-related infractions.
 

While most of our assignments are confidential we are particularly proud of the Devonshire decision below and it is one of the few that we can discuss (went all the way to the Supreme Court)

Barclays Bank PLC v. Devonshire Trust - CMRA helped prevail in $600 mm dispute

Lenczner Slaght, counsel to Devonshire Trust, retained CMRA to determine the valuation of 2 CSOs with stop-loss provisions in the context of the 17-month standstill that took place in the Canadian ABCP market from August 2007 through January 2009.  The extraordinary change in the mark to model value of the transactions that occurred during the standstill as a result of the financial crisis created a unique situation that required expert opinions from a practitioner's point of view on the operation of the waterfall, the impact of the collateral stop loss, who defaulted, as well as complicated and nuanced valuation issues.

CMRA was the sole expert on behalf of Devonshire whereas Barclays had 3 different experts.  CMRA submitted 2 expert reports and rebutted the reports of Barclay's 3 experts.  Leslie Rahl testified for 1 full and 2 half days at trial. Devonshire Trust prevailed, even upon appeal, ultimately recouping a total of roughly $300 mm.

CMRA Commentary on Lehman Default

 
Peter Niculescu, Partner, Capital Market Risk Advisors
 
 
“What Red Adair is to oil and gas exploration, CMRA is to financial engineering.”
— Grant's Interest Rate Observer (August 1994)
 
 

CMRA has been involved in many of the investigations and commercial disputes arising from financial meltdowns in the past 25+ years:

 

Lehman

The [Lehman v. Citigroup] proceeding is being closely watched by the derivatives industry, which has been overhauling the way it manages counterparty risk. There are unresolved questions about whether the market’s shift to using central clearinghouses is effective, said Peter Niculescu, a partner at Capital Market Risk Advisors. The firm advises financial institutions and law firms on issues including the termination of derivatives agreements, and has represented around 15 parties with regards to their Lehman exposure...

- Bloomberg (May 2017)

Askin Capital

"In some ways there is nothing new," said Ms. Rahl, who helped investigate what went wrong at Askin." The big deals are front-page news, then they go into the recesses of people’s memories."

- The New York Times (September 2008)

In the rough-and-tumble of real-life trading, things can quickly get messy. Clearly the interests of the solvent and bankrupt parties are opposite when it comes to valuing contracts for early termination, and not surprisingly it can become contentious. Leslie Rahl, president and founder of Capital Market Risk Advisors, a risk consultancy, said that "there’s almost always a difference of opinion, breakage between the value that someone thinks they’re going to receive and what they do [receive]. Even if you have two [originally] matched trades you’re going to take them off at different prices." In other words, what looked like two sets of perfectly offsetting positions-a perfect hedge-may turn out not to offset once quotes have been obtained and the contracts terminated.

- Journal of Global Markets (Spring 2002)

Long Term Capital Management

Rahl also stressed the importance of qualitative due diligence-"eyeball to eyeball meetings"-as a key component of risk management. Rahl said this simple step is just as important as quantitative research and could have played a role in the prevention of hedge fund blowups such as the Long Term Capital Management fiasco of 1998 that tainted the industry’s reputation.

- HedgeNews (September 2002)

For now, Rahl thinks that basic checks and balances, the operational controls, are key to managing risk. Rahl should know. Rahl’s firm has surveyed major financial institutions around the world about how the Russian crisis and the LTCM problem affected risk management.

- Euromoney (November 1999)

Enron

There is no doubt that the less liquid and more exotic the derivatives position, the more subjective the estimate of value is. Clearly, that was an issue at Enron in some of their positions," said Leslie Rahl, president of Capital Market Risk Advisors Inc., a New York derivatives consulting firm.

-DowJones Newswires (May 2002)

Manhattan Investment Fund

In the wake of problems at Manhattan Investment Fund and at Heartland Advisors and the new SEC guidance on "fair value" pricing for funds, CMRA conducted an NAV/Fair Value Practices survey. Participants included hedge funds, fund of funds, mutual funds and traditional money managers.

- AIMA Newsletter (July 2001)

Russian Ruble Crisis

Trading in the rapidly devaluing ruble came to a screeching halt yesterday, renewing concerns about Russia's ability to manage $40 billion in ruble-denominated debt, roughly 25 percent of which is held by foreign investors… Capital Market Risk Advisors, a New York consulting firm specializing in derivatives, estimates the Russian foreign exchange contracts and currency derivatives of one form or another currently total about $65 billion.

- The New York Times (August 1998)

Barings Bank

The collapse of a British bank [Barings Bank]… at the hands of a rogue trader in Signapore… who lost $1 billion by borrowing money to place high-risk derivatives bets in Japan… Early reports suggest Leeson was a self-contained, independent operator, violating one of the basic rules of risk management, says Leslie Rahl, principal of Capital Markets Risk Advisors, a New York firm that advises clients on derivatives investing programs.
Firms involved in high-risk trading should divide the responsibilities so there are checks and balances, she said. And they should set clear limits on the size and types of trades. Supervisors should get regular reports on what their traders are doing, she said.

- The Philadelphia Inquirer (March 1995)

Subprime/"Quant" Crisis of 2007

The panel was moderated by Leslie Rahl, an MIT graduate and the founder of Capital Market Risk Advisors. Her job is to advise companies on risk and help them understand the products quants invent. But understanding was in short supply in August [2007]. Some of the quants’ financial products had collapsed in price, with unexpected consequences in another financial sector: the trading of equities.
Was subprime the canary in the mine? Leslie Rahl, for instance, cautiously told me in a follow-up email that it is "looking more and more like the answer is yes." Many signs have suggested so, form job losses to a continuing credit drought to a weakening dollar, but that history has not yet been written.

- MIT Technology Review (November/December 2007)

AIG/CDO/CDS Crisis

"People forget that even when there's careful mark-to-market pricing, portfolio valuation does not necessarily reflect the actual price you'll get at execution," said Leslie Rahl, president of Capital Market Risk Advisors in New York. "There can be a huge difference between honest mark-to-market price and execution price."

- Lipper HedgeWorld (June 2007)

"One of the questions people have to ask themselves is, how will these synthetic instruments behave in times of stress?" says Leslie Rahl, a former Citibank risk expert who now runs Capital Market Risk Advisors, a risk consultancy in New York. Normal risk modeling only approximates normal markets-the real test comes in extreme markets. And as Rahl likes to say, "We have a once in a lifetime crisis every three or four years."

- Investment Dealers Digest (May 1995)

Bankers Trust

Gibson Greetings Inc. sued the Bankers Trust Company yesterday, accusing it of "deception, cheating and fraud" in connection with a series of financial transactions known as derivatives...

Many derivatives experts sympathize with Bankers Trust's position. "It's just human nature when a trade goes against you, you find someone to blame," said Leslie Rahl, a partner in Capital Market Risk Advisers, a derivatives consulting firm in New York."

She said a number of other companies posted losses related to derivatives but had not made them public.

- The New York Times (September 1994)

Orange County

Orange County didn’t know how much trouble its investment fund was in until… Leslie Rahl spent four weeks sorting it all out from both coasts last fall… [CMRA] uncovered the shocking $2 billion derivatives loss that forced the county into bankruptcy in December. 

- Forbes (May 1995)

A rescue mission, operating in secret in New York and Santa Ana, had hammered out a plan to restructure the county's topping investment fund and avoid default. Time was critical. The fund was hemorrhaging cash, with loses at 1.5 billion and mounting. To avoid tipping off financial markets about any plans, the team coded its cellular-phone messages: Orange County was "Oscar."

. . . The county hired Capital Market Advisors, a New York consulting firm, , last month to do some sleuthing in the portfolio. At that point, the county simply wanted to find out what the portfolio contained.

What CMRA found far worse than anyone imagined. For years, the fund's manager, County Treasurer Robert L. Citron, had been chalking up high yields by borrowing heavily from Wall Street brokers to buy even more bonds. That worked fine when interest rates were falling, but when rates turned back up this year, losses mounted. Instead of calling it quits, Mr. Citron doubled up.

. . . On Friday, the CMRA consultants contacted every Wall Street firm that had avoided doing business with Mr. Citron to explore the fund's option and negotiate a workout. Four stepped up: J.P. Morgan & Co., Goldman Sachs & Co., Salomon Inc. and Swiss bank Corp. . .

- The Wall Street Journal (December 1994)

 
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