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Docket #0554 Date Filed: 9/7/2011
Hearing Date: September 21, 2011 at 10:00 A.M. (prevailing Eastern Time)
Objection Deadline: September 14, 2011 at 4:00 P.M. (prevailing Eastern Time)
Peter A. Ivanick
Allison H. Weiss
DEWEY & LEBOEUF LLP
1301 Avenue of the Americas
New York, New York 10019
Tel: (212) 259-8000
Fax: (212) 259-6333
- and Todd L. Padnos (admitted pro hac vice)
DEWEY & LEBOEUF LLP
1950 University Avenue, Suite 500
East Palo Alto, California 94303
Tel: (650) 845-7000
Fax: (650) 845-7333
Attorneys for the Debtor and Debtor in Possession
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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:
In re
:
:
AMBAC FINANCIAL GROUP, INC.,
:
:
Debtor.
:
:
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Chapter 11
Case No. 10-15973 (SCC)
NOTICE OF DEBTOR’S APPLICATION, PURSUANT TO SECTIONS 327(a)
AND 328 OF THE BANKRUPTCY CODE, BANKRUPTCY RULE 2014(a) AND
LOCAL RULE 2014-1, FOR AUTHORIZATION TO EMPLOY AND RETAIN
THE BRATTLE GROUP, INC. AS A CONSULTANT AND POSSIBLE
EXPERT WITNESS NUNC PRO TUNC TO JULY 22, 2011
PLEASE TAKE NOTICE that a hearing on the annexed application (the “Application”)
will be held before the Honorable Shelley C. Chapman, United States Bankruptcy Judge, in
Room 610 of the United States Bankruptcy Court, One Bowling Green, New York, New York
10004-1408 on September 21, 2011, at 10:00 a.m. (Eastern Time), or as soon thereafter as
counsel may be heard (the “Hearing”).
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1015973110907000000000003
PLEASE TAKE FURTHER NOTICE that objections, if any, to the relief requested in
the Application (i) must comply with the Federal Rules of Bankruptcy Procedure, the Local
Rules of the United States Bankruptcy Court for the Southern District of New York and the
Amended Order Pursuant to Bankruptcy Rules 2002, 9007, and 9036, and Local Rule 2002-2,
Establishing Certain Notice, Case Management, and Administrative Procedures entered on
December 21, 2010 [Docket No. 75] (the “Case Management Order”), (ii) must be set forth in
writing describing the basis therefor, and (iii) shall be filed electronically with the Court on the
docket of In re Ambac Financial Group, Inc., Case No. 10-15973 (SCC), in accordance with
General Order M-399, by registered users of the Court’s case filing system and by all other
parties in interest on a 3.5 inch disk.
PLEASE TAKE FURTHER NOTICE that, pursuant to Local Rule 9070-1, (i) at least
one hard copy of any objections filed shall be marked “Chambers Copy” and delivered in an
unsealed envelope to the chambers of the Honorable Judge Shelley C. Chapman, United States
Bankruptcy Court, One Bowling Green, New York, New York 10004-1408, not later than the
next business day following the date on which such document is electronically filed and
(ii) copies of any objections filed shall be delivered by first class mail to (a) Dewey & LeBoeuf
LLP, 1301 Avenue of the Americas, New York, New York 10019, Attn: Tevia Jeffries, Esq.,
counsel for the Debtor; (b) the Office of the United States Trustee for the Southern District of
New York, 33 Whitehall Street, 21st Floor, New York, New York 10004, Attn: Brian Masumoto,
Esq.; (c) Foley & Lardner LLP 777 Wisconsin Avenue, Milwaukee, Wisconsin 53202 Attn:
Frank DiCastri, counsel to Wisconsin Office of the Commissioner of Insurance, (d) Morrison &
Foerster LLP, 1290 Avenue of the Americas, New York, New York 10104, Attn: Anthony Princi,
Esq., counsel for the statutory committee of creditors; (e) The Brattle Group, Inc., 44 Brattle
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Street, Cambridge, Massachusetts 02138, Attn: Barbara Levine; and (f) all parties who have
requested notice in this chapter 11 case, so as to be received no later than September 14, 2011, at
4:00 p.m. (Eastern Time).
PLEASE TAKE FURTHER NOTICE that objecting parties are required to attend the
Hearing and failure to appear may result in relief being granted or denied upon default.
Dated: September 7, 2011
New York, New York
/s/ Allison H. Weiss
Peter A. Ivanick
Allison H. Weiss
DEWEY & LEBOEUF LLP
Tel: (212) 259-8000
Fax: (212) 259-6333
DEWEY & LEBOEUF LLP
Tel: (650) 845-7000
Fax: (650) 845-7333
3
Hearing Date: September 21, 2011 at 10:00 A.M. (prevailing Eastern Time)
Objection Deadline: September 14, 2011 at 4:00 P.M. (prevailing Eastern Time)
Peter A. Ivanick
Allison H. Weiss
DEWEY & LEBOEUF LLP
Tel: (212) 259-8000
Fax: (212) 259-6333
DEWEY & LEBOEUF LLP
Tel: (650) 845-7000
Fax: (650) 845-7333
---------------------------------------------------------------x
:
In re
:
:
:
:
Debtor.
:
:
---------------------------------------------------------------x
Chapter 11
Case No. 10-15973 (SCC)
DEBTOR’S APPLICATION, PURSUANT TO SECTIONS 327(a) AND 328 OF
THE BANKRUPTCY CODE, BANKRUPTCY RULE 2014(a) AND LOCAL
RULE 2014-1, FOR AUTHORIZATION TO EMPLOY AND RETAIN
THE BRATTLE GROUP, INC. AS A CONSULTANT AND POSSIBLE
TO THE HONORABLE SHELLEY C. CHAPMAN
UNITED STATES BANKRUPTCY JUDGE:
Ambac Financial Group, Inc., as debtor and debtor in possession in the above-captioned
case (the “Debtor”), submits this application (the “Application”), and respectfully represents:
Background
1.
On November 8, 2010 (the “Commencement Date”), the Debtor
commenced a voluntary case under chapter 11 of title 11 of the United States Code (the
“Bankruptcy Code”). The Debtor continues to operate its business and manage its properties as
debtor in possession as authorized by sections 1107(a) and 1108 of the Bankruptcy Code.
2.
On November 17, 2010, the United States Trustee for the Southern
District of New York (the “U.S. Trustee”) appointed a statutory committee of creditors (the
“Committee”) [Docket No. 27]. No trustee or examiner has been appointed in this chapter 11
case.
3.
The Debtor is a holding company and a Delaware corporation.
The
Debtor’s principal operating subsidiary, Ambac Assurance Corporation (“AAC”), is a
Wisconsin-domiciled financial guarantee insurance company whose business includes the
issuance of financial guarantee insurance policies to support public finance, structured finance,
and international finance transactions.
4.
Additional information regarding the Debtor’s capital structure and events
leading up to the commencement of this chapter 11 case is contained in the Affidavit of David W.
Wallis in Support of the Debtor’s Chapter 11 Petition and First Day Motions and Pursuant to
Local Rule 1007-2, filed on the Commencement Date [Docket No. 2].
5.
On November 9, 2010, the Debtor began a declaratory judgment
proceeding, Adv. Pro. Case No. 10-4210 (SCC) (the “Adversary Proceeding”), against the IRS
by filing a complaint with the Bankruptcy Court [Adv. Pro. Docket No. 1] (the “Complaint”) to
determine, among other issues, whether the Debtor applied the proper accounting method with
respect to its losses on the CDS Contracts or, in the alternative, whether the IRS, having
promulgated no guidance on the subject of tax treatment of CDS contracts and having failed to
2
rule on the Debtor’s applications relating to accounting method, abused its discretion in failing to
consent to the change or otherwise should be now estopped from disallowing the Debtor’s claim
of losses on the CDS contracts. Count I of the Complaint requests a determination pursuant to
section 505(a)(1) of the Bankruptcy Code that the Debtor and the members of its consolidated
group have no tax liability for tax years 2003 through 2008 and are entitled to the full amount of
the $708,115,837.00 in tax refunds that were paid to the Debtor between December 2008 and
February 2010 (the “Tax Refunds”).
6.
On May 5, 2011, the IRS filed proof of claim numbers 3694 and 3699 (the
“IRS Claims”). The IRS Claims list taxes allegedly due and interest and penalties thereon but do
not explain the basis for the claims. Both IRS Claims assert a priority claim under section
507(a)(8) of the Bankruptcy Code of $807,242,021.91 and a general unsecured claim of
$1,800.00.
7.
On June 14, 2011, the Debtor filed an objection to the IRS Claims [Docket
No. 311] (the “IRS Claims Objection,” together with the Adversary Proceeding, the “IRS
Matters”), on the grounds that the Debtor has no obligation to return the Tax Refunds.
8.
Discovery in the Adversary Proceeding is in progress. To date, document
discovery and depositions of fact witnesses are complete, and depositions of expert witnesses are
scheduled to be completed by October 5, 2011.
Jurisdiction and Venue
9.
This Court has subject matter jurisdiction to consider and determine this
matter pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b).
Venue is proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
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Relief Requested
10.
By this Application, the Debtor seeks an order, substantially in the form
attached hereto as Exhibit A (the “Proposed Order”), authorizing, pursuant to sections 327(a) and
328 of the Bankruptcy Code, Rule 2014(a) of the Federal Rules of Bankruptcy Procedure (the
“Bankruptcy Rules”), and Rule 2014-1 of the Local Bankruptcy Rules for the Southern District
of New York (the “Local Rules”), the employment and retention of The Brattle Group, Inc.
(“Brattle”) as a consultant and possible expert witness, nunc pro tunc to July 22, 2011, in
accordance with the terms of the engagement letter between Brattle and Dewey & LeBoeuf LLP
(“D&L”), dated September 7, 2011, a copy of which is attached hereto as Exhibit B (the
“Engagement Letter”).
11.
This Application is supported by the Affidavit of Dr. Michael I. Cragg in
Support of the Debtor’s Application, Pursuant to Sections 327(a) and 328 of the Bankruptcy
Code, Bankruptcy Rule 2014(a) and Local Rule 2014-1, for Authorization to Employ and Retain
The Brattle Group, Inc. as a Consultant and Possible Expert Witness Nunc Pro Tunc to July 22,
2011 (the “Cragg Affidavit”), a copy of which is attached hereto as Exhibit C.
Basis for Relief Requested
12.
Pursuant to section 327(a) of the Bankruptcy Code, a debtor in possession
is authorized to employ professional persons “that do not hold or represent an interest adverse to
the estate, and that are disinterested persons, to represent or assist the [debtor in possession] in
carrying out [its] duties under [the Bankruptcy Code.]” 11 U.S.C. §327(a). Section 1107(b) of
the Bankruptcy Code modifies section 101(13) (definition of “disinterested person”) and section
327(a) of the Bankruptcy Code in chapter 11 cases, by providing “a person is not disqualified for
employment under section 327 of [the Bankruptcy Code] by a debtor in possession solely
because of such person’s employment by or representation of the debtor before the
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commencement of the case.” 11 U.S.C. §1107(b). Under section 328(a) of the Bankruptcy
Code, with the court’s approval, a debtor in possession may employ professional persons under
section 327(a) of the Bankruptcy Code “on any reasonable terms and conditions of employment,
including on retainer, on an hourly basis, on a fixed or percentage basis, or on a contingent fee
basis.” 11 U.S.C. §328(a).
13.
As required by Bankruptcy Rule 2014(a), this Application sets forth the
following: (a) the specific facts showing the necessity for Brattle’s employment, (b) the reasons
for D&L and the Debtor’s selection of Brattle as a consultant and possible expert witness, (c) the
professional services to be provided by Brattle, (d) the arrangement between the Debtor and
Brattle with respect to Brattle’s compensation, and (e) to the best of the Debtor’s knowledge, the
extent of Brattle’s connections, if any, to certain parties in interest in this chapter 11 case.
Retention of Brattle Is Warranted
14.
As described above, the Debtor initiated the Adversary Proceeding to
determine, among other issues, whether the Debtor applied the proper accounting method with
respect to its losses on the CDS Contracts or, in the alternative, whether the IRS, having
promulgated no guidance on the subject of tax treatment of CDS contracts and having failed to
rule on the Debtor’s applications relating to accounting method, abused its discretion in failing to
consent to the change or otherwise should be now estopped from disallowing the Debtor’s claim
of losses on the CDS contracts.
15.
The Debtor also filed the IRS Claims Objection seeking to disallow the
16.
Litigation of the complex issues raised in the IRS Matters requires the
IRS Claims.
knowledge and expertise of an experienced economist.
5
17.
D&L contemplates that Brattle will provide consulting services and
possible expert testimony services; analysis and consulting will be performed by members of the
firm and, should expert testimony services be provided, Dr. Michael I. Cragg, principal of
Brattle, would serve as an expert witness.
18.
The Debtor has been informed that Dr. Cragg is a principal of Brattle, that
he has expertise in this area, and that he has previously been qualified as an expert in both state
and federal courts in multiple jurisdictions.
19.
D&L selected Dr. Cragg and Brattle to serve as a consultant and possible
expert witness because of the firm’s extensive expertise, experience and knowledge regarding
insurance company accounting.
Services to Be Rendered
20.
Subject to approval of the Application, and pursuant to the Engagement
Letter, Brattle will provide consulting services and possible expert witness services to D&L for
the benefit of the Debtor, including, among others, on economic issues related to the tax
treatment of economic losses suffered by one of the Debtor’s indirectly held subsidiaries on
certain CDS contracts. Brattle has informed D&L and the Debtor that it is willing to serve as
D&L’s consultant and possible expert witness with respect to the IRS Matters and to perform the
services described above for the benefit of the Debtor. Brattle is well qualified to perform these
services for the Debtor.
21.
To the extent D&L or the Debtor requests that Brattle perform additional
services not contemplated by the Engagement Letter or directly related to services detailed
therein, the Debtor shall file an application for an order by the Court approving any such
additional services, and such application shall set forth the additional services to be performed
and any additional fees to be paid.
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Confidentiality
22.
To the extent that Brattle provides consulting services to D&L or to the
Debtor at the direction of D&L, counsel to the Debtor in the IRS Matters, or any of the Debtor’s
other retained counsel in connection with such matters, Brattle’s work will be deemed to have
been performed at the sole direction of Debtor’s counsel and shall be solely and exclusively for
the purpose of assisting counsel in their representation of the Debtor. Consequently, Brattle’s
work may be of fundamental importance in the formulation of mental impressions and legal
theories by counsel, which may be used in counseling the Debtor, representing the Debtor, and
negotiating a settlement on behalf of the Debtor. Accordingly, in order for Brattle to carry out its
responsibilities, it may be necessary for Debtor’s counsel to disclose to Brattle their legal
analysis, as well as other privileged information and attorney work product. Thus, it is critical
that this Court order that the status of any writings, analysis, communications, and mental
impressions formed, produced or created by Brattle in connection with its assistance of D&L or
any of the Debtor’s other retained counsel in the IRS Matters (collectively, the “Brattle Work
Product”) be deemed the work product of D&L or any of the Debtor’s other retained counsel in
their capacity as counsel to the Debtor. Moreover, the Debtor seeks an order providing that the
confidential and/or privileged status of the Brattle Work Product, except in the event that Dr.
Cragg is designated as a testifying expert witness and the Brattle Work Product becomes subject
to discovery pursuant to the either the Federal Rules of Evidence or the Federal Rules of
Bankruptcy Procedure, (i) shall not be affected by the fact that Brattle has been retained by the
Debtor rather than by D&L or any of the Debtor’s other retained counsel, and (ii) shall not be
affected if certain aspects of Brattle’s work are shared with the Debtor, any of the Debtor’s other
retained counsel, the Committee, the Committee’s counsel, the Wisconsin Office of the
Commissioner of Insurance (“OCI”) or OCI’s counsel.
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Limitation on Brattle’s Liability
23.
Pursuant to the Engagement Letter, Brattle shall perform the services with
the standard of care normally exercised by professional economic consultants performing
comparable services under similar conditions.
24.
In addition, the Engagement Letter contains a limitation on liability. This
provision provides that, except to the extent finally judicially determined to have resulted from
Brattle’s gross negligence, bad faith or reckless or intentional misconduct (and other than for
injuries to third persons or to personal property), Brattle’s cumulative liability, and that of its
officers, directors, principals, employees, agents, assigns and successors in interest, to D&L
and/or the Debtor for all claims related to the services, regardless of whether sounding in
contract, tort or otherwise, shall be limited to the amount the Debtor has paid to Brattle for its
services.
25.
The Engagement Letter further provides that under no circumstances shall
Brattle or its officers, directors, principals, employees, agents, assigns or successors in interest be
liable for indirect, consequential (including but not limited to lost revenue or profits), special or
exemplary damages of any kind.
Brattle’s Disinterestedness
26.
To the best of the Debtor’s knowledge, Brattle does not have any
connection with or any interest adverse to the Debtor, its creditors, or any other party in interest,
or its respective attorneys or accountants, except as may be set forth in the Cragg Affidavit.
27.
In view of the foregoing, the Debtor submits that Brattle is a “disinterested
person” as such term is defined in section 101(14) of the Bankruptcy Code, as modified by
section 1107(b) of the Bankruptcy Code and as required under section 327(a) of the Bankruptcy
Code.
8
Compensation of Brattle
28.
Brattle’s current customary hourly rates, subject to change from time-to-
time, are as follows:
Individual
Position
Rate
Dr. Michael I. Cragg
Principal
$575
Bin Zhou
Senior Consultant
$440
Lisa Cameron
Senior Consultant
$395
29.
Associates
$290-$450
Research Staff
$200-$325
Brattle’s hourly rates are subject to periodic adjustment from time to time
in accordance with Brattle’s established billing practices and procedures. Brattle has informed
the Debtor that it will provide notice of any changes to its hourly rates within ten business days
thereof to the Debtor, the U.S. Trustee, the Committee and any other statutory committee
appointed in this case, and file such notice with this Court.
30.
Brattle will be reimbursed for all reasonable out-of-pocket expenses
incurred. Any extraordinary expenses (e.g., for travel or hotel accommodations) will be subject
to prior approval by D&L.
31.
The Debtor understands that Brattle shall apply to the Bankruptcy Court
for allowances of compensation for professional services rendered in this chapter 11 case and for
reimbursement of actual and necessary expenses incurred in connection therewith in accordance
with the Order Pursuant to Sections 105(a) and 331 of the Bankruptcy Code, Bankruptcy Rule
2016, And Local Rule 2016-1 Establishing Procedures for Interim Monthly Compensation and
Reimbursement of Expenses of Professionals, entered on December 21, 2010 [Docket No. 81]
9
(the “Interim Compensation Order”), applicable provisions of the Bankruptcy Code, the
Bankruptcy Rules, the Local Rules, the U.S. Trustee’s Guidelines for Reviewing Applications
for Compensation and Reimbursement of Expenses and any other applicable procedures and
orders of the Court.
32.
Brattle has agreed to accept as compensation such sums as may be allowed
by the Court and understands that interim and final fee awards are subject to Court approval.
33.
To the best of the Debtor’s knowledge, (i) no commitments have been
made or received by Brattle with respect to compensation or payment in connection with this
case other than in accordance with the provisions of the Bankruptcy Code; and (ii) there is no
agreement or understanding between Brattle and any other entity, other than a member, partner
or regular associate of Brattle, for the sharing of compensation received or to be received for
services rendered in connection with these proceedings.
Notice
34.
In accordance with the Amended Order Pursuant to Bankruptcy Rules
2002, 9007, and 9036, and Local Rule 2002-2, Establishing Certain Notice, Case Management,
and Administrative Procedures, notice of this Motion has been provided by facsimile, electronic
mail transmission, first class mail, overnight delivery and/or hand delivery to (i) the U.S.
Trustee, (ii) counsel to OCI, (iii) counsel to the Committee, (iv) Brattle and (v) all parties
requesting notice pursuant to Bankruptcy Rule 2002. The Debtor submits that no other or further
notice need be provided.
No Previous Request
35.
No previous request for the relief sought herein has been made by the
Debtor to this or any other Court.
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EXHIBIT A
Proposed Order
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:
In re
:
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:
Debtor.
:
:
---------------------------------------------------------------x
Chapter 11
Case No. 10-15973 (SCC)
ORDER PURSUANT TO SECTIONS 327(a) AND 328 OF THE
BANKRUPTCY CODE, BANKRUPTCY RULE 2014(a) AND LOCAL
RULE 2014-1, AUTHORIZING THE EMPLOYMENT AND RETENTION
OF THE BRATTLE GROUP, INC. AS A CONSULTANT AND POSSIBLE
Upon the application (the “Application”)1 of Ambac Financial Group, Inc., as debtor and
debtor in possession in the above-captioned chapter 11 case (the “Debtor”), for entry of an order,
pursuant to sections 327(a) and 328 of title 11 of the United States Code (the “Bankruptcy
Code”), Rule 2014(a) of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”),
and Rule 2014-1 of the Local Bankruptcy Rules for the Southern District of New York (the
“Local Rules”), authorizing the Debtor to employ and retain The Brattle Group, Inc. (“Brattle”)
as a consultant and possible expert witness nunc pro tunc to July 22, 2011, on the terms set forth
in the Engagement Letter, all as more fully described in the Application; and upon consideration
of the Affidavit of Dr. Michael I. Cragg in Support of the Debtor’s Application, Pursuant to
Sections 327(a) and 328 of the Bankruptcy Code, Bankruptcy Rule 2014(a) and Local Rule
2014-1, for Authorization to Employ and Retain The Brattle Group, Inc. as a Consultant and
Possible Expert Witness Nunc Pro Tunc to July 22, 2011 (the “Cragg Affidavit”); and the Court
having subject matter jurisdiction to consider the Application and the relief requested therein in
1
Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Application.
accordance with 28 U.S.C. § 1334; and consideration of the Application and the relief requested
therein being a core proceeding pursuant to 28 U.S.C. § 157(b); and venue being proper before
this Court pursuant to 28 U.S.C. §§ 1408 and 1409; and no trustee or examiner having been
appointed in this chapter 11 case; and due and proper notice of the Application having been
provided; and it appearing that no other or further notice need be provided; and a hearing having
been held to consider the relief requested in the Application (the “Hearing”); and the appearances
of all interested parties having been noted in the record of the Hearing; and upon the record of
the Hearing, and all of the proceedings held before the Court; and the Court being satisfied based
on the representations made in the Application and in the Cragg Affidavit that (i) Brattle
represents no interest adverse to the Debtor’s estate with respect to the matters upon which it is
to be engaged, (ii) it is a disinterested person as that term is defined under section 101(14) of the
Bankruptcy Code, as modified by section 1107(b) of the Bankruptcy Code, and (iii) the terms of
the Engagement Letter are reasonable for the purposes of section 328(a) of the Bankruptcy Code;
and the Court having found and determined that the relief sought in the Application is necessary
and in the best interests of the Debtor, its estate and creditors, and all parties in interest, and that
the legal and factual bases set forth in the Application establish just cause for the relief granted
herein; and after due deliberation and sufficient cause appearing therefore, it is
ORDERED that the Application is granted and approved in its entirety, except as may be
modified herein, and it is further
ORDERED that, in accordance with sections 327(a) and 328 of the Bankruptcy Code,
Bankruptcy Rule 2014 and Local Rule 2014-1, the Debtor is authorized to employ and retain
Brattle as a consultant and possible expert witness on the terms set forth in the Application and
the Engagement Letter nunc pro tunc to July 22, 2011; and it is further
2
ORDERED that Brattle file fee applications for interim and final allowance of
compensation and reimbursement of expenses in accordance with the Interim Compensation
Order, the procedures set forth in sections 330 and 331 of the Bankruptcy Code and such
Bankruptcy Rules and Local Rules as may then be applicable from time to time, the guidelines
established by the Office of the United States Trustee, and any other applicable procedures or
orders of this Court; and it is further
ORDERED that the terms and conditions of the Engagement Letter are approved; and it
is further
ORDERED that, in the event that the rates of compensation for its services increase from
the rates disclosed for services in the Application or the Engagement Letter, Brattle will provide
notice of such increased rates to the Debtor, the U.S. Trustee, the Committee and any other
statutory committee appointed in this case, and file such notice with this Court, within ten
business days prior to the effective date of such increases; and it is further
ORDERED that, to the extent the Debtor requests that Brattle perform additional services
not contemplated by the Engagement Letter or directly related to services detailed in the
Engagement Letter, the Debtor shall seek approval by the Court for any such additional services;
and it is further
ORDERED that the Debtor is authorized, empowered and directed to take all actions
necessary to implement the relief granted pursuant to this Order; and it is further
ORDERED that, to the extent there may be any inconsistency between the terms of the
Application, the Engagement Letter and this Order, the terms of this Order shall govern; and it is
further
3
ORDERED that (a) any Brattle Work Product be deemed the work product of D&L or
any of the Debtor’s other retained counsel in their capacity as counsel to the Debtor, and (b) the
privileged and confidential status of any Brattle Work Product, except in the event that Dr. Cragg
is designated as a testifying expert witness and any Brattle Work Product becomes subject to
discovery pursuant to either the Federal Rules of Evidence or the Federal Rules of Bankruptcy
Procedure, (i) shall not be affected by the fact that Brattle has been retained by D&L rather than
by the Debtor or any of the Debtor’s other retained counsel, and (ii) shall not be affected if
certain aspects of Brattle’s work are shared with the Debtor, any of the Debtor’s other retained
counsel, the Committee, the Committee’s counsel, OCI or OCI’s counsel; and it is further
ORDERED that, notwithstanding anything in the Application or the Engagement Letter
to the contrary, during the pendency of the chapter 11 case, this Court retains exclusive
jurisdiction over all matters arising out of and/or pertaining to Brattle’s engagement until such
jurisdiction is relinquished; and it is further
ORDERED that, during the pendency of the chapter 11 case, this Court shall retain
jurisdiction with respect to any matters, claims, rights or disputes arising from or related to the
implementation of this Order.
Date: ___________, 2011
New York, New York
____
THE HONORABLE SHELLEY C. CHAPMAN
UNITED STATES BANKRUPTCY JUDGE
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EXHIBIT B
Engagement Letter
Dewey & LeBoeuf LLP
New York, NY 10019-6092
tel +1 212 259 8330
fax +1 212 632 0332
[email protected]
September 7, 2011
BY FEDERAL EXPRESS
The Brattle Group, Inc.
44 Brattle Streets
Cambridge, MA 02138
Re: In re Ambac Financial Group, Inc, Case No. 10-15973 (SCC)
Ambac Financial Group, Inc. v. United States, Adv. Pro. No. 10-4210
Dear Dr. Cragg:
This letter will confirm our agreement, effective as of July 22, 2011, that you
have been retained by Dewey & LeBoeuf LLP (“Dewey & LeBoeuf”) to serve as a consulting
and potentially a testifying expert in connection with the above-referenced litigation. The scope
of this engagement will be to, under our direction, review the facts relating to the abovereferenced matter and consult with us in areas where we require your assistance, including,
potentially, preparing an expert report and providing associated deposition or trial testimony. No
written report shall be prepared by you without our prior authorization and approval.
In rendering services under this agreement, you will cooperate fully with Dewey
& LeBoeuf and Ambac Financial Group, Inc. (“AFGI”) and undertake only such work as may be
requested of you. We understand that when providing such work, you may be assisted by other
Brattle consultants. If you require assistance from persons outside of The Brattle Group, such
assistance shall be approved in advance by us. Those providing such assistance may be required,
in our discretion, to enter into any appropriate agreements, including a confidentiality agreement.
Your assistance to us will involve your exposure to proprietary and confidential
information and to confidential attorney-client communications and attorney work product. All
documents and information provided to you by us or by AFGI (or its current or former officers,
directors and employees) in connection with this retention will be received in strict confidence
subject to all attorney-client and work product privileges that we and AFGI may enjoy.
Similarly, all information and documents provided by you to us or AFGI will, to the maximum
extent permissible, also be subject to a claim of privilege. Accordingly, all letters, reports, data,
and other written materials prepared or received by you in connection with this matter, whether
or not reduced to writing, shall be kept strictly confidential and prominently labeled
NEW YORK | L ONDON MULTINATIONAL PARTNERSHIP | WASHINGTON, DC
ALBANY | A LMATY | B EIJING | B OSTON | B RUSSELS | CHICAGO | DOHA | D UBAI
FRANKFURT | H ONG KONG | H OUSTON | JOHANNESBURG ( PTY ) LTD . | L OS A NGELES | MADRID | M ILAN | MOSCOW
PARIS MULTINATIONAL PARTNERSHIP | R IYADH AFFILIATED OFFICE | ROME | SAN F RANCISCO | S ILICON VALLEY | WARSAW
September 7, 2011
Page 2
“PRIVILEGED AND CONFIDENTIAL; ATTORNEY WORK-PRODUCT; SUBJECT TO
ATTORNEY-CLIENT PRIVILEGE.” Such documents shall not be made available to anyone
without our prior approval. This obligation does not extend to information (i) that is already
known to you at the time it is received by you, (ii) that is or becomes known to the public
through no fault or action of yours, or (iii) is available to you from a third party not bound to
secrecy to AFGI or Dewey & LeBoeuf. Your compliance with an administrative or court order
to testify or to produce documents, which order is no longer subject to appeal or any other form
of review, will not be considered a breach of this agreement, provided that you have given us
prompt notice of any request for or entry of such an order and have cooperated fully in any
efforts that Dewey & LeBoeuf or AFGI may undertake to have the request denied in whole or in
part or to have the order modified or revoked. Of course, you (and The Brattle Group) are not
required to delay disclosure while we pursue such legal remedies if such delay would subject you
or The Brattle Group to sanctions.
Moreover, you are required to review and comply with the Agreed Confidentiality
Stipulation and Protective Order issued by the U.S. Bankruptcy Court for the Southern District of
New York on April 5, 2011. The Agreed Confidentiality Stipulation and Protective Order are
enclosed for your review.
As agreed, your fees in connection with this matter will be billed at the following
rates per hour:
Individual
Position
Rate
Mike Cragg
Principal
$575
Bin Zhou
Senior Consultant
$440
Lisa Cameron
Senior Consultant
$395
Associates
$290-$450
Research Staff
$200-$325
In addition, you will be reimbursed for all reasonable out-of-pocket expenses that you incur, for
which you must provide receipts for verification. Any extraordinary expenses (e.g., for travel or
hotel accommodations) are subject to our prior approval. Please submit all statements to
Lawrence M. Hill, Esq., Dewey & LeBoeuf LLP, 1301 Avenue of the Americas, New York,
New York 10019, on a monthly basis for your time and actual out-of-pocket expenses. It is
agreed and understood that payment of the bills will be the responsibility of AFGI. It is further
agreed that your fees are not contingent upon the outcome of the above-referenced matter, or
upon AFGI’s agreement with your analyses or opinions. The Brattle Group agrees to accept as
September 7, 2011
Page 3
compensation such sums as may be allowed by the Court and understands that interim and final
fee awards are subject to Court approval.
Dewey & LeBoeuf may terminate this agreement at any time. In the event of this
agreement’s termination, you have agreed to cease all work under this agreement promptly or at
any time that you are requested to do so. Neither the termination of this agreement nor the
completion of this engagement shall relieve you of the continuing confidentiality obligations set
forth above. At our request, except as may otherwise be required by law, any materials provided
to you by or on behalf of AFGI (and any copies of such materials), including all work papers or
other materials created by AFGI in connection with this engagement, shall be returned to us or
destroyed. It is understood that as long as AFGI maintains appropriate procedures of
confidentiality, it may maintain a copy of work papers or other materials created by you in
connection with this engagement, as well as a copy of any document or other material provided
to you by Dewey & LeBoeuf on which you have principally relied in forming any opinion that
you have rendered to Dewey & LeBoeuf or AFGI in connection with your engagement in this
matter. Regarding your retention of documents or materials provided to you by Dewey &
LeBoeuf or AFGI, at the time you are asked to return the originals and all copies of such
documents or materials, you will (i) provide Dewey & LeBoeuf with a list of all documents or
materials of which you would like to retain a copy and (ii) reaffirm that you will continue to
maintain such documents and materials in a manner consistent with the confidentiality provisions
set out in this agreement for as long as they are in your possession and control and (iii) agree to
abide by Dewey & LeBoeuf’s determination as to whether the document retention is acceptable
or whether such documents shall be returned to Dewey & LeBoeuf or destroyed. You will of
course be entitled to retain a copy of any testimony you provide, provided the same is redacted of
confidential information. To the extent that you retain any materials, including any materials
prepared by you during the course of this engagement, such materials shall be retained in
confidence and shall not be used for any purpose without the express consent of Dewey &
LeBoeuf or AFGI.
Finally, during the term of this engagement, you personally agree not to act as a
consultant or expert in any other litigation involving the same or similar issues if such
assignment would present any actual or potential conflict of interest with your analyses in this
engagement, or could interfere with your ability to provide prompt attention to this litigation.
Nothing in the foregoing however shall prevent The Brattle Group from providing services for a
broad range of other clients, including on similar issues, or from performing services in unrelated
matters where AFGI’s interest(s) may be adverse or where the work may be on behalf of AFGI’s
competitors or adversaries.
You shall perform the services with the standard of care normally exercised by
professional economic consultants performing comparable services under similar conditions. As
we acknowledge above, other than the commitment to a standard of care, you make no
guarantees with respect to the services to be provided, or that any particular outcome can result
EXHIBIT C
Cragg Affidavit
5
---------------------------------------------------------------X
:
:
In re
:
:
:
:
Debtor.
:
---------------------------------------------------------------x
Chapter 11
Case No. 10-15973 (SCC)
AFFIDAVIT OF DR. MICHAEL I. CRAGG
IN SUPPORT OF THE DEBTOR’S APPLICATION, PURSUANT TO
SECTIONS 327(A) AND 328 OF THE BANKRUPTCY CODE, BANKRUPTCY
RULE 2014(A) AND LOCAL RULE 2014-1, FOR AUTHORIZATION TO EMPLOY
AND RETAIN THE BRATTLE GROUP, INC. AS A CONSULTANT AND
POSSIBLE EXPERT WITNESS NUNC PRO TUNC TO JULY 22, 2011
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF MIDDLESEX
)
) ss.
)
Dr. Michael I. Cragg, being duly sworn, deposes and says:
1.
I am a principal of the firm The Brattle Group, Inc. (“Brattle”), an
economics consulting firm with its principal offices at 44 Brattle Street, Cambridge,
Massachusetts 02138. I submit this affidavit (the “Affidavit”) in connection with the Application
(the “Application”)1 of Ambac Financial Group, Inc., as debtor and debtor in possession (the
“Debtor” and, together with its non-debtor subsidiaries, “Ambac”), for entry of an order,
pursuant to sections 327(a) and 328(a) of title 11 of the United States Code (the “Bankruptcy
Code”), Rule 2014(a) of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”)
and Rule 2014-1 of the Local Rules of Bankruptcy Practice and Procedure of the United States
1
Any capitalized terms used but not defined herein shall have the meaning ascribed to them in the Application.
Bankruptcy Court for the Southern District of New York (the “Local Rules”), authorizing the
Debtor to retain and employ Brattle as a consultant and possible expert witness, nunc pro tunc to
July 15, 2011.
2.
Unless otherwise stated in this Affidavit, I have personal knowledge of the
facts set forth herein. To the extent any information disclosed herein requires amendment or
modification upon Brattle’s completion of further review, or as additional party in interest
information becomes available to it, a supplemental affidavit will be submitted to the Court
reflecting such amended or modified information.
Qualifications of Professionals
3.
Brattle is an international economics consulting firm, consisting of
approximately 185 employees, that provides consulting services, litigation support and expert
testimony on economic, finance, regulatory, and strategic issues to corporations, law firms, and
public agencies world-wide.
4.
I am a Principal of Brattle. A true and accurate copy of my resume on
which my qualifications are summarized is attached to this Affidavit as Exhibit 1.
Services to Be Rendered
5.
Brattle will provide consulting services and possible expert witness
services to D&L, pursuant to Federal Rule of Civil Procedure 26, for the benefit of the Debtor,
including, among others, on economic issues related to the tax treatment of economic losses
suffered by one of Debtor’s indirectly held subsidiaries on certain CDS contracts.
Disinterestedness of Brattle
6.
Brattle represents financial institutions and commercial corporations.
Brattle has in the past represented, currently represents, and may in the future represent, entities
that are claimants of, or interest holders in, the Debtor or its subsidiaries, in matters unrelated to
2
the Debtor’s chapter 11 case. Some of these entities are, or may consider themselves to be,
creditors or parties in interest in the Debtor’s pending chapter 11 case or may otherwise have
interests in this case. Brattle will not represent such entities in matters related to this chapter 11
case.
7.
Based upon information supplied by Debtor’s counsel, Brattle searched its
client database to identify any connection or relationship with the possible parties in interest,
which lists the following categories:
a)
Debtor & Affiliates;
b)
Current Directors and Officers of the Debtor;
c)
Former Directors and Officers of the Debtor;
d)
Lease Counterparties;
e)
Contract Counterparties;
f)
Thirty Largest Unsecured Creditors;
g)
Additional Major Creditors;
h)
Vendors;
i)
Bondholders;
j)
Agents for the Bondholders;
k)
Indenture Trustees;
l)
Parties to Significant Litigation with the Debtor;
m)
Major Insurance Carriers, Agents, and Brokers;
n)
Equity Holders Holding More Than 5% of the Debtor;
o)
Other Equity Holders;
p)
Other Professionals Retained by the Debtor and Certain
Bondholders;
q)
Ordinary Course and Other Professionals;
3
8.
r)
Taxing and Regulatory Authorities and Other Governmental
Authorities with Claims;
s)
Key Staff Members of the Office of the United States Trustee for
the Southern District of New York (the “U.S. Trustee”);
t)
Miscellaneous Parties;
u)
Ambac Assurance Corporation Trustees;
v)
Ambac Assurance Corporation Student Loans; and
w)
Ambac Assurance Corporation Reinsurers.
Brattle’s review consisted of a thorough review of its client and
accounting database for engagements, both past and present, and also included a specific inquiry
to employees currently employed by Brattle as principals. To the best of my knowledge, this
review disclosed that Brattle has in the past been retained by, and likely in the future will provide
services for certain creditors of the Debtor as well as other parties in interest, and their respective
attorneys and accountants in matters (“Interested Parties/Clients”). However, in light of the
confidential nature of much of Brattle’s litigation support services (that is, where Brattle’s
retention in a litigation matter relates to non-testimonial expert services), Brattle is precluded by
the application of the attorney-client privilege and work product doctrine, from providing a full
disclosure of the identity of the Interested Parties/Clients or a description of the services
performed for them. A similar constraint applies to much of Brattle’s confidential consulting
services, where Brattle is precluded by contractual confidentiality obligations to its clients from
disclosing the nature of the retention. It is critical to Brattle’s professional reputation that it not
breach those disclosure constraints. To the best of my knowledge, however, this review revealed
that:
4
a)
Over the past five calendar years, only five Interested
Parties/Clients, together with their known affiliates (for purposes
of this statement, grouped together), made payments to Brattle for
professional services rendered on one or more engagements for
them (“Interested Parties/Clients Aggregate Payments”) in excess
of 2% of Brattle’s annual revenues in any of the last five calendar
years, and only one Interested Party/Client made Interested
Party/Client Aggregate Payments in excess of 5% of Brattle’s
annual revenues during that period.
b)
Except for one confidential engagement regarding calculations
necessary to assist a client value surplus notes that one of Debtor’s
affiliates may issue, as of the date of this Declaration, none of
these Interested Clients engagements are known to Brattle to be
related to such parties’ claims against the Debtor or interests in this
chapter 11 case. For that one confidential engagement, Brattle has
been paid less than 0.1% of its annual revenues.
c)
One of those Parties in Interest/Clients (the U.S. Internal Revenue
Service) has a direct interest in the IRS Matters. None of Brattle’s
work for the U.S. Internal Revenue Service related to the subject of
the Debtor’s IRS Matters.
9.
None of Brattle’s work or compensation for any engagement for any party
depends upon the results of our analyses in the IRS Matters.
5
10.
To the best of my knowledge and based upon the results of the
relationship search described above and disclosed herein, Brattle neither holds nor represents an
interest adverse to the Debtor’s estate that would impair Brattle’s ability to perform objectively
the requested professional services for the Debtor, in accordance with section 327 of the
Bankruptcy Code.
11.
Brattle is a “disinterested person,” as such term is defined in section
101(14) of the Bankruptcy Code, as modified by section 1107(b) of the Bankruptcy Code, in that
Brattle, its principals, consultants, associates and staff, except as set forth herein:
a.
are not creditors, equity security holders, or insiders of the Debtor;
b.
are not and were not, within two years before the Commencement Date, a
director, officer or employee of the Debtor;
c.
do not have an interest materially adverse to the interests of the estate or of
any class of creditors or equity security holders by reason of any direct or
indirect relationship to, connection with, or interest in, the Debtor or for
any other reason; and
d.
have not represented any party in connection with matters relating to the
Debtor, within the last two years, although Brattle has certain relationships
with other parties in interest and other professionals in connection with
matters unrelated to this chapter 11 case.
12.
As of the Commencement Date, Brattle was not a “creditor” of the Debtor
within the meaning of section 101(10) of the Bankruptcy Code.
13.
To the best of my knowledge, except as described above, (a) Brattle has
no connections with the creditors, any other party-in-interest, or their respective attorneys and
accountants; (b) Brattle’s professionals working on this matter are not relatives of and have no
known connection with the U.S. Trustee or of any known employee in the office thereof, or any
United States Bankruptcy Judge of the Southern District of New York; and (c) Brattle has not,
6
and will not, represent any of the aforementioned entities, or any of their respective affiliates or
subsidiaries, in relation to the Debtor or its chapter 11 case.
14.
To the extent it is brought to my attention that any information disclosed
herein requires amendment or modification as a result of Brattle’s further review of potential
conflicts of interest, I intend to file a supplemental declaration to the Court reflecting such
amended or modified information.
Brattle will review its client database as additional
information concerning entities having a connection with the Debtor is developed and, as
necessary, will file appropriate supplemental disclosures with the Court.
Compensation of Brattle
Brattle’s Prepetition Compensation from the Debtor
15.
Brattle is not a creditor of the Debtor, and has performed no work for it
prior to commencement of this chapter 11 case.
Brattle’s Rates and Billing Practices
16.
The Engagement Letter provides that services will be charged at an hourly
rate. Brattle’s current customary hourly rates, subject to change from time-to-time, are as
follows:
Individual
Position
Rate
Principal
$575
Bin Zhou
Senior Consultant
$440
Lisa Cameron
Senior Consultant
$395
Associates
$290-$450
Research Staff
$200-$325
7
17.
Brattle will be reimbursed for all reasonable out-of-pocket expenses
incurred. Any extraordinary expenses (e.g., for travel or hotel accommodations) will be subject
to prior approval by D&L. A true and correct copy of Brattle’s engagement letter, executed by
an officer of the Debtor, is attached to the Application as Exhibit B.
18.
Brattle will comply with the Order Pursuant to Sections 105(a) and 331 of
the Bankruptcy Code, Bankruptcy Rule 2016, And Local Rule 2016-1 Establishing Procedures
for Interim Monthly Compensation and Reimbursement of Expenses of Professionals, entered on
December 21, 2010 [Docket No. 81], applicable provisions of the Bankruptcy Code, the
Bankruptcy Rules, the Local Rules, the U.S. Trustee’s Guidelines for Reviewing Applications for
Compensation and Reimbursement of Expenses and any other applicable procedures and orders
of the Court. Brattle shall apply to this Court, pursuant to section 330 of the Bankruptcy Code,
for allowances of compensation for professional services rendered in this chapter 11 case and for
reimbursement of actual and necessary expenses incurred in connection therewith.
19.
Brattle has agreed to accept as compensation such sums as may be allowed
by the Court and understands that interim and final fee awards are subject to Court approval.
20.
No promises have been received by Brattle or any member, counsel or
associate thereof as to payment or compensation in connection with these cases other than in
accordance with the provisions set forth herein. Brattle has no agreement with any other entity
to share with such entity any compensation received by Brattle or by such entity.
21.
The foregoing constitutes the statement of Brattle pursuant to Bankruptcy
Code sections 327 and 328, Bankruptcy Rules 2014, and Local Rules 2014-1.
8
EXHIBIT 1
Resume of Dr. Michael Cragg
PA157415.7
MICHAEL I. CRAGG, PH.D.
Principal
Office: Cambridge, MA ♦ Phone: +1.617.864.7900 ♦ Email: [email protected]
Dr. Michael Cragg is a principal in The Brattle Group’s finance practice, having recently served as a
founding partner of Cambridge Finance Partners, LLC. He has extensive research, teaching, consulting
and expert witness experience in financial services, corporate finance, public finance, real estate and
valuation.
Dr. Cragg has assisted numerous corporations, the U.S. Department of Justice, and the IRS in developing
economic and financial testimony in complex financial litigation. For instance, he analyzed the tax
practices of the former partners of Long Term Capital Management. This highly complex case involved
the analysis of the business practices of Long Term Capital and numerous structured finance transactions
and with Dr. Cragg’s assistance the government secured a favorable verdict. More recently he has played
a central role analyzing the AIG and Lehman failures and a variety of cases involving financial
intermediation, structured financial products, real estate financings and the impact of the global financial
crisis on the functioning of financial markets.
He has been involved in a variety of complex valuation cases analyzing the relevant markets and
fundamental economic sources of value. His cases have involved financial analysis, antitrust and
valuation work, and have included an in-depth analyses of failings of standard appraisals applied to
unique real estate, the study of industry structure for the life insurance and mutual fund industries, and an
investigation of the changes in market structure before and after deregulation in the U.K. and through the
California Energy Crisis. Most recently, his trial and deposition testimony regarding valuation and
economic substance was central to the DOJ’s victories in a number of tax shelter cases including the
Altria, BB&T and Fifth Third cases. He has been involved in numerous cases involving the
pharmaceutical industry, services and high tech industries where he has valued intangible property,
determined royalty rates and analyzed antitrust damages.
Prior to founding Cambridge Finance, Dr. Cragg was founding partner for the Boston office of Bates
White & Ballentine, and vice president at Analysis Group, both litigation support firms. In these
positions, he testified in cases involving securities valuation and antitrust. He also served as an expert in
numerous complex litigations in the financial services, real estate, pharmaceutical, electricity and gas, and
high-tech industries. For example, Dr. Cragg analyzed various issues related to Southern Company’s
choice of capital structure as it investigated alternative divestiture and acquisition strategies, as a damages
expert in the Visa/MasterCard debt-credit card tying cases, Sears’s financing of its credit card operations
and he developed the litigation plan for 10 separate experts in the Microsoft litigation.
He served as a management consultant at CFP, A.T. Kearney and Integral. At A.T. Kearney he helped
develop an industrial relations strategy for one of the country's largest steel producers, and with Integral
he developed options-based management systems for large pharmaceutical and medical device
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2
companies. Dr. Cragg has also worked for senior management in energy companies to understand and
optimize their hedging and marketing operations, and to work on issues related to capital structure.
Dr. Cragg began his career as a professor in the Department of Economics and the School of International
and Public Affairs at Columbia University, where he taught undergraduate and graduate courses in public
finance, industrial organization, and econometrics. He has served on the faculty of the World Bank
Training Programs and the UCLA's Anderson School of Management. He was also an economist at
RAND and a senior research economist at the Milken Institute in Santa Monica, CA. He publishes
broadly in the areas of industrial organization, finance and corporate finance. Dr. Cragg was President of
the Board of Trustees of the Cambridge Montessori School, a pre-K through grade nine school of 250
students.
AREAS OF EXPERTISE
Corporate Finance
Taxation and Public Finance
Securities Analysis and Valuation
Structured Finance
Valuation of Intangibles
Intellectual Property
♦ Damages
♦
♦
♦
♦
♦
♦
♦ Antitrust
INDUSTRY EXPERTISE
♦ Financial Services
♦ Energy
♦
♦
♦
♦
Real estate
Pharmaceuticals
Medical Devices
Manufacturing
EDUCATION
♦ Ph.D., Economics, Stanford University, 1993
♦ M.A., University of British Columbia, 1988
♦ B.S.E., Princeton University, 1986 (magna cum laude)
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PROFESSIONAL WORK EXPERIENCE
♦
♦
♦
♦
♦
♦
♦
♦
♦
Principal, The Brattle Group, 2008 – present
Founding Partner, Cambridge Finance Partners, LLC, 2001 – 2008
Partner, Bates White & Ballentine, LLC, 2000 – 2001
Vice President, Analysis Group/Economics, 1999 - 2000
Manager, A.T. Kearney, 1998 – 1999
Visiting Professor, Anderson School of Management, UCLA, 1997
Senior Research Associate, Milken Institute, 1997 – 1998
Consultant, RAND, 1996 – 1997
Assistant Professor, Economics Department, Columbia University 1993 – 1998
EXPERIENCE
Securities, Financial Markets and Valuation
♦ Valuation of medical devices
♦ Valuation of various brands
♦ Analysis of irreparable harm in preliminary injunction request by United Air Lines and American
Air Lines to halt expansion of Chicago O’Hare airport
♦ Valuation of complex real estate holdings in Ireland, London, Paris, Boston, San Francisco and
New York. Analysis of bank lending and relationships and restructuring of Irish commercial
banking sector and sovereign debt markets
♦ Cramdown analysis in bankruptcy proceedings for real estate partnerships and hedge funds in
Hawaii and New York
♦ Analysis of IPO market in 2007-2010
♦ Valuation of communications and high tech manufacturer with operations in India, the U.S. and
Europe
♦ Analysis of Goldman Sachs underwriting activities in sale of military equipment manufacturer
♦ Analysis and valuation of previous metals distributor and lender
♦ Valuation of various brands owned by multinational food distributor
♦ Analysis of various international structured finance investments by Lehman Brothers, Citibank,
Principal Life, Rabobank, Ambac, AIG, Wells Fargo, Bank of New York, BB&T, Bank of
America, Lloyds, Barclays, Credit Agricole
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4
♦ Analysis of Chicago Tribune LBO and bakruptcy
♦ Valuation of complex real estate holdings in San Francisco
♦ Analysis of capital structure of various real estate partnerships holding commercial real estate
across a dozen urban areas in the United States
♦ Analysis of real estate workout involving $300 million in real estate in bankruptcy
♦ Analysis of the economic process granting development rights and analysis of the value of
development rights for a celebrity enclave on Martha’s Vineyard in a multi-jurisdictional dispute
between local, state and federal authorities, real estate partnerships and various not-for-profit
organizations.
♦ Analyzed harm from fraudulent accounting and financial information in acquisition of Excell data
by Cambridge Technology Partners.
♦ Valuation of Nashoba Networks, executive stock options and private equity financing of Nashoba
Networks.
♦ Analysis of 3M’s cost of capital, capital structure and R&D investment portfolio in dispute
regarding appropriate pretrial interest rate in silicone breast implant litigation.
♦ Analysis of trading costs and hedging efficiency for a major energy producer.
♦ Analysis of hedging and risk management practices for power plants in the presence of carbon
costs (clean and dirty spark spread options, clean and dirty dark spread options).
♦ Developed benchmark cost of capital measures for a Fortune 100 energy company investigating
divestiture and acquisition strategies. Presented results before FERC and in the Electricity
Journal.
♦ Conducted market study of the valuation of mutual fund companies. Study involved collection of
comprehensive dataset on sources of fees and the cost structure for mutual fund complexes.
Analyzed inflow and outflow patterns from mutual funds as a function of performance.
♦ Valued intangible assets of a life insurance company that provided annuity and life insurance
products. Analysis included industry study on sources of profits, comparables adjustments and
discounted cash flow analysis.
♦ Consulting expert working on behalf of Credit Lyonnais and the French government in an $6
billion lawsuit brought by the losing bidders for U.S. life insurance company Executive Life,
which had failed under the weight of its junk bond holdings. Analysis of loss causation tested
whether any of the losing bids satisfied then-California Insurance Commissioner John
Garamendi’s requirements for protecting policyholders against further losses.
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♦ In the Enron securities litigation provided consulting services and assisted a testifying expert.
Analysis included work typical for a 10b(5) securities case including a day-by-day event study,
construction of trading models in order to replicate and critique plaintiffs’ damages claims, and
analyzed financial reports, analysts’ reports, stock, bond, and options trading data, and other
public information in order to identify curative disclosure events. Valuation work also included
indices of industry performance that transformed over time along with the firm’s underlying
business segments and construction of bottom-up measures of enterprise value.
♦ Analyzed business model and trading practices of the failed hedge fund Long-Term Capital
partners.
♦ Valued and analyzed risk characteristics of a portfolio of life insurance policies owned by Xcel
Energy.
♦ Analyzed inter-company transfer payments, pre-payment for goods, and related impacts on risk
management and, in particular, foreign currency hedging.
♦ For an investment division of a major insurance company, developed analytical support for
negotiation strategy in a tax matter involving foreign currency options. This involved converting
transaction documents into cash flow models, and presenting results on multiple occasions to the
legal team and the practitioners who entered into the transaction.
♦ Analyzed the drug development process for 19 distinct drugs in various stages of clinical progress
in support of expert testimony on the relative economic value of marketing, development, and
patented technology. Modeled the profit split on the potential returns of these drugs between
small biotech firms and the large pharmaceutical firms with whom they entered into business
alliances.
♦ Analyzed nine different complex cross-border lease transactions documents. Modeled underlying
cash flows from the leasing of thousands of different types of computers including mainframes
and telecommunication systems, and tractor trailer. Developed regression models on depreciation
rates for computer equipment and residual value analysis.
♦ Analyzed 12,000 Powder River Basin coal contracts from 1978 through 1993. Developed
regression models, including log and linear fixed effect models, to determine the statistical
likelihood of renegotiation of the coal contract at issue. The project involved massive data
collection and cleansing effort, and formulation and write-up of statistical methodology.
♦ Developed and performed regression analyses on the sources of value for young biotech firms.
♦ Performed regression analysis to derive lease yields, discount rates, and depreciation rates on
computer equipment.
♦ For a private client, evaluated malpractice damages in celebrity divorce representation. This
included modeling of eschewed settlement offers and effects of potential legal advice errors using
several different damage theories.
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♦ Valuation and analysis of a failed bond fund that invested in a variety of instruments including
ABS, CDO, MBS, CMBS, CDO-squareds. Presentation to Board and SEC and for settlement.
♦ Analyzed complex series of real estate transactions as they related to claimed charitable gifts.
♦ Valuation of coal fired and nuclear power assets.
♦ Analysis of potential financial distress for a vertically integrated utility experiencing deregulation.
♦ Valued manufacturing intangibles in Puerto Rican and Dominican Republic and the United States
for one of the world’s largest electronics and electric components manufacturers.
♦ Determined mitigation value of land that could be restored to wetlands.
♦ Analysis of complex real estate transaction involving exclusive property in Massachusetts and
abuse of charities.
Securitization and Structured Finance
♦ Analysis of CDS portfolios in Ambac bankruptcy
♦ In the Enron litigation, provided analysis and explanation of several financial structures including
securitizations, swaps, derivatives, and other complex structures.
♦ Analyzed value of bonds backed by credit card receivables.
♦ Analyzed dozens of leveraged lease and cross border lease transactions.
♦ Analyzed the pricing and market response to a disputed bond call. Included analysis of
comparisons of general obligation bonds, those secured by credit card receivables, and those
involving a provision that allowed the client to call the bonds in the event of a large decline in
receivables.
♦ For the DOJ on three cases involving LILO transactions, encountered the underlying legal issues
of economic substance, substance over form and pre-tax business purpose. Provided expert
support, including document review, cash flow creation and scenario testing, as well consulting
on strategy and case preparation. Examined option exercise scenarios and their sensitivity to
various parameters, including interest rates and the value of the underlying assets, as well as
potential default scenarios.
♦ Valuation and analysis of a failed bond fund that invested in a variety of instruments including
ABS, CDO, MBS, CMBS, CDO-squareds. Presentation to Board and SEC and for settlement.
Tax Litigation
♦ Analysis of international structured finance transactions involving investment by Lehman
Brothers
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♦ Analysis of international structured finance transactions involving investment by Principal Life
Insurance and Citibank
♦ Xcel Energy v. United States of America was slated to become the fifth Corporate Owned Life
Insurance (COLI) case to reach trial. Among the hotly contested issues was the pre-tax
profitablity and valuation of life insurance policies extending out over 40 years. Finance experts
for the taxpayer argued that the policies contributed hundreds of millions in value even absent the
contested tax deductions on policy loan interest. Performed valuations and risk analyses for Nobel
Prize winner Joseph Stiglitz, who testified that there was no aggregate transfer of risk to the life
insurance company.
♦ For the DOJ on a dispute involving the tax consequences of contingent liabilities and whether a
stated amount was taxable, examined underlying contracts and produced econometric models to
measure the likelihood of the various contact contingencies arising.
♦ For the IRS in a tax dispute involving transfer pricing, evaluated the valuation of intangible assets
and its impact on the pricing of inter-company transactions.
♦ Consulted to the investment division of a major insurance company involved in a transaction
involving foreign currency transfers. Examined the sources of pre-tax returns to meet economic
substance and form over substance standards. Documented and presented the results to the client
and legal team.
♦ Analyzed cross-border leasing transactions examining issues involving the step transaction
doctrine, economic substance, substance over form, and pre-tax business purpose.
♦ Altria v. United States of America – Testified in three week trial regarding the economic
substance of a leveraged lease transaction. After 28 minutes of deliberation, the jury decided in
favor of the government.
♦ Fifth Third Bancorp v. United States of America – Testified in three week trial regarding the
economic substance of a leveraged lease transaction. After a short deliberation, the jury decided
in favor of the government.
♦ In the Glaxo transfer pricing dispute, supported a team of 6 testifying experts that fully analyzed
and presented testimony on the pharmaceutical value chain. Analyzed a dozen different drug
markets including migraine, anti-ulcer, and anti-asthma. Analyzed marketing intangibles and the
value of pharmaceutical detailing.
♦ Valuation of nuclear and coal fired power plants involved in a takings dispute arising from
deregulation
Antitrust and Intellectual Property
♦ Analysis of competition at Chicago O’Hare airport
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♦ Calculation of damages in preliminary injunction hearing involving human resources
management software
♦ Determination of appropriate royalty rate in pharmaceutical dispute involving cancer drugs and
stem cell treatment
♦ Determination of appropriate royalty rate in pharmaceutical dispute involving antiinfective drugs
♦ Valuation of brand names owned by multinational food distributor
♦ Conducted economic analysis relevant to class certification in the aggregates industry.
♦ Retained as consulting expert by the Federal Trade Commission and various states to analyze
liability and damages arising out of antitrust claims against Mylan pharmaceuticals regarding
exclusive contracts and vertical market foreclosure in the pharmaceutical industry. Case settled
with the largest antitrust settlement ever obtained by the FTC.
♦ Retained as consulting expert analyzing damages in claims that MasterCard and Visa unfairly tied
the acceptance of debit cards to acceptance of credit cards. Developed expert rebuttal on
damages and liability testimony to Franklin Fischer.
♦ Testified on adequacy of competition in the market for opium and opiate drugs. Analyzed market
structure at all levels of the drug production process from the harvesting of opiate raw materials,
to production of API to wholesaling and final distribution.
♦ Developed expert testimony on profitability and reasonable royalty rates in claim that Genentech
infringed UC’s patent for technology necessary for producing human growth hormone.
♦ Provided expert testimony analyzing market definition for generic and branded anti-depressants
and anti-anxiety drugs.
♦ Provided expert testimony on the value of marketing as a barrier to entry in the pharmaceutical
industry.
♦ Consulting expert analyzing market definition for generic and branded anti-depressants and antianxiety drugs.
♦ Analysis of energy withholding and market manipulation during California Energy Crisis.
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TESTIMONY FROM LAST 4 YEARS
Wells Fargo, et al. v. United States of America (2011, affidavit)
United States District Court for the District of Minnesota
AD Global FX, et al. v. United States of America (2011, report and deposition)
United States District Court for the Southern District of New York
United Air Lines, Inc. and American Airlines, Inc. v. City of Chicago (2011, disclosure)
In the Circuit Court of Cook County, Illinois, Chancery Division
AIG v. United States of America (2010, Affidavits)
Pritired 1, LLC, Principal Life Insurance et al. v United States of America (2009-2010, report,
rebuttal report, deposition, trial testimony)
United States District Court for the Southern District of Iowa, Central Division
Dellway et al., v National Asset Management Agency, Ireland and the Attorney General, (2010, written
testimony and rebuttal)
The Supreme Court and the High Court, Commercial, Ireland
In re: Maluhia One, LLC, Maluhia Eight, LLC and Maluhia Nine, LLC (2010, disclosure, trial
testimony)
In the United States Bankruptcy Court for the Northern District of Texas, Dallas Division
Highroads, Inc. v. Hewitt Associates, LLC (2010, report, rebuttal report)
Suffolk, SS. Superior Court, Commonwealth of Massachusetts
Eltek et al. v. Lehman Brothers et al. (2010, report)
Arbitration Institute of Stockholm Chamber of Commerce
Duchossois Industries v. United States of America (2009, report, rebuttal report, deposition)
United States District Court for the Northern District of Illinois, Eastern Division
Altria Group Inc. v. United States of America (2009, report, rebuttal report, deposition, trial)
Fifth Third Bancorp v. United States of America (2008, report, rebuttal report, trial)
United States District Court for the Southern District of Ohio Western Division
Pacificorp Holdings v. United States of America (2007, report, rebuttal report, deposition)
United States District Court for the District of Oregon
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AIG et al. v. Sears, Roebuck and Co. (2007, report, rebuttal report, trial)
Texas District Court, Dallas County
PUBLICATIONS
Finance and Corporate Governance
Cleaning Up Spark Spreads: How Plant Owners Can Reduce Risk Through Carbon Markets," by Michael
I. Cragg, Richard E. Goldberg, Varoujan Khatchatrian, and Jehan DeFonseka, The Brattle Group, Inc.,
March 2011
"The Impact on the U.S. Insurance Market of H.R. 3424 on Offshore Affiliate Reinsurance," by Michael
I. Cragg and Bin Zhou, Law 360, Inc., July 8, 2010
"The Impact on the U.S. Insurance Market of H.R. 3424 on Offshore Affiliate Reinsurance: An Updated
Economic Analysis," by Michael I. Cragg, J. David Cummins, and Bin Zhou, The Brattle Group, Inc.,
July 8, 2010
“Life Boats for the Banks—Let the Holding Companies Swim,” The Economists’ Voice, May 2009 (with
George Oldfield).
“Understanding the Credit Crisis: The Treasury, the Fed, and the Banking System,” with George Oldfield,
The Brattle Group Finance Newsletter, Issue 01 September 2008, (with George Oldfield).
“Assessing the Cost of Capital for a Standalone Transmission Company,” The Electricity Journal, 14(1),
January 2001, 80-88, (with William Lehr and Ron Rudkin).
“Executive Pay and UK Privatization: The Demise of "One Country, Two Systems,” (with Alexander
Dyck), Journal of Business Research, 2000, 47(1), 3-18.
“Management Control and Privatization in the United Kingdom,” RAND Journal of Economics (with I.J.
Alexander Dyck), 1999, 30(3) 475-497.
Analysis of Fiscal Policy
“Should the Government Invest, or Try to Spur Private Investment?” by Michael Cragg and
Joseph Stiglitz, The Economists’ Voice, May 2011.
“ECB-IMF Deal is a Noose that will Strangle Economic Recovery,” by Michael Cragg and
Joseph Stiglitz, The Irish Times, April 9, 2011.
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“Understanding the Credit Crisis Part 2: Getting Down the Mountain” 2009 No. 2 (Finance), The Brattle
Group
"The Impact on the U.S. Insurance Market of a Tax on Offshore Affiliate Reinsurance: An Economic
Analysis," by Michael I. Cragg, J. David Cummins, and Bin Zhou, The Brattle Group, Inc., May 1, 2009.
“Performance Incentives in the Public Sector: Evidence from the Job Training Partnership Act,” Journal
of Law, Economics and Organization, 1997, 13(1) 141-168.
“Do We Care? A Study of Canada's Indirect Tax System,” Canadian Journal of Economics, 1991, 24(1),
pp. 124-43.
City of Los Angeles Industrial Base and Taxes: Report to the City of Los Angeles. Milken Institute, 1997.
(with Beverly Burr).
“The Use of Welfare in Canada,” Canadian Journal of Economics, 1996, 29(0), S25-32.
“The Dynamics of Welfare Participation,” in Labour Markets and Income Support, published by the
Canadian Employment Research Forum, 1994.
“An Untold Story: The Characteristics of Welfare Use in British Columbia,” Canadian Journal of
Economics, (with Garry Barrett), 1998, 31(1) pp. 165-188.
“Do Homeless Shelter Conditions Determine Shelter Population? The Case of the Dinkins Deluge,”
Journal of Urban Economics, 46(3), November 1999, 377-415 (with Brendan O'Flaherty).
Environmental
“Valuing Properties with Wetland Potential,” by Michael Cragg, Christine Polek, Steve Polasky, The
Appraisal Journal, Spring 2011.
"Can the U.S. Congressional Ethanol Mandate be Met?," by Metin Celebi, Evan Cohen, Michael I. Cragg,
David Hutchings, and Minal Shankar, The Brattle Group, Inc., May 2010
“The Congressional Politics of Climate Change,” Vox,, 10 June 2009,
http://www.voxeu.org/index.php?q=node/3643, (with Matthew E. Kahn)
“Carbon Geography: The Political Economy of Congressional Support for Legislation Intended to
Mitigate Greenhouse Gas Production,” May, 2009 National Bureau of Economic Research, paper 14963
(with Matthew E. Kahn).
“Climate Consumption and Climate Pricing from 1940 to 1990,” Regional Science and Urban Economics
(with Matthew E. Kahn), 1999, 29(4), pages 519-39.
“New Estimates of Climate Demand: Evidence from Location Choice,” Journal of Urban Economics
(with Matthew Kahn) 1997 42(2) 261-284.
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PRESENTATIONS
“Presenting Better Evidence in Reasonable Royalty Cases: The Use of Economic Analysis,” American
Bar Association Annual Meetings, Toronto 2011.
“Update on Renewable Energy Market Trends,” presented at Seminar on Financing Clean Energy
Projects under the Reinvestment Act of 2009, (organized by Environment Business Council of New
England), June 11, 2009.
United States Congress Joint Committee on Taxation, White House Domestic Policy Council, and White
House Council of Economic Advisors “Analysis of Reinsurance Markets and the Reinsurance Tax
Proposal,” various meetings in 2009.
Harvard University, Law School, “The Use of Experts in Litigation,” June 2009.
University of Toronto, Rottman School of Management, “Foundations of the Credit Crisis, January, 2009.
Various CLE presentations to law firms, “Understanding the Credit Crisis: The Treasury, the Fed, and the
Banking System,” Fall 2008
ABA Tax and Real Property Joint CLE Meeting, “Court Procedure and Practice, Treatment of Testifying
and non-Testifying Experts” Oct. 19-21, 2006, Denver Colorado.
Institutional Investor, “Hedge Funds, Abusive Tax Shelters and the IRS: Is Your Hedge Fund at Risk?”
October 28, 2004.
Institute for International Relations conference titled New Approaches to Value Analysis: EVA, Real
Options and ROV, New York, December, 1999, "Real Options: Applications in New Drug
Development."
American Economics Association, Boston, Winter 1999, "Fat Cats or Corporate Agents?"
American Economics Association, Chicago, Winter 1998, "Management Control and Privatization in the
United Kingdom: A Quiet Life Disturbed."
Presentations at various institutions and universities including, Harvard Law School, the Federal Reserve
Bank of New York, Joint Committee on Tax, IRS, U.S. Treasury, Institutional Investor, RAND, Milken
Institute, Columbia University, University of Chicago, Carnegie-Mellon University, Yale University,
University of California at Los Angeles, University of California at Berkeley, University of California at
San Diego, New York University, Princeton University, University of Toronto.
August 24, 2011
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