Damages

Case Studies

Acquisition

The owners of a speech recognition software firm sold their company to a larger competitor in an all-stock transaction. Shortly after the sale, the acquiring company disclosed that its financial reporting was fraudulent and required a restatement which eliminated 70% of the company’s previous three years of reported revenues. The company filed for bankruptcy protection, and its stock became worthless. MSG was retained to value the entity that had been acquired at the time of the merger, giving effect to the fraud in the acquiring company at that time, and to compute economic damages, if any, utilizing various methodologies.

Sale of Subsidiary

A multinational consumer products company entered into an agreement to purchase an oral care division from a competing firm. Following the close of the transaction, disagreements arose regarding the transaction and each party’s performance under the terms of the purchase and sale agreement. MSG was retained to critique analyses of the division’s financial results and damage calculations performed by the opposing expert and provide testimony regarding these issues at an arbitration hearing.

Tender Offer

A mining company made a tender offer for the convertible preferred stock of one of its subsidiaries. An investment banking firm was engaged to provide an analysis of the merits of the proposed transaction to the members of the subsidiary’s Board. A lawsuit was filed on behalf of the convertible preferred stockholders alleging the price of the tender offer was too low. MSG was engaged to evaluate the investment banking firm’s analysis, value the convertible preferred stock, and calculate damages, if any, suffered by the convertible preferred stockholders.

Securities Class Action

A Fortune 500 pharmaceutical company failed to receive Food & Drug Administration (FDA) approval for a new drug it was seeking to market. Following the announcement of this news, the company’s stock price declined. A lawsuit was filed alleging that the company had failed to make timely disclosure of manufacturing and quality deficiencies that had caused the FDA to withhold its approval of the new drug. MSG was retained to calculate damages, if any, to shareholders.

Acquisition

A European enterprise management software firm acquired a U.S. software concern in a stock-for-stock transaction. Within two weeks of the close of the acquisition, the European firm announced an earnings restatement. Consequently, the share price tumbled. Majority shareholders of the acquired company filed suit, claiming damages as a result of the diminished value of the shares they received in the acquisition. MSG was retained to quantify the damages suffered by the plaintiffs, if any.

Pension Plans

A company acquired a designer and manufacturer of precision motion and fluid controls. The assets of the controls business were later sold, but the company retained the liabilities of the business, including the obligations of the defined benefit plan. The trustees appointed by the company to oversee the defined benefit plan hired an investment manager to manage the plan. In a lawsuit filed by the trustees against the investment manager, the trustees alleged that the manager changed investment philosophy by switching the plan from large-cap and more conservative investments into mid-cap and small-cap stocks. As a result, the plan sustained losses when the investments were later liquidated. MSG evaluated the performance and actions of the investment manager.

Fiduciary Duty

An heir to a Fortune 50 chemicals concern had funds managed by a trust company. An investment manager at the trust company managed the heir’s funds for numerous years. The investment manager then established his own management firm where he continued to manage the account, while the trust company remained the custodian of the funds. The account had been invested in a well-diversified portfolio, but then lost money. The heir filed a lawsuit against the investment manager and the trust company alleging that the once well-diversified portfolio became invested in essentially four assets. Of the four assets, two were privately-held start-up companies in which the investment manager was a board member and another asset was a fund managed by the investment manager. MSG evaluated the actions and performance of both the investment manager and trust company and assessed damages, if any.

Investment Banking

An investment bank was retained to manage an internet security firm’s initial public offering (IPO). One of the investment bank’s managing directors gave some of the pre-IPO stock to a vice president at the investment bank without disclosing this action to the internet security company or its founders. The vice president profited from the sale of the stock a few years later, at which time the founders of the internet firm discovered the arrangement. MSG was engaged to evaluate the actions of the investment bankers and to assess any damages.

Breach of Contract

An operator of paging services specializing in health care held a contract to provide such services for a hospital and the hospital’s doctors. After investing in new equipment and office space within the hospital, the paging service contract was abruptly terminated. The paging service provider filed a lawsuit against the hospital seeking damages, claiming the termination was a breach of contract. MSG was retained to quantify damages, if any.

Dilution Effects

A firm that produced testing equipment for the semiconductor industry sought a new round of venture financing. One of the original providers of venture capital declined to participate in the new round. Through a series of transactions consisting of stock conversions and stock splits, the original provider of capital found that its interest was diluted to essentially zero. Approximately a year later, the company had its initial public offering. The firm providing the original capital sought damages for the excessive dilution. MSG was retained to determine the appropriate degree of dilution and assess the damages, if any, suffered by the original capital provider.

Lost Profits

A distributor of electrical components had a regional distribution agreement with a large manufacturer of electronic components. In a lawsuit filed against the manufacturer, the distributor alleged that the manufacturer withheld certain high value products from the plaintiff and gave these products to other firms for distribution. MSG was retained to quantify the damages, if any, suffered by the distributor.

Breach of Contract

A diversified manufacturing company had an agreement to acquire a manufacturer of electronic components. The acquirer sought damages from the target after the target company terminated the purchase agreement. MSG was retained to determine the financial loss that was sustained by the plaintiff as a result of the termination of the merger. We analyzed the feasibility of a proposed debt financing as well as the feasibility of an IPO following the merger.

Acquisition

An investor group formed a joint venture with another group for the purpose of acquiring a European manufacturer of sporting goods. Just prior to the consummation of the acquisition, one of the investors was removed from the acquiring group. MSG was retained to value the ousted party’s interest. The damages sought were critically dependent on the value of the target company.

Punitive Damages

A Fortune 100 company was sued for its involvement in the production of asbestos. The plaintiffs alleged they had suffered damages as a result of their coming in contact with the asbestos. Under state statutes, the company could be punished in an amount that would be noticeable to the firm, yet not detrimental. MSG was retained to determine the damage award, if any.

Breach of Contract

A clothing manufacturer had granted exclusive to sell its product to a chain of specialty retail stores within a geographical area. The manufacturer then offered lower prices to a nearby chain of competitive stores. A breach of contract suit was filed against the clothing manufacturer. MSG was engaged to assess the extent of damages, if any.

Qui Tam (Whistle-Blower)

In what became a highly publicized matter involving "yield burning," a former investment banker initiated a qui tam lawsuit against an underwriter of tax-exempt securities. The lawsuit alleged that the investment bank excessively marked up the cost of securities purchased for municipal escrow portfolios nationwide. MSG analyzed the market and prices for Treasury securities, municipal securities, and derivative securities. One of our senior experts testified at public hearings and participated in discussions with the U.S. Department of Justice, the Internal Revenue Service (IRS), and the U.S. Securities and Exchange Commission (SEC).

Investment Suitability

Several elderly investors placed funds with a brokerage firm, specifying they sought low-risk investments. The broker handling their accounts invested part of the funds in debt securities of a financially distressed hospital. The hospital eventually defaulted on the bonds and the investors filed a lawsuit against the brokerage firm seeking recovery for their losses. MSG was engaged to assess the appropriateness of the bond investment and to quantify the damages, if any, suffered by the investors. Our report included a competitive analysis of the hospital sector as well as a financial review of the hospital itself.