Case Study: When the answer is Not in the Numbers

Being an effective financial advisor is not always about being the best at numbers. Paraphrasing Orwell, knowing the theory always helps but, in some cases, more so than in others. The following case study illustrates. Banker W was the target of a federal investigation concerning, at its core, the alleged violation of securities laws. I was engaged by W’s counsel to assist in the development of a financial theory which would address the typical white-collar litigation what-was-it question (very rarely are white collar cases whodunits). Before immersing myself into the financial data required to formulate my what-was-it, I asked to review the correspondence between the defense and the government’s attorneys. From that review, it became apparent that the glue that held together the government’s theory (and indeed informed the government’s reading of the financial records) was a recurring phrase on the emails to and from the target. That expression rang a bell and motivated me to reach for the books (well, Google), which reminded me that it was a term of art used in the economic academic literature. That recollection motivated me to put together more than a dozen reputable academic papers published in equally esteemed journals (two of them authored by Nobel Prize winners), all of which used the disturbing idiom in a completely innocent context. That led me to the view that there was only upside in making the government aware of the phrase’s proper usage: either the government would start looking at the transactions at issue discretely (as opposed to weaved by the phrase’s common thread), or it would signal to the adversary W’s intention to oppose a meritorious and well-documented reasonable doubt defense. W’s counsel agreed that there was very little risk and probably something to gain by sharing the academic papers with the government. He then prepared a cover letter quoting the relevant paragraph from each publication and highlighting each instance of the phrase. Naturally, the letter itself clearly articulated our view that, as sinister as the phrase’s plain-English reading may have sounded, it was actually a term of art likely used in the banking business. He attached the twelve papers (with the Nobelist authors’ ones on top) and sent out the letter. My engagement was expected to last for three to six months. However, I never got a chance to parse financial data, model it, or formulate fancy equations. In fact, my financial theory of the case was that the answer to the what-was-it question was “nothing”. W never heard back from the government after his attorney sent out the letter.