Capital Markets

capital marketsMSG has extensive experience in capital markets issues, ranging from the bankruptcy and distress of financial institutions to the origination and pricing of derivatives and complex securities. MSG’s experts have strong backgrounds in the areas of risk management, financial information systems, regulation, fiduciary duty, and financial theory as it relates to capital markets transactions and relationships. Among other things, we have been engaged to analyze and provide opinions regarding complex transaction structures in the fields of merchant energy, insurance, derivatives trading, collateralized debt obligations, credit default swaps, and many more. We have also examined and opined on the due diligence undertaken by investment fiduciaries and have frequently been called upon to value illiquid securities or interests in closely held companies.

Capital Markets Case Studies

Derivatives Valuation

A Latin American country issued U.S. dollar-denominated bonds with attached warrants indexed to the price of oil. A fund company entered into a series of trades to purchase these bonds from a multinational bank. The fund company later filed a lawsuit alleging a breach of contract because the warrants were not attached to the bonds it had purchased. The fund company claimed damages in the amount of the warrant value appreciation, and cash payments from the warrants that it had not received. MSG was retained to analyze and value the warrants.

Underwriter Due Diligence

A wholesale power generation company offered shares of stock using a shelf registration and a prospectus which stated that the proceeds were to be used for working capital and general corporate purposes. A lawsuit was filed alleging that there were material errors and omissions in the prospectus regarding the uses of the funds, the company’s financial results, and the collectability of amounts owed to the company by other firms. MSG was retained to assess, among other things, the actions of the underwriters in performing their due diligence. MSG was also requested to calculate damages, if any, under Section 11 of the Securities Act of 1933, and to evaluate and respond to opinions offered by opposing experts.

Energy Derivatives

Traders at a merchant energy trading firm were paid bonuses days before the company filed for bankruptcy. A lawsuit was filed alleging that these bonuses constituted preference payments. MSG was retained to value the company and assess its solvency on the day the bonuses were paid. In the course of performing a sum-of-the-parts valuation analysis, MSG analyzed and assessed the value of the merchant energy trading contracts and other sophisticated derivatives that made up the company’s trading book.

Derivatives Investing

A fixed income mutual fund suffered losses following a sharp rise in interest rates. A lawsuit was filed alleging that the fund had extensive holdings in mortgage backed derivatives that were not adequately disclosed, and that were outside the parameters of the fund’s stated investment policies and objectives. MSG was engaged to analyze the fixed income market, review the fund’s investment strategy, and evaluate the derivatives held by the fund.

Credit Rating

A large West Coast life insurer issued guaranteed investment contracts (GICs). At the time the GICs were issued, one of the major rating agencies issued an AAA claim paying ability rating for the insurer. A few months after the high rating was issued, the insurer filed for bankruptcy protection. The holders of the GICs sued the rating agency for damages, claiming the rating was unsuitable. MSG evaluated the procedures and analysis performed by the rating agency and the creditworthiness of the insurance company. The focus of our work was to determine the reasonableness of the rating given to the life insurer’s claims paying ability.

Swap Agreements

A large European insurance company completed a significant recapitalization transaction in order to acquire a domestic property and casualty insurer. MSG was retained to test the subsidiary’s solvency and capital adequacy and to provide opinions regarding these issues. Among other things, the work involved in-depth analysis of the company’s swap agreements.

Investor Due Diligence

Within a few months after raising over $100 million in a round of debt financing, a financially distressed developer of composite materials filed for bankruptcy protection. An investor group that often invested in high-risk companies participated in this round of financing and brought a lawsuit against the company, claiming the company’s problems were not fully disclosed. MSG was retained to assess the allegations made in the complaint. As part of our analysis, we reviewed the company’s disclosures made over a several year period as well as the due diligence undertaken by the investor group.

Insider Trading

An investor was accused of having purchased stock based on confidential information prior to the public announcement that the firm was a takeover target. Working in collaboration with another consulting firm, MSG was engaged to assess the likelihood that the company was a takeover candidate and that any reasonably knowledgeable investor, provided with the publicly available information the defendant received, would have also purchased the stock.


In a securities class action suit brought against a holding company and its life insurance subsidiary, plaintiffs claimed that the company had failed to disclose material information regarding its portfolio investment of high yield securities. The plaintiffs claimed that as a result, the company’s stock price was artificially inflated. MSG was retained to evaluate the appropriateness of the firm’s disclosures given its insurance and investment portfolios and deteriorating financial condition. The analysis included a review of financial statements, earnings announcements, and other disclosures. We also performed an assessment of the materiality of certain issues which had not been disclosed.


A fixed income mutual fund was sued by several investors, alleging the fund invested in securities outside the realm of the fund’s investment objectives. The lawsuit claimed that the fund had extensive holdings in mortgage-backed derivatives that were not adequately disclosed. The portfolio suffered substantial losses when interest rates rose unexpectedly. MSG was engaged to analyze the fixed income market both before and after the spike in interest rates, as well as review the investment strategy and philosophy of the fund.

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.


Based in part on its apparent financial strength, a health care system issued variable rate demand bonds via a third party (government agency). Bondholders had the right to sell the bonds back to the government agency at par at any point in time, but this could be avoided if the rates on the bonds were raised. After the company filed for bankruptcy, it was learned that the healthcare system had shifted accounting reserves between affiliates so that certain entities would appear more profitable. The U.S. Securities and Exchange Commission (SEC) sought penalties against the company’s independent auditors. MSG was retained to assess whether a particular bond’s underlying creditworthiness was dependent on the bond being issued insured or uninsured.

Due Diligence

A leading private equity investment firm acquired a food processing company. The acquirer maintained that the seller misrepresented the condition of the business and held back a portion of the purchase price. The seller then sued the acquirer for damages in the amount of the holdback. Together with one of our senior experts, MSG was retained to evaluate the appropriateness of the due diligence performed by the acquirer.

Financing Alternatives

A cargo restraint manufacturer retained an investment bank to obtain additional financing for its operations. The investment bank evaluated several proposals and advised the manufacturer to select one in particular. Subsequent to obtaining the new financing, the manufacturer sued the investment bank for damages alleging that the financing proposal recommended by the investment bank was the most expensive to the manufacturer, and had generated the highest fees under the terms of the engagement agreement. MSG was retained to evaluate the financing alternatives and the work performed by the investment bank as well as to assess any damages.

Yield Burning

A state governmental agency undertook a bond defeasance. As part of the bond defeasance process, U.S. Treasury securities were purchased in conjunction with the municipal advanced refunding. In a lawsuit filed by the municipality against the investment bank retained for the bond defeasance, the municipality alleged that the price of the U.S. Treasury securities purchased on its behalf had been marked up excessively, thus lowering (“burning”) the yield on those securities. MSG was retained to value the Treasury securities purchased by the municipality, compare the purchase price to the then prevailing market price and calculate damages, if any.