CMRA's Expert Analysis and Testimony Instrumental in Carlyle's $2bln Litigation Victory in Guernsey Court

FOR IMMEDIATE RELEASE: CMRA's Expert Analysis and Testimony Instrumental in Carlyle's $2bln Litigation Victory in Guernsey Court
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New York, New York - September 11, 2017

The expert analysis and testimony prepared by Capital Market Risk Advisors (CMRA) - a leading risk management, risk governance, and litigation support boutique for the past 25 years - was extensively cited in a 524-page judgement dismissing all 187 claims, with almost $2 billion in alleged damages at stake, against Carlyle Capital Corporation Ltd's directors.

The Situation

Carlyle Capital Corporation Ltd (“CCC”) was a Guernsey-domiciled fixed income investment vehicle, with almost $1 billion in equity capital, that invested primarily in residential mortgage-backed securities issued by Fannie Mae and Freddie Mac and became insolvent in March 2008 amidst an unprecedented liquidity crisis in the markets that it traded in. In the largest claim ever brought before the Royal Court of Guernsey, CCC’s liquidators sought nearly $2 billion from CCC’s independent directors, investment manager, and promoters (the "Defendants"); the 187 claims against the Defendants included allegations of breaches of fiduciary duty, gross negligence, wrongful trading, misfeasance, and breaches of contract which, the liquidators had argued, led to CCC’s liquidation following a withdrawal of funding by its lending banks.

CMRA’s Role

Williams & Connolly LLP and Robbins Russell LLP, US counsel to the Defendants, retained CMRA to advise the court on risks, portfolio management, and industry practices and conventions related to the Agency mortgage-backed securities that Carlyle Capital Corporation invested in. For example, CMRA offered evidence as to the feasibility and risks of liquidating all or part of CCC’s portfolio in 2007. CMRA submitted an expert report, two joint statements with the liquidators’ expert witnesses, and two supplemental expert reports in response to new materials introduced by the liquidators. Peter Niculescu, a CMRA partner, also testified for two days at trial.

The Result

On September 4, 2017, Lieutenant Bailiff Hazel Marshall QC dismissed all claims against the Defendants. She noted that the liquidators’ expert witnesses failed to show that selling off CCC’s assets in the autumn of 2007 – as the liquidators had argued the directors ought to have done – would have produced any better outcome for CCC than it faced when engulfed by the crisis in the financial markets in March 2008. In reaching her decisions regarding both liability and damages were liability to be found, she cited Dr. Niculescu’s evidence on key issues such as market depth, the prices at which assets could have been sold, and the significant risks of selling. She described Dr. Niculescu’s expert evidence at various junctures as “measured,” “soundly reasoned,” and “credible”; having “far more of the ring of realism as against mere theory”; and “significant and persuasive.”

About CMRA (www.cmra.com)

Capital Market Risk Advisors (CMRA) is a pre-eminent risk advisory, risk governance, expert witness, and litigation support boutique. Founded in 1991, we offer clients a unique perspective based on our senior professionals’ years of hands-on experience in the evolution of derivatives, risk management, hedge funds, risk governance, structured securities and other complex financial instruments and capital markets issues. We work with asset managers, hedge funds, plan sponsors, mutual funds, banks, insurance companies, and other market participants. Our advisory services include assessing risk exposures and advising on risk management and strategy, the valuation of complex or illiquid instruments, benchmarking risk management and risk governance practices against best practice, performing comprehensive investment, operational and risk due diligence, advising senior managers and boards with respect to all types of risk management and risk governance issues, developing risk appetite statements, advising on risk reporting and communication, and reviewing and drafting risk management and policies and procedures.

The synergy between our advisory and litigation practices helps us provide advisory clients with insight about what can and does go wrong and provide litigation clients with insight about prevailing industry standards.