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Experts on their Expertise
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There are two kinds of people in the world, says finance expert Tom E.
Greene: word people and number people. Most lawyers fall into the first
group, which explains why they either panic or gloss over when faced with
financial concepts in litigation.
But Greene – himself
a lawyer as well as a financial consultant – says lawyers' fear of finance
often stems from their failure to grasp a simple concept. His job as an expert,
he believes, is to help them see through that seeming complexity.
"I find
that most attorneys tend to believe that financial concepts can't be boiled down
into an understandable narrative," Greene explains. "What I try to
do is to help them go through the translation process. I help to take the numbers
and turn them into a narrative."
Greene is
president of Liberty Street Financial Group, which he founded in New York in
1980 and later moved to Athens, Ga., near the campus of the University of Georgia
Terry College of Business. He has also held positions as senior investment banker
with Goldman, Sachs & Co., senior vice president of Lehman Brothers, and
principal of Paine Webber.
In addition
to providing investment and banking services, Greene serves as an expert witness
and consultant in cases involving a range of financial matters, including securities,
corporate finance and financial and retirement planning. He is a graduate of
Emory University Law School.
Searching for Simplicity
While
the array of financial matters lawyers confront is broad, lawyers' responses
share a common theme, Greene believes. They let their lack of financial
fluency interfere with their perception of the facts. As a result, they
see complexity where the bottom line is actually quite simple.
To illustrate
his point, Greene recounts a case he worked on that involved a bank's action
to recover its alleged losses in a series of hedging transactions. Based on
the documents submitted, the transactions appeared to be quite complex. Greene
was brought in to help evaluate the numbers and find a way to make the complex
calculations understandable.
As he went
through the documents, he discovered that what had been made to look complex
really was not. In fact, he concluded, the transactions were not even
hedges.
A hedge
allows a business to manage risk by shifting it elsewhere. Here, the business
had never actually shifted the risk. Rather, it had manipulated its internal
bookkeeping to create the appearance of a hedge through dual sets of books.
If there was a loss on one set, it would be offset by a gain on the other.
"So
it was very simple to convert these seemingly complex numbers into a narrative," Greene
recalls. "Out of that jumble of numbers came a very simple fact."
The Human Factor
Lawyers
share another common misunderstanding about corporate finance, Greene says,
which is that they forget the human factor.
"Attorneys
think that large financial institutions have agnostic, computer-based models
for financial transactions," he explains. "Usually, that's not true.
Usually, it's a couple of individuals somewhere and it is very much subject
to manipulation."
Consider
the example of a financial professional preparing an Excel projection model.
Because such a model is complex and involves a multitude of assumptions, one
small change can rip through and alter all the numbers.
"It's
the human factor very much at work," Greene says. "Just because someone
sends you print-outs from computers and pictures of computer screens, as if
all this involved some financial magic, it isn't magic at all."
Greene points
back to his earlier example, where the purported hedge losses presumably involved
a daunting number of complex calculations. The truth turned out to be that
the case was not at all about the math.
"That's
usually the case – there's a simple story that underlines what happened.
What the attorney needs is to work with someone who can help bring out that
simple story."
Complex
numbers often are little more than a smokescreen, he believes, obscuring the
straightforward narrative that lies just out of view.
"The second you say deriSvative, SWOT or option, lawyers' minds glaze over
and they assume there's a titanium black box that can't easily be cracked.
It's our job to show them the narrative story – and it's usually not
in a black box."
For Greene,
lawyers involved in financial cases too often overlook the fact that behind
every transaction, there is the work not of computSers and calculators, but
of humans. In every case, that means, there is the possibility of human manipulation,
fault and fallibility.
The human
factor, in other words, almost always provides the basic story a trial lawyer
hopes to hone in on, even in the seemingly complex realm of high finance.
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