Litigation, Regulation and Arbitration Expert Practice

The litigation, regulation and arbitration expert practice provides advisory services including internal investigations, expert analysis, as well as deposition and testimony on loss causation, industry customs and practices, generally accepted market conventions, economic damages related to market structure, financial institutions governance, and complex issues related to finance, economics and market standards and practices within securities, derivatives, reinsurance, and commodities markets, in addition to market structure across a diverse range of non-financial industry sectors.

Zero Damages: Court of Claims Agrees with Testimony of David K.A. Mordecai in Rejecting Hank Greenberg’s $40 Billion Damage Claim in AIG Financial Rescue Litigation

Zero Damages: Court of Claims Agrees with Testimony of David K.A. Mordecai in Rejecting Hank Greenberg’s $40 Billion Damage Claim in AIG Financial Rescue (Starr International v. United States) Litigation

In one of the largest and most closely watched cases arising from the global financial crisis, Maurice “Hank” Greenberg and Starr International challenged the United States Government’s financial rescue of American International Group, Inc. (“AIG”) that began in September 2008 (Starr International Company, Inc. v. The United States).

The plaintiffs, represented by David Boies, Chairman of Boies, Shiller & Flexnor LLP, asserted both Fifth Amendment taking and illegal exaction claims on behalf of two classes of AIG shareholders:

  • Credit Agreement Class comprised of AIG shareholders who held common stock during September 16-22, 2008 when the Government received the right to 79.9 percent ownership of AIG in exchange for an $85 billion loan; and
  • Reverse Stock Split Class comprised of AIG shareholders who held common stock on June 30, 2009 when the board of AIG proposed a twenty-for-one reverse stock split that reduced the number of AIG’s issued shares, but left the number of authorized shares unchanged. Plaintiffs sought approximately $40 billion in damages ($35.4 billion for the Credit Agreement Class and $4.7 billion for the Reverse Stock Split Class).

The Court found for Plaintiffs on their illegal exaction claim, however concluded that AIG shareholders were not damaged because AIG would have filed for bankruptcy but for the Government’s intervention, leaving AIG shareholders with worthless shares. The Court denied Starr’s reverse stock split claim in its entirety, concluding that the motivation for the split was to ensure the continued listing of AIG stock on the New York Stock Exchange, and that contrary to plaintiffs’ claim, there was no evidence that the reverse stock split was designed to allow the Government’s preferred shares to be exchanged for common shares.

David K.A. Mordecai, President of Risk Economics, and NYU Courant Institute of Mathematical Sciences Visiting Scholar and Adjunct Professor submitted an expert report on behalf of the Government in April 2014, testified at deposition in June 2014, and again at trial in U.S. Federal Claims Court in November 2014.

The Court accepted Dr. Mordecai as an expert in “financial economics, fixed income and credit markets, credit default swap markets, and distressed lending.” Dr. Mordecai was the damages expert for the Government.

At trial, Dr. Mordecai summarized his testimony into four primary points:

  • First, he provided an opinion on the initial rescue, asserting that it “did not result in an economic loss to AIG’s shareholders.”
  • Second, Dr. Mordecai addressed the need for the Government to obtain an equity component in AIG. Dr. Mordecai opined that “[w]ithout the equity component, the Revolving Credit Facility (“RCF”) [would] not [have] provide[d] a return to adequately compensate for the significant risk of lending to AIG.”
  • In his third opinion, he critiqued as economically irrelevant and flawed, Dr. Cragg’s attempts to compare the AIG rescue to other government interventions.
  • Finally, he critiqued Dr. Kothari’s estimate of the alleged harm suffered by both the Credit Agreement Class and the Reverse Stock Split Class as being fundamentally flawed. According to Dr. Mordecai, Dr. Kothari’s estimates of the alleged harm suffered by both classes was flawed because share dilution does not equal economic loss, Dr. Kothari ignored that AIG’s stock price actually increased as a result of the initial rescue, and Dr. Kothari did not estimate a value for the losses to shareholders

Dr. Mordecai opined, among other things, that AIG’s shareholders did not suffer an economic loss from the Government’s rescue and that Plaintiffs’ expert’s damage calculations were fundamentally flawed because AIG’s stock price actually increased as a result of the rescue. He also opined that, based on a study of large bankruptcies, it was unlikely that AIG’s shareholders would recover anything if the company had filed for bankruptcy protection.

Dr. Mordecai’s study was cited prominently by Federal Court of Claims Judge Thomas C. Wheeler in his decision, concluding that zero damages should be awarded to Plaintiffs despite prevailing on their illegal exaction claim: “In the end, the Achilles’ heel of Starr’s case is that, if not for the Government’s intervention, AIG would have filed for bankruptcy. In a bankruptcy proceeding, AIG’s shareholders would most likely have lost 100 percent of their stock value. DX 2615 (Dr. Mordecai’s) chart showed that equity claimants typically have recovered zero in large U.S. bankruptcies).”

Zero Damages: Court of Claims Agrees with Testimony of David K.A. Mordecai in Rejecting Hank Greenberg’s $40 Billion Damage Claim in AIG Financial Rescue Litigation

Dr. Mordecai worked closely with a team of attorneys at the United States Department of Justice including Kenneth Dintzer, Scott Austin, Brian Mizoguchi, John Roberson, Mariana Acevedo, Renee Gerber and Vince Phillips; John Sturc of the U.S. Treasury Department; Kit Wheatley of the Federal Reserve Board of Governors; and outside counsel including John Kiernan and Nick Tompkins of Debevoise & Plimpton LLP and Lynn Earl Busath, Jonathan Martin, Matt Kelly and Alan Tabak of Davis Polk & Wardwell LLP.

Dr. Mordecai was principally supported by a team in the Compass Lexecon New York office led by Michael Kwak, which included Tristram Worth, Mihir Gokhale, Nick Fasano and Chris Fiore, in addition to other teams in the Chicago and Pasadena offices of Compass Lexecon.

David K.A. Mordecai Filed an Expert Report in Microsoft v Samsung

David K.A. Mordecai Filed an Expert Report in Microsoft v Samsung

David K.A. Mordecai filed an expert report on behalf of Risk Economics® client Samsung. Dr. Mordecai’s expert report opined on the merger dispute between Samsung and Microsoft, and the patent assignment of Nokia mobile devices.

In a brief court filing, Microsoft and Samsung agreed to voluntarily dismiss with prejudice all claims and counterclaims. The companies issued a joint statement that was published on each company’s respective blogs Monday.

“Samsung and Microsoft are pleased to announce that they have ended their contract dispute in U.S. court as well as the [International Chamber of Commerce] arbitration,” the statement said. “Terms of the agreement are confidential.”

Dr. Mordecai worked with a team of economists led by Samantha Kappagoda, Chief Economist of Risk Economics®, working with attorneys at O’Melveny & Myers LLP, including George A. Riley, Andrew Frackman, Gary Svirsky, Brad M. Elias, Jeffrey A.N. Kopczynski, Ryan K. Yagura, Ian Simmons and John Kappos.

The case is Microsoft Corp et al. v. Samsung Electronics Co. Ltd., case number 1:14-cv-06039, in the U.S. District Court for the Southern District of New York, before U.S. District Judge Jed S. Rakoff.

David K.A. Mordecai Filed an Expert Report in Microsoft v Samsung

David K.A. Mordecai is President and Co-Founder of Risk Economics, a New York City based advisory firm. Risk Economics specializes in the application of computational economics to the proprietary development and scalable implementation of robust modeling and data analytic frameworks for valuation, strategic and systemic risk analysis, and dynamic asset-liability management.

As Lead for the Risk Economics® litigation and arbitration advisory practice, David Mordecai serves as an expert on loss causation and economic damages related to market structure, financial institutions governance, and complex issues related to finance, economics and market standards and practices within securities, derivatives, reinsurance, and commodities markets, as well as market structure within a broad range of non-financial industry sectors. His expertise includes industrial and financial engineering, the valuation of fixed income securities and structured products, including over-the-counter derivatives (in particular fixed income and credit derivatives), complex insurance and reinsurance liabilities, as well as asset liability and risk management models and practices. Having testified extensively at deposition, trial, arbitration and international arbitration, he has been admitted as an expert in federal, state and county courts, and cited favorably in court decisions.

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David K.A. Mordecai was Lead Advisor to a Global Bank

David K.A. Mordecai, President of Risk Economics®  and Compass Lexecon affiliated expert, was lead advisor to a global bank, providing technical oversight as well as interpreting regulatory guidance to a global bank for the development and implementation of a stress-testing model framework in accordance with BIS, FDIC, OCC and Federal Reserve guidelines and with generally accepted market practice. Compass Lexecon staffers Michael Kwak and Tristram Worth assisted Dr. Mordecai in the development and implementation of a forward-looking hierarchical model which simulated macroeconomic conditions with corresponding representative market spreads of the bank’s risk exposures, by employing benchmark US Treasury, equity, mortgage, alternative investments, municipal, and foreign investment indices.

David K.A. Mordecai is President and co-founder of Risk Economics®, a New York City based advisory firm, as well as Senior Advisor to and a Member of the Advisory Committee of Compass Lexecon. The Risk Economics® litigation advisory practice provides advisory services and testimonial expertise on complex issues related to financial instrument valuation models and frameworks, market and industry standards and practices for the financing, risk management, active trading, and hedging of OTC derivatives and structured products.

As lead for the Risk Economics® litigation and arbitration advisory practice, Dr. Mordecai serves as an expert on loss causation and economic damages related to market structure, financial institutions governance, and complex issues related to finance, economics and market standards and practices within securities, derivatives, reinsurance, and commodities markets, as well as market structure within a broad range of non-financial industry sectors. His expertise includes industrial and financial engineering, the valuation of fixed income securities and structured products, including over-the-counter derivatives (in particular fixed income and credit derivatives), complex insurance and reinsurance liabilities, as well as asset liability and risk management models and practices. Having testified extensively at deposition, trial, arbitration and international arbitration, he has been admitted as an expert in federal, state and county courts, and cited favorably in court decisions.

See Compass Lexecon 2013 Newsletter.

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David K.A. Mordecai was Involved in an International Financial Institutions Arbitration

Dr David K.A. Mordecai, President of Risk Economics® and Compass Lexecon affiliated expert, and Pablo Spiller, Senior Consultant at Compass Lexecon, led a team of economists and analysts from Compass Lexecon’s International Arbitration and Financial Litigation global practices engaged in providing financial econometrics expertise to develop and apply damage valuation models and analyses for financial institutions. These market-based financial econometric analyses can be applied to international arbitrations involving contractual and treaty disputes, such as those arising from the financial crisis. The Compass Lexecon team was coordinated by Sebastian Zuccon, Pablo Lopez Zadicoff and Michael Kwak.

David K.A. Mordecai is President and co-founder of Risk Economics®, a New York City based advisory firm, as well as Senior Advisor to and a Member of the Advisory Committee of Compass Lexecon. The Risk Economics® litigation advisory practice provides advisory services and testimonial expertise on complex issues related to financial instrument valuation models and frameworks, market and industry standards and practices for the financing, risk management, active trading, and hedging of OTC derivatives and structured products.

See Compass Lexecon 2013 Newsletter.

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David K.A. Mordecai Filed Multiple Expert Reports in a Multi-Million Dollar Unjust Enrichment and Unfair Insurance Trade Practices Dispute

David K.A. Mordecai, President of Risk Economics and Compass Lexecon affiliated expert, filed multiple expert reports in a multimillion dollar unjust enrichment and unfair insurance trade practices dispute. This dispute centered on Plaintiff’s claim that Defendants charged “grossly excessive” insurance premiums on municipal bonds issued by the city of Phoenix, Arizona. Dr. Mordecai was retained by Patterson Belknap Webb & Tyler LLP and Proskauer Rose LLP and their clients, Ambac Assurance Corporation and MBIA Insurance Corporation, Inc. This matter was settled on favorable terms for the clients. Dr. Mordecai was assisted by David Gross, Peter Clayburgh, Laura Yergesheva, and Quinn Johnson in Compass Lexecon’s Chicago and Pasadena offices.

David K.A. Mordecai is President and co-founder of Risk Economics, a New York City based advisory firm, as well as Senior Advisor to and a Member of the Advisory Committee of Compass Lexecon. The Risk Economics® litigation advisory practice provides advisory services and testimonial expertise on complex issues related to financial instrument valuation models and frameworks, market and industry standards and practices for the financing, risk management, active trading, and hedging of OTC derivatives and structured products.

As lead for the Risk Economics® litigation and arbitration advisory practice, David serves as an expert on loss causation and economic damages related to market structure, financial institutions governance, and complex issues related to finance, economics and market standards and practices within securities, derivatives, reinsurance, and commodities markets, as well as market structure within a broad range of non-financial industry sectors. His expertise includes industrial and financial engineering, the valuation of fixed income securities and structured products, including over-the-counter derivatives (in particular fixed income and credit derivatives), complex insurance and reinsurance liabilities, as well as asset liability and risk management models and practices. Having testified extensively at deposition, trial, arbitration and international arbitration, he has been admitted as an expert in federal, state and county courts, and cited favorably in court decisions.

See Compass Lexecon 2013 Newsletter.

David K.A. Mordecai Filed Multiple Expert Reports and Provided Deposition Testimony on Behalf of Ironshore Insurance

David K.A. Mordecai Filed Multiple Expert Reports and Provided Deposition Testimony on Behalf of Ironshore Insurance

David Mordecai, President of Risk Economics and Compass Lexecon affiliate, filed multiple expert reports and provided deposition testimony on behalf of Ironshore Insurance in litigation against the company’s former asset manager, Western Asset Management Company. The dispute involved breach of contract and breach of fiduciary duty claims against Western Asset Management Company stemming from losses incurred by Ironshore on a fixed-income portfolio containing a large concentration of mortgage-backed securities. Dr. Mordecai was retained to evaluate the 15 risks of the fixed-income portfolio and estimate damages.

Dr. Mordecai was assisted by Peter Clayburgh, Michael Kwak, Tristram Worth, and Ara Demirjian from the Compass Lexecon Pasadena and New York offices. The team worked closely with Cahill Gordon & Reindel LLP. The case settled in January 2014.

David K.A. Mordecai is President and Co-Founder of Risk Economics®,  a New York City based advisory firm, as well as Senior Advisor to and a Member of the Advisory Committee of Compass Lexecon. The Risk Economics® litigation advisory practice provides advisory services and testimonial expertise on complex issues related to financial instrument valuation models and frameworks, market and industry standards and practices for the financing, risk management, active trading, and hedging of OTC derivatives and structured products.

David K.A. Mordecai Filed Multiple Expert Reports and Provided Deposition Testimony on Behalf of Ironshore Insurance

As lead for the Risk Economics® litigation and arbitration advisory practice, Dr. Mordecai serves as an expert on loss causation and economic damages related to market structure, financial institutions governance, and complex issues related to finance, economics and market standards and practices within securities, derivatives, reinsurance, and commodities markets, as well as market structure within a broad range of non-financial industry sectors. His expertise includes industrial and financial engineering, the valuation of fixed income securities and structured products, including over-the-counter derivatives (in particular fixed income and credit derivatives), complex insurance and reinsurance liabilities, as well as asset liability and risk management models and practices. Having testified extensively at deposition, trial, arbitration and international arbitration, he has been admitted as an expert in federal, state and county courts, and cited favorably in court decisions.

See Compass Lexecon 2013 Newsletter.