A leading law firm required the assistance of commodity market experts to do a forensic risk study of the timeline of transactions entered between their client (the defendant) and a hedge fund (the plaintiff), to assist in an ongoing commercial dispute litigation related to crude oil and refined products. The exposure at stake was over $400mm.
Three years worth of financial and physical commodity contracts were reviewed to perform a detailed data mining and analytics assessment of related communications between the plaintiff’s structuring and origination teams, along with related parties such as agents, shippers, financial hedgers, insurance companies etc. The forensic risk assessment reviewed claims from the event horizon looking backwards and analyzed commercial decisions taken, risk mitigation practices followed, and due diligence considerations followed by the firm over that window of time.
The synthesized data highlighted whether there was gross negligence by the plaintiff or a violation of its own established risk management policies. It highlighted if lines of credit were established without the verification of inventory levels. Data analysis examined credit and counterparty risk management controls, any delayed reporting internally within the plaintiff firm.
It was highlighted that there was a systemic evidence of mediocre to poor risk management practices when compared to industry benchmarks by the plaintiff. The analysis highlighted how the firm doubled, tripled and later quadrupled its exposure to the counterparty in question through a series of increasingly risky lending, all sanctioned without the appropriate risk assessments or internal due diligence. The forensics risk report delivered to the law firm provided a detailed review of the plaintiff’s commercial transaction practices along with the growing risk exposures, relative to market moves.