This was a class-action lawsuit under the Securities Exchange Act of 1934 against a major financial firm in West Virginia. It was alleged that the company’s capital market sale of student loans bundled into Synthetic Collateralized Debt Obligations, or synthetic CDOs, made false and misleading statements in violation of the 1934 Act. The firm additionally failed to disclose that they were under investigation by the Securities and Exchange Commission for making materially misleading statements in connection with their sales of student loans. Someone with expertise in finance was needed to comment on the actions of the company, the nature of synthetic CDOs, and whether any duties of care were owed to company stakeholders.
Question(s) For Expert Witness
- 1. Please briefly describe your investment banking and practical experience with trading, structuring, or marketing synthetic CDOs.
- 2. Are you able to describe the expectations traders have around disclosures, and the impact that information such as buyer protection and the involvement of stakeholders in selecting referenced assets would have on trading synthetic CDOs?
Expert Witness Response E-015575
My career is in investment banking – I originate, structure, and place securities for clients. I am very familiar with different types of synthetic CDOs. My main area of expertise is in structuring. I have worked with founders of asset backed security, creating and selling first Second Mortgage Securitization using the technique to create securitized pools of post office loans, making the first future flow securitization of insurance receivables and asset backed securities of medical receivables. Currently, I work with securitizations of charter schools. Although I am not a trader, I can discuss the process of how trading CDOs works. I can certainly describe the area of disclosures as it relates to selling a security and what information is provided. The selection of securities (and current information about those securities) is critical in creating and selling a synthetic CDO.
Expert Witness Response E-016161
I am the founder and managing partner of a financial consulting firm, which assists institutional clients with specialized support in the areas of structured finance and real estate capital markets. First and foremost, I am an investment banker. I have over 25 years of experience with structured finance products such as Residential Mortgage Backed Securities (RMBS), Asset-Backed Securities (ABS), Commercial Real Estate Loans and Commercial Mortgage-backed Securities (CMBS). Throughout my career, I have held positions in which I was responsible for judging the risks and return of assets, structured finance products, and capital markets. My experience includes being an executive responsible for evaluating and underwriting structured fixed income instruments and mortgage loans from a borrower’s perspective as well as holding executive positions involving lending, loan underwriting and pricing, having worked in high positions at some of the nation’s leading financial institutions. I have been a contributor to articles in Structured Credit Investor, Markets Media, and quoted in CFA Magazine. I hold FINRA Series 24, 7, 63, 79 and 99 licenses, which are General Securities Principal, General Securities, “Blue Sky,” Investment Banking, and Operations licenses, respectively. I have developed both a qualitative and quantitative understanding of the relationships between mortgage-collateral and complex mortgage securities. As a result, I have earned the reputation as an industry expert who can translate intricate financial relationships for clients and litigation team members, and help develop elegant litigation strategies.