Undue Risk-Taking Expert Witness
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Senior practitioner–led analysis with no junior expert layering
Experience across derivatives, structured products, volatility, valuation, margin, and unwind mechanics
Work product built to withstand cross-examination
Recipient of Best Financial Markets Expert Witness Specialists (USA) award
About Navesink International
Navesink International is the premier expert witness firm for financial markets. We work with prominent law firms on complex cases by providing expert witnesses with strong technical knowledge and extensive market experience.
Our experts support litigation through analysis of case facts, discovery review and suggestions, assessment of technical strengths and weaknesses in the arguments, preparation of expert reports and depositions, and expert witness testimony. All work reflects real-world market practice and is developed for use in litigation.
Expert Witness Services for Undue Risk-Taking Allegations
Allegations of undue or excessive risk taking often depend on hindsight, selective time windows, or misunderstandings of how risk was measured, approved, monitored, and communicated at the time decisions were made. A defensible analysis reconstructs what was known, or knowable, at the relevant decision points and assesses conduct against the stated strategy objectives and mandate, internal policies and limits, governance processes, applicable disclosures, and prevailing market practice.
Risk that is excessive or undisclosed can arise through factors including:
Leverage, concentration, tail exposure, liquidity and funding risk, convexity, basis risk, and hidden correlations
Our work evaluates whether these risks were properly identified, measured, monitored, escalated, and managed in practice, including whether limit breaches and exceptions were handled appropriately and whether the observed risk profile matched what was represented to investors, counterparties, or supervisors.
We focus on separating market-driven outcomes from avoidable loss linked to:
Mandate drift, control or escalation failures, unsuitable exposures, valuation practices, financing and margin dynamics, and liquidation or de-risking decisions
Where appropriate, we quantify loss causation and damages under alternative feasible risk profiles consistent with the mandate and constraints.
Key Questions Examined in Undue Risk-Taking Disputes
What risk was taken, when, and under what constraints
Reconstruct positions, leverage, liquidity, funding and margin, and valuation practices at the key decision points.
How the risk profile evolved
Identify concentrations, optionality, convexity, correlations, or basis risks that can emerge through drift or incremental trade decisions.
How risk was governed in practice
Assess approvals, authority, escalation, exception handling, and the independence of risk oversight.
Whether the metrics were fit for purpose
Evaluate VaR, stress testing, scenario analysis, and model assumptions, including known blind spots under tail events and the appropriateness of the choice of metrics.
Whether disclosures and suitability aligned with reality
Test whether the calculated risk profile matched what was represented to investors, counterparties, or supervisors.
Loss causation and damages
Separate market moves from avoidable loss tied to process failures and quantify the losses attributable to counterfactuals where appropriate.
Our Analytical Approach to Undue Risk-Taking Cases
Reconstruct the decision record:
Policies, limits, committee materials, risk reports, valuations, financing and margin, and key communications tied to market conditions.
Map exposures and embedded risks:
Concentrations, leverage, optionality, correlation, liquidity, and funding effects that drive tail outcomes.
Evaluate governance and controls:
Authority and escalation, exception handling, independence of oversight, model risk, and valuation controls.
Quantify and attribute outcomes:
Decompose P&L into identifiable drivers and stress scenarios, scaled to the available data.
Assess feasible alternatives when needed:
Model risk profiles consistent with the mandate and constraints and quantify the impact of deviations.
Communicate for litigation:
Deliver clear exhibits and a narrative supporting opinions on prudence, foreseeability, loss causation, and damages.
Representative Matters
SVXY options and margin liquidation
Matter type: Arbitration.
Facts: A retail trader was liquidated due to option losses realized in the last two hours of Volmaggedon day.
Instruments and strategy: SVXY (short-volatility ETP), equity options on those VIX reverse ETFs.
Core questions: Loss causation, product complexity and foreseeability, suitability, supervision and margin methodology, as well as allocation of responsibility.
Our work: We performed a document and quantitative review focused on:
- Loss causation: Reconstructed how short put selling on a volatility reverse ETP amplified losses during a volatility jump.
- Product analysis: Explained the mechanics of VIX futures, ETP rebalancing, and why options on a short-volatility ETP can compound tail exposure. The strategy was ‘exotic’ highly volatile and highly risky.
- Foreseeability: Used professional-grade fat-tailed statistical analysis to show that large volatility shocks are not rare, and should be considered in professional risk management.
- Disclosures: Reviewed the ETP’s offering documents and risk disclosures, plainly stating the potential for rapid and substantial losses.
- Suitability: Assessed whether the client’s sophistication matched his strategy, and contrasted it with the broker-dealer’s technical knowledge and supervisory obligations.
- Supervision and margin: Evaluated platform risk models and margin calculations, including whether methodology understated tail risk and whether additional margin or trading restrictions were warranted.
Outcome:
Provided a detailed report and exhibits supporting a defense narrative that the lack of supervisory and deficient margin practices materially contributed to the loss, as well as to the inappropriateness of the broker’s claimed damages.
Related articles:
- Don’t touch the VIX explains the non-normality of the VIX, and the mechanics of leveraged ETPs. (White paper)
- Options on leveraged VIX ETFs – Legal issues explains the high exoticity and toxicity of those ETPs, as well as the margin requirements for volatile customer portfolios. (White paper)
Allianz Structured Alpha
Matter type: Investigation and litigation support.
Facts: At the onset of COVID, in February and March 2020, equity markets fell rapidly as volatility spiked. Allianz Structured Alpha, a strategy marketed as market-neutral and volatility-neutral, reported significant losses tied to derivatives referencing the S&P 500 and volatility instruments. The episode raised questions about the strategy’s true exposures.
Instruments and strategy: S&P 500 futures and options, VIX futures and options, and complex volatility strategies & risks.
Core questions: Strategy characterization, risk assessment, loss causation, and whether risk representations were consistent with the portfolio’s exposure.
Our work: After researching and finding the fund’s trading positions, we conducted an independent analysis focused on:
- Loss causation: Reconstructed exposures and showed the losses were consistent with a short-tail, short-volatility profile under severe market stress.
- Strategy review: Evaluated how the portfolio deployed “selling catastrophe insurance” through S&P options and volatility option structures.
- Disclosure review: Compared marketing claims such as “risk-controlled” and crash protection language to the portfolio’s modeled and realized downside drivers.
- Public-facing analysis: Published technical articles explaining the strategy mechanics and the loss drivers, which were cited by prominent financial markets journalists covering the matter.
Outcome:
Plaintiff counsel retained us for work supporting claims tied to misrepresentation and risk governance deficiencies. The SEC later delivered criminal indictments against the firm and the money managers.
Related articles:
- Losing your shirt, institutional style: Malachite’s strategy of ‘selling catastrophic risk insurance’ via derivatives, and its subsequent losses. (White paper)
- Allianz Global Investors: Understand: Allianz Structured Alpha’s strategy, loss causation, and fraud by misrepresentation (White paper)
Litigation Deliverables for Undue Risk-Taking Disputes
Risk narrative and timeline
Positions, market context, decision points, governance actions, and responsibilities.
Risk and limit analysis
Breaches, exceptions, escalation, and materiality over time.
Stress and scenario exhibits
Tail analysis, correlation and liquidity stress, margin and funding dynamics.
Loss attribution and damages
Driver decomposition, sensitivity analysis, and counterfactuals where appropriate.
Valuation and marks review
Pricing conventions, reserves, and the effect of overrides.
Deposition and testimony support
Preparation materials, demonstratives support, and technical backup if the matter proceeds.
Why Law Firms Choose Navesink for Undue Risk Taking Cases?
Uniquely qualified senior practitioner-led analysis, no junior expert layering.
Experience across asset classes, derivatives, structured products, volatility, valuation, margin, and unwind mechanics.
Work product developed to withstand deposition and cross-examination.
Expert witnesses with the highest quality and the strongest technical knowledge.
In-house experts and a network of peer-recommended C-level industry professionals, each with decades of experience.
Expert witness reports and depositions & expert witness testimonies.