Financial Guaranty Insurance Company v. Putnam Advisory Company LLC


Our client secured a complete victory in a virtual bench trial over the performance of a $1.5 billion collateralized debt obligation.

Retained by Milbank

Plaintiff Financial Guaranty Insurance Company (FGIC) alleged that our client, Putnam, had failed to appropriately discharge its responsibilities as the collateral manager of Pyxis, a $1.5 billion mortgage-backed collateralized debt obligation (CDO) that failed in the wake of the 2007–2008 financial crisis. Counsel for Putnam retained Cornerstone Research to support expert testimony by independent consultant John Dolan. After a three-and-a-half-week virtual trial in the Southern District of New York, the Honorable Lewis Liman ruled in favor of our client on all counts.

FGIC, which had insured Pyxis’s $900 million super-senior tranche, filed a complaint in 2012 alleging that Putnam had made false and misleading statements regarding the nature and selection of Pyxis assets. It also alleged that a hedge fund had a short interest in Pyxis that gave it an incentive to see Pyxis fail, and that Putnam had allowed the hedge fund to influence the selection of Pyxis collateral, despite allegedly knowing of the asserted short interest.

In his expert report, Mr. Dolan explained the roles of different parties to a CDO and the responsibilities of a collateral manager in selecting CDO assets. He also assessed information available to FGIC at the time it decided to participate in Pyxis; how Pyxis compared to contemporaneous CDOs; and what the evidence suggested regarding the independence of Putnam’s collateral selection.

The expert discovery phase of the case lasted for several years and included extensive Daubert briefings. During that phase, Dr. Ronnie Barnes of Cornerstone Research filed an affidavit in support of a Daubert motion in which counsel successfully argued for the exclusion of certain of FGIC’s expert analyses.

After eight years of litigation, Judge Liman ruled that “[i]n the end … the evidence was not close. Putnam clearly prevailed on all of the elements of FGIC’s claims.”

Originally adjourned due to the COVID-19 pandemic, this case was one of the first remote bench trials in the United States involving complex commercial litigation.

For more information on the case, please contact Laura Stiglin or Nari Subramanian.

Case Experts

  • London

Ronnie Barnes

Vice President

John H. Dolan

Independent Consultant,
Second Order Strategies Inc.