Financial Institutions

Cornerstone Research conducts detailed analyses in a range of trading practice and market manipulation matters. We work with clients on high-profile market manipulation and microstructure litigation and regulatory matters. Our external and internal experts are equipped with academic expertise and practical experience across a range of markets and large datasets.

Global markets for foreign exchange continue to grow and diversify into more currencies, transactions, and participants. Investors who trade currencies can choose among several methods of execution, each with specific costs and benefits.

Cornerstone Research staff and affiliated experts have an in-depth understanding of the complexities of foreign exchange markets. We have studied the determinants of transaction costs, including the different execution methods available to investors.

Cornerstone Research staff has experience working on various aspects of high-frequency and low-latency trading, performing forensic reconstructions of market turmoil and malfunction.

Our work in this area has included:

• Analysis of a hedge fund’s high-frequency trading algorithms, responding to an SEC investigation into market manipulation;
• Reconstruction of how market malfunctions caused potential harm to incoming orders;
• Analysis of the dissemination of market data by the New York Stock Exchange, resulting in a settlement with the SEC; and
• Work on trade secrets cases involving alleged theft of high-frequency trading algorithms.

We have consulted with clients on internal and regulatory investigations and supported expert testimony on a number of matters involving hedge funds. Our experience spans a range of areas, including hedge fund matters related to valuation, risk management, disclosure, insider trading, market manipulation, subscriptions and redemptions, Ponzi schemes, and fund fees.

Cornerstone Research’s expertise spans a range of structured finance issues associated with the recent wave of mortgage-related litigation. We have worked extensively on the valuation and analysis of complex debt instruments, such as asset-backed securities (ABS), residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDO), and credit default swaps (CDS).

These instruments can be challenging to value due to relatively low liquidity and price transparency. Their values depend on a multitude of factors, including credit risk, interest rate sensitivity, optionality of collateral, and priority of payments. We overcome these valuation challenges using our knowledge of derivatives pricing methods, market dynamics, and relevant information sources.

We have:

• Evaluated all aspects of the RMBS process: mortgage origination, appraisal, loan-level modeling, loan sampling, due diligence practices, disclosures, pooling, underwriting, and insuring
• Analyzed losses associated with subprime portfolios and assessed damages
• Addressed loss causation and damages, and issues related to accounting, reporting, and auditing in securities litigation
• Analyzed industry- and company-specific causes of a subprime lender’s bankruptcy

The FinTech landscape continues to evolve, with new and continuing litigation related to consumer financial services platform innovation, the economics of cryptotokens, features of a blockchain, and allegedly disruptive cryptocurrency trading practices.

Working with leading experts in the field, we have analyzed a range of complex strategic, financial, and valuation issues for general and limited partners, acquisition targets, banks, and other parties.

We have:

• Analyzed deals that failed to consummate, including allegations of material adverse changes, specific performance issues, and failure to secure financing, among other claims
• Assessed the capital structure of private investments
• Examined performance incentives for managers and pricing structures for investors
• Analyzed private equity and venture capital fund inflows and outflows, and the relationship between those flows and performance
• Assessed the materiality of specific information to investors and performed valuation analyses
• Addressed due diligence practices in a private equity environment
• Evaluated the fairness of consideration provided to stakeholders

Our staff have consulted on more than fifty cases involving distressed financial institutions. We have also published studies on FDIC lawsuits targeting the directors and officers of failed financial institutions.

Risk-based pricing techniques and the exponential growth of securitization markets contributed to a substantial expansion in consumer credit over the twenty years preceding the credit crisis. The aftermath of the crisis has included a fundamental change in lending practices. In addition, the Consumer Financial Protection Bureau has been investigating potential violations by financial services firms and nonbanks such as debt collectors.
Cornerstone Research has analyzed complex economic, financial, and strategic issues in disputes that have involved many of the largest providers of consumer finance products. Our staff and affiliated academic and industry experts have:

• Addressed pricing, competition, securitization, and business models in the credit card industry
• Provided consulting and expert testimony on behalf of credit card banks and their directors and officers, nonbank private-label issuers, and professional advisors
• Analyzed consumer behavior and repayment expectations on behalf of a major issuer that changed the terms of credit card agreements, and assessed the regulatory and economic factors pertinent to the change
• Estimated potential damages for banks that faced class actions alleging improper overdraft fees on debit cards

Cornerstone Research has experience in litigation and regulatory investigations related to banks and securities firms, including many of the largest cases.

Our experience includes a variety of matters involving investment advisory firms and their core offerings—mutual funds, collective trusts, and institutional separate accounts.

Cornerstone Research has worked on cases involving nearly every type of insurance product, including life, health, property and casualty, mortgage, fixed and variable annuities, and reinsurance.