Expert Testimony

expert-testimonyCapMarket Consulting provides Expert Testimony for litigation involving the financial markets.

Disputes involving testimony commonly consist of large financial transactions involving wholesale participants in the capital markets such as banks, investment banks, insurance companies, pension funds, hedge funds, financial exchanges, corporates, and government agencies.

Our expert reports and testimony are differentiated by our practical experience in the financial markets, structured finance, capital market transactions, and risk management.

Expert testimony has been provided in United States and Canadian courts on a wide range of topics in the capital markets.

Selected Summaries of Expert Testimony

Pritired LLC, Principal Life Insurance vs United States of America

CapMarket Consulting was retained by the United States. Department of Justice.  In dispute was the use of foreign tax credits in cross-border structured finance transactions.  District Court Judge Jarvey ruled in favor of the United States and wrote regarding Finard’s testimony: “These are very persuasive pieces of evidence that genuinely support his opinion.” [See Highlighted Cases Below for Additional Detail]

Anschutz Company vs Commissioner of Internal Revenue

CapMarket Consulting was retained by the United States Treasury Department (IRS).  The tax characterization of ~$375 million obtained from variable prepaid forward contracts was in dispute.  Tax Court Judge Goeke ruled in favor of the United States and was affirmed on appeal.  The Finard Report was cited extensively in the Tenth Circuit’s Appellate Court decision authored by Chief Justice Briscoe.  [See Highlighted Cases Below for Additional Detail]

McKesson Canada Corp and Her Majesty the Queen (Canada)

CapMarket Consulting was retained by the Canadian Department of Justice. The case involved transfer pricing used in a structured receivables-backed financing of ~C$460 million between Canadian and Luxembourg McKesson entities. The disputed tax revenue represented hundreds of millions of Canadian dollars. Judge Boyle ruled in favor of Canada.  [See Highlighted Cases Below for Additional Detail]

CalPERS vs Moody's and Standard & Poor's

CapMarket Consulting was retained by CalPERS.  At issue were $1.3 billion of “Aaa” rated notes that were purchased by CalPERS and subsequently defaulted.  CalPERS asserted that the ratings on the notes were “negligent misrepresentations.”  Finard’s analysis and testimony revealed that Moody’s “Aaa” rating was based upon flawed assumptions.  CalPERS received settlement payments of $255 million, which is among the largest recoveries obtained in a private lawsuit for civil damages relating to ratings.  [See Highlighted Cases Below for Additional Detail]

Salem Financial BB&T vs United States of America

CapMarket Consulting was retained by the United States Department of Justice.  At issue was the representation of a cross-border structured transaction called STARS, which generated foreign tax credits for BB&T.  The amount in dispute, including penalties, was $772 million.  Finard performed a capital markets analysis of the STARS deal, and testified about whether the stated business objectives of the deal were consistent with the capital markets risk and reward attributes of the deal.  Judge Wheeler, in the Court of Federal Claims, ruled in favor of the United States and imposed penalties and wrote in his opinion “the conduct of those persons … who were involved in this … transaction was nothing short of reprehensible.” (page 3 of Court Opinion)

Chemtech Royalty Associates L.P. vs United States of America

CapMarket Consulting was retained by the United States Department of Justice.  At issue was $1 billion of tax deductions claimed by Chemtech Royalty Associates L.P. (Chemtech), a limited partnership and special purpose entity created by Dow Chemical Company.  Chemtech was created as part of a tax transaction referred to as a Special Limited Investment Partnership (SLIP) that received an investment from a number of foreign banks.  In dispute, among other things, was whether the investment in the SLIP was debt or equity.  Finard provided analysis and testimony related to the capital markets attributes of an investment in the SLIP as having risk and reward features similar to debt.  District Court Judge Jackson ruled in favor of the United States, disallowing the $1 billion of deductions claimed by Dow Chemical and imposed a 20% penalty.

Merck & Co vs United States of America

CapMarket Consulting was retained by the United States Department of Justice.  At issue was the use of structured derivative transactions resulting in disputed tax revenue of ~$500 million.  Finard analyzed and testified regarding risk management and hedging objectives related to the transactions as well as the characterization of the transactions from a capital markets practitioner’s perspective.  District Court Judge Hayden ruled in favor of the United States.

Enron Corp. Securities Litigation

CapMarket Consulting was retained by lead plaintiff the Regents of the University of California.  Enron shareholders claimed losses of more than $40 billion as a result of the fraud at Enron.  Finard’s analysis and testimony focused on numerous structured transactions.  Settlement payments in excess of $7.2 billion were paid for the benefit of Enron shareholders.

Highlighted Cases: Dispute; CapMarket’s Role; & Result

Pritired LLC, Principal Life Insurance Company vs United States of America


The United States disputed Principal Life Insurance Company’s (Principal Life) claim of foreign tax credits associated with a complex structured financial transaction (Pritired Transaction).  The deal involved the use of a tax partnership where Principal co-invested with foreign investors, with Principal attempting to claim foreign tax credits on the foreign taxes paid on a $1.2 billion portfolio of assets held by the French banks involved in the transaction. The partnership was designed to be characterized as an equity investment for US tax purposes.  A key issue in dispute was whether the partnership was an equity investment by the Principal, the US investor, or should be recast as a loan thereby eliminating the US investor’s ability to claim foreign tax credits.

CapMarket’s Role:

Retained by the United States Department of Justice as an expert in structured finance transactions, the economics of the capital markets, and the risks & rewards of capital market transactions.  Finard’s report and testimony provided an expert opinion regarding how the capital markets would analyze and characterize the attributes of the $300 million investment by Principal Life in a foreign entity.  Specifically, the analysis focused on the characterization of the transactional mechanisms by which the $300 million was transferred by, and returned to, Principal Life. Using the financial market techniques and approach utilized by market practitioners, CapMarket evaluated whether Principal Life’s investment had capital market attributes more similar to a loan with debt-like characteristics or the equity-like attributes of an equity investment.  Finard concluded that the deal was more akin to debt than equity.

Result: Court Rules for USA (2011)

Judge Jarvey, of the US District Court for the Southern District of Iowa, ruled in favor of the United States, awarding the United States back taxes, interest, penalties, and court costs.  The ruling recast Principal Life’s purported equity investment in the partnership as debt.  The Court supported the decision by observing that the purported equity investment had no upside potential because the returns were capped and Principal Life intended to recover its original investment regardless of the performance of the underlying assets in the structure.  Moreover, the Court ruled that the Pritired Transaction lacked a business purpose and that the deal was designed to appear as an investment in an equity partnership, but was primarily structured to generate foreign tax credits for the US taxpayer.

Judge Jarvey cited Finard’s testimony in support of the Court’s opinion:

“Lastly, Finard considered the B Shares and PCs to be debt-like for both the Return Analysis and Investment Objectives. There were floors and ceilings on the returns, thus fixing the possible range of returns for the PCs and B Shares. Likewise, there was a known return and a return of principal for both instruments and Pritired did not expect to be rewarded for any increase in the value of the SAS entity. These are very persuasive pieces of evidence that genuinely support his opinion.” (Page 41)

“The experts reached different conclusions: Finard opined that the instruments were more debt-like, whereas Carron [President of NERA retained by Principal] opined that the characteristics were more equity-like. The Court finds the analysis of Carron and Finard helpful in analyzing the risk and reward attributes of the PCs and B Shares, as well as understanding the economics of the Pritired transaction. The Court incorporates the findings of these experts in its own examination of the risk and reward attributes of these instruments. The Court finds, on balance, that the investment characteristics were like debt.” (Page 44)

US District Court Opinion (September 2011)

McKesson Canada Corp and Her Majesty the Queen


McKesson Canada disputed transfer pricing adjustments to its income made by the Canada Revenue Agency.  At issue was a structured receivables-backed financing in which McKesson Canada sold ~C$460 million of its receivables to a related non-resident McKesson Group entity at a discount. The dispute centered on whether the financing transactions carried out by the related parties were arm’s length pricing. The amount of Canadian tax revenue in dispute was hundreds of millions of Canadian dollars.

CapMarket’s Role:

Retained by the Department of Justice of Canada as an expert in capital markets and structured finance to examine the McKesson Canada structured receivables-backed financing transaction. CapMarket analyzed whether the transaction at issue reflected a rate at which two unrelated economically self-interested parties would transact – i.e. an arm’s-length rate.  A practitioner’s  structured finance approach in generating an arm’s-length rate was used to perform the analysis. This analytical approach evaluated the risks and rewards of the transaction which were compared to market-rate debt instruments with similar risk and reward profiles.

Result: Court Rules for Canada (2013)

Canadian Tax Court Judge Boyle ruled in favor of Canada explaining that the structured receivables transaction was not entered into at an arm’s-length rate. In determining the appropriate rate for the structured receivables transaction the Court dismissed McKesson Canada’s claims that the transaction was driven by providing capital and credit risk benefits. Judge Boyle also criticized McKesson Canada’s experts and the manner in which the appeal was undertaken stating, “Overall I can say that never have I seen so much time and effort by an Appellant to put forward such an untenable position so strongly and seriously. This had all the appearances of alchemy in reverse.” (page 64).  Whereas, Judge Boyle wrote about Mr. Finard’s structured finance analysis “I found this to be helpful and informative …” (page 42).

Canadian Tax Court Opinion (December 2013)

Anschutz Company vs Commissioner of Internal Revenue


At issue was the classification of structured equity derivative transactions — referred to as Variable Prepaid Forward Contracts — entered into by the Anschutz Corp.  The dispute focused on whether the structured transactions that generated ~$375 million of upfront payments should be characterized for tax purposes as a sale or a loan.

CapMarket’s Role:

Retained by the United States of America as an expert in structured finance transactions and the economics of the capital markets and transactions in these markets.  The assignment involved analyzing both the economic and capital markets characteristics of the structured derivative transactions. Employing standard capital markets industry tools, the analysis evaluated and quantified the financial risk attributes of the structured transactions.  Finard’s testimony, based on the analysis, explained that although the transactions were documented as sales, the financial risks of the deals were in substance loans.

Result: Court and Appellate Court Rule for US (2010 / 2011)

Tax Court Judge Goeke ruled in favor of the United States ruling the structured equity derivative transactions were in substance a loan and cited Finard’s testimony for support.  Judge Goeke’s opinion was sustained on appeal with Chief Justice Briscoe of the Tenth Circuit Appellate Court writing the opinion which cited Finard’s testimony extensively in support of the Appellate decision.

US Tax Court Opinion (April 2010)

Court of Appeals Opinion (December 2011)

California Public Employees' Retirement System (CalPERS) vs Moody's Corp. and Standard & Poor's


In 2006, CalPERS invested a total of $1.3 billion in “Aaa” rated senior notes issued by three Structured Investment Vehicles (“SIVs”).  The vehicles collapsed in 2007 and 2008, defaulting on their payment obligations to CalPERS resulting in significant losses.

CalPERS filed a complaint against Moody’s and Standard & Poor’s (McGraw-Hill Companies) asserting that the rating agencies made “negligent misrepresentations” by assigning the rating agencies’ highest and safest credit risk assessment rating to the senior notes issued by the SIVs.  CalPERS alleged that it relied upon the ratings and would not have invested in the SIVs without them.

CapMarket’s Role:

Retained by CalPERS as an expert in structured finance, Finard analyzed and addressed numerous issues related to the SIVs’ credit risk profile including: credit enhancement techniques and securitization; risk management issues – credit risk, market risk, liquidity risk, and operational risk;  the role of the SIVs in capital markets – specifically addressing asset management, valuation, funding/market liquidity; and the analysis of the process to determine credit ratings done by the credit rating agencies.  The engagement involved both quantitative and qualitative analysis of the complex structural design of the SIVs and the underlying liquidity attributes of the structured finance securities that the rating agencies viewed as support for the “Aaa” rated SIV-issued notes.

Finard’s testimony articulated that Moody’s risk assessment that resulted in the “Aaa” rating for the SIV-issued notes was based upon flawed assumptions.  Finard testified that Moody’s based its “Aaa” rating on flawed assumptions that: (1) market liquidity would continuously exist for SIV assets; (2) when buyers of SIV-issued debt could not be found, SIV assets could nonetheless be sold at market prices in order to retire outstanding SIV-issued debt; and (3) the data used to generate capital adequacy and liquidity haircuts was reliable.  Finard’s analysis and testimony demonstrated that the rating agencies’ risk assessment was fundamentally based upon market liquidity assumptions for which there was insufficient basis.  The SIV-issued senior notes were not “Aaa” safe and did not belong in the same risk bucket of safety and liquidity as US Treasuries.

Result: CalPERS Receives Settlement Payments (2016)

Just weeks before a four-week trial was set to commence, Moody’s agreed to pay CalPERS $130 million to settle the allegations that the “Aaa” ratings on senior notes issued by the three SIVs were negligent misrepresentations. Co-defendant Standard & Poor’s earlier settlement of $125 million brought CalPERS a recovery in this case of $255 million. The settlements rank as among the largest known recoveries from Moody’s and Standard & Poor’s in a private lawsuit for civil damages relating to ratings.