Securities and Finance
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NERA is widely recognized as a leading firm in financial economics, securities, derivatives, valuation, and risk management. Our economists bring to bear a thorough understanding of financial markets and the regulatory institutions that govern them. The insights we apply in our roles as consultants and advisors build on experience gained as officers at major global institutions, financial regulators, faculty at top-tier universities, and industry arbitrators.
NERA economists assist clients in all stages of litigation and arbitration including discovery, fact analysis, and development of sophisticated economic and financial models to address questions of liability and quantum. We act as independent experts, provide consulting services, review and critique reports by opposing experts, and assist clients with preparation of well-documented reports, exhibits, and testimony. Our expert evidence has been used in courts and arbitration venues around the world.
Securities Class Actions
Economists are often used as consultants and expert witnesses in matters involving securities fraud. However, our work often begins well before a case makes its way into the courtroom. When engaged early on and throughout the life of a case, economists can be important members of the team crafting appropriate legal strategy.
Even before the case gets underway, clients often ask us to estimate the exposure and the amount that defendants are likely to pay if the case settles. Using our knowledge of plaintiff-style damage calculation methodologies and our proprietary database of information on hundreds of prior shareholder class action settlements, NERA provides estimates for both of these figures to help counsel better assess the magnitude of the case.
NERA also helps clients deal with the early phases of arguments about whether or not a case should proceed. Specifically, if there is a class action, we provide the information about whether the market in which securities traded was efficient and on the extent of conflicts among class members. Depending on the case, we may also be able to point out economic arguments in favor of or against defendant liability. This information can be used in discussions with opposing parties. If the case does proceed, NERA provides additional arguments on liability and performs more refined damage analyses used in settlement negotiations or at trial.
We are often asked to critique opposing expert reports and analyses, pointing out their strong and weak points, any methodological errors and, when appropriate, to help counsel prepare Daubert motions to exclude opposing testimony.
Regulatory Enforcement and Compliance
NERA economists assist clients in responding to formal investigations and requests for data and analyses from regulatory entities such as the Division of Enforcement at the SEC, the DOJ, state attorney general offices, and self-regulatory organizations such as FINRA. Our capabilities include the construction and analysis of large and complex transaction databases, the analysis and implementation of computerized surveillance procedures, and the preparation of summary materials responsive to regulators’ requests. NERA’s expertise in financial regulation enables us to support firms in all economic aspects of regulatory policy, including responding to market abuse investigations, defending enforcement actions, providing expert testimony, and quantifying regulatory impacts and risks. Our extensive experience with the analysis of damages and disgorgement measures aids clients in negotiating settlement agreements.
Resolution of Failed Banks
NERA economists use their expertise in the economics of banking and financial markets to evaluate the causes of bank failures and the consequences of different actions taken by regulatory authorities. We can also evaluate the macroeconomic consequences of policy choices taken to address financial distress for large and systemically important financial institutions.
ERISA Actions
NERA experts have deep expertise in addressing the financial questions at issue in ERISA litigation, including prudence and reasonableness of decisions by fiduciaries, disclosure of information to plan participants, and estimation of losses to a plan or to its participants from alleged wrongdoing. In some cases, allegations are closely related to allegations in parallel shareholder class actions. In other cases, the allegations center on the retention of employer stock as an investment despite events (such as imminent bankruptcy) that heightened the risk of that stock. NERA’s experts have also analyzed issues of allegedly excessive fees in 401(k) plans.
Insider Trading and Financial Market Manipulation
In matters involving alleged insider trading and financial market manipulation, NERA economists bring quantitative and statistical tools to bear in combination with real-world trading and regulatory experience to provide trusted, objective analysis. Our economists are well-versed in analyzing large complex datasets to identify trading behaviors such as “spoofing,” “layering,” and “banging” the close in a variety of financial markets (on exchange and over the counter) and where a variety of market participants are involved (including high-frequency traders). We are often asked to estimate the impact of alleged behavior.
Trading Behavior
There are many instances in which an examination of how investors traded securities can shed insight on a dispute. Sometimes, the question is how certain trades may have affected prices, specifically when there are claims of market manipulation through certain trading behavior. Other times, there are questions about whether the trading itself was reasonable, such as when there are allegations of churning by brokers or in understanding the trades by a fund or investment manager accused of running a Ponzi or similar scheme. There are also situations in which one wants to draw information from non-fraudulent trading, such as estimating the number of shares that may be damaged in a shareholder class action or determining whether potential class members’ shares can be traced back to a particular offering.
NERA economists bring their background and experience in understanding trading behavior to all of these analyses. Our work has included examinations of aggregate market data reported by trading markets like exchanges, as well as individual-level data from clients, brokerage houses, and entities like the Depository Trust Clearing Corporation. Our experience in working with these data can be helpful in understanding where to locate different forms of data and in understanding what needs to be requested from the producing party in order for later analyses to be useful.
Broker-Customer Disputes
Brokers and investment advisors have duties under the law to know their customers’ investment needs and tolerance for risk. Often when investors lose money, they consider whether investments made by their advisor or recommendations made by their broker were appropriate. For more than two decades, our economists have been called upon to render opinions in disputes between investors and their broker-dealers, investment advisors and fund managers. NERA experts have provided analyses supporting investors and brokers for use in arbitration and the courtroom. Our work has focused both on liability, examining allegations such as unsuitability and churning, and damages, measuring how much investors might have earned under an alternative investment strategy. Our expertise with financial theory and experience with various trading strategies and instruments allows us to put ourselves in the shoes of parties while the investment decisions were being made in order to better focus on whether the trading practices at issue were appropriate.
Financial Asset and Business Valuation
NERA economists help clients establish fair and accurate valuations of businesses and IPOs. Business valuation depends on financial forecasting and analysis. To make sound forecasts, it is important to understand the dynamics of the marketplace. This is the hallmark of NERA’s approach, one that has been successfully used by business owners and attorneys in litigation, and investment bankers/venture capitalists interested in acquiring a real measure of business value.
Securities Fraud
NERA economists are often retained as consultants and act as testifying experts in investigations and litigation involving alleged securities fraud. Our experience spans enforcement investigations (including cross-border proceedings), securities class actions and group actions, and individual civil actions. We are involved in all stages of the investigation or action, including as support for settlement proceedings. Our work includes assessments of materiality, causation, liability, and damages. We also provide estimates of the size and likely settlement range of a potential claim to assist in settlement or post-settlement insurance coverage disputes.
Valuation of Complex Derivatives and Securities
Understanding the economics of valuation is essential in all but the simplest of settings. NERA provides valuation expertise in three general contexts: business valuation, tangible asset valuation, and financial asset valuation.
In the context of business and tangible asset valuation, NERA has utilized valuation methodologies which are based on company comparables and earnings multiples, the values of other assets from the same company or portfolio, financial modeling and estimation of the company's future cash flows, and comparisons to valuations of benchmark assets in the public domain.
For financial and quasi-financial assets and derivatives contracts, our valuations techniques leverage generally accepted discounted cash flows and mark-to-market methods, derivatives option models, real options techniques, probability-weighted and dynamic cash flow models, custom simulation models, reference/inference-based comparables approaches, and zero-arbitrage calculation techniques. Our experience in a variety of asset classes allows us to quickly assess market specifics, identify important and potentially unique valuation characteristics of the asset, assess the impact of market economics on market value, and use defendable, industry standard methods to derive a fair valuation. With the ability to combine economics, finance, statistics, and econometrics, NERA’s experts can execute valuation methods that go beyond traditional approaches to valuation, especially in cases where historical data and other valuation benchmarks are either unavailable or considered inadequate.
Valuation
Valuation is often a key component of securities-related disputes, and a thorough understanding of the economics of valuation is essential to address such matters. With our ability to combine economics, finance, statistics, and econometrics, NERA experts employ valuation methods that go beyond traditional approaches, especially in cases where historical data and other valuation benchmarks are unavailable or inadequate. Our experience in a variety of asset classes—including equity, fixed income, credit, commodities, and foreign exchange—and with vanilla securities and more complex structures allows us to identify important and potentially unique valuation characteristics of assets, assess the impact of market dynamics on value, and design quantitative models to derive reasonable and reliable valuations.
Financial Risk Management
As risk management has become a critical part of strategic planning, businesses are recognizing the need to evaluate the “risk landscape” of their firm in the aggregate, rather than just measuring and managing individual risks one at a time. With extensive professional experience in risk analysis and risk management techniques, NERA’s Financial Risk Management experts are well versed in modeling, analyzing, and communicating the effects of combined risks to financial and non-financial institutions. Our experts assist clients in measuring individual risk exposures and aggregating these risks across risk factors and business units, taking into account correlations and diversification effects, to measure their combined effect on performance measures such as earnings-at-risk or cash-flow-at-risk.
Lost Profit Analyses
There are many scenarios in which a business’ ability to earn profits has allegedly been compromised by another party’s actions. While one can always get a quick feel for the change by comparing the level of profits before and after the relevant actions, NERA economists go beyond such simple comparisons and bring economic, statistical, and accounting expertise to bear on such questions. Depending on the situation, it is often possible to develop more sophisticated analyses that account for changes in the industry as well as pre-existing projections or trends that would have led to a change in profits even in the absence of any outside influence. When feasible, statistical analyses can help one draw an inference about whether a change in profits was so unusual as to be of a magnitude that would be unlikely to be caused by normal fluctuations in the business in the absence of some form of material outside influence.
Commercial Disputes and International Arbitration
NERA has a large pool of experts with in-depth sector knowledge and extensive testifying experience in commercial disputes and international arbitration. Our economists are hired in consultant and expert witness roles and are supported by a talented research staff and a network of distinguished academic affiliates. Representative engagements include energy disputes, investor-state disputes, breach of warranty and breach of contract disputes, and other disputes involving complex damages and valuation assessments.
Accounting Disclosure Litigation
NERA's accounting experts combine a unique blend of skills and industry experience to address financial disclosures, auditing and control, and tax compliance issues related to: criminal and civil allegations of securities fraud; accounting fraud and professional negligence; complex commercial disputes; post-acquisition disputes; allegations of misrepresentations in financial disclosures; and notional valuations for reporting purposes.
Many of NERA's economists are also Certified Public Accountants, with training and experience in analyzing financial statements and financial data prepared in accordance with Generally Accepted Accounting Principles (GAAP) and other accounting standards, including International Financial Reporting Standards (IFRS). Our experts are uniquely positioned to evaluate the economic substance behind reported financial results and are familiar with the complex systems for organizing voluminous transactions data that underlie the reported numbers.