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Analytical

Litigation Support

The Situation: Default of Madoff-linked structured product

  • A private client invested in a leveraged structured product through their private bank. The product defaulted in December 2008 as one of the funds it invested in was linked to the fraudulent activities of Bernard Madoff. 

The Challenge: Analyse and clearly explain the mechanics of the product

  • Based on limited information, we analysed the structured product, formulating a number of working assumptions about the investment structure, funding and leverage, and assessing the impact of a performance fee on its net asset value. These inner workings were then presented and clearly explained to the client and his legal team.

The Resolution: Detailed framework analysis for use by legal team

  • We provided a framework which allowed the legal team to understand the detailed workings of the product and attribute performance to various factors.
  • In particular, we were able to estimate how much of the capital loss was due to overall market movements and how much was due to the collapse of the Madoff scheme.
  • We also reviewed the manner in which the product was sold to the client and pointed out failings with respect to applicable FSA guidelines.