The Bank of New England Corporation (BNEC) went into bankruptcy after its lead subsidiary bank, BNENA, was closed by regulators in January 1991.
Retained by Davis Polk & Wardwell
The Bank of New England Corporation (BNEC) went into bankruptcy after its lead subsidiary bank, BNENA, was closed by regulators in January 1991. BNEC’s Trustee sued the corporation’s auditor, Ernst & Young, claiming that BNENA was already insolvent in September 1989 when BNEC raised 0 million in a subordinated bond offering and downstreamed the proceeds to BNENA and other subsidiary banks. The Trustee argued that had Ernst & Young disclaimed an opinion on BNEC’s year-end 1988 financial statements and not issued a “comfort letter” associated with the September 1989 offering, the offering would not have taken place and therefore the proceeds would not have been lost upon transfer to the subsidiary banks.
The case was settled favorably for Ernst & Young mid-trial.
Ernst & Young’s counsel retained Cornerstone Research in early 2001 to support Professor Christopher James of the University of Florida. Professor James analyzed BNENA’s condition as of September 1989 as reflected in the bank’s restated third quarter 1989 call reports filed with bank regulators in October 1990. Based on bodog online casino analysis and in light of evidence regarding expectations about the New England economy at that time, Professor James opined that BNENA was solvent and viable as of September 1989. He further opined that BNENA’s eventual failure was due to unfavorable regulatory and economic developments after the September 1989 debt offering that could not reasonably have been predicted.
In addition to supporting Christopher James, Cornerstone Research provided support to Davis Polk & Wardwell related to other Ernst & Young experts and assisted in preparing for the cross-examination of many of the Trustee’s experts. The case went to trial in the United States District Court in Boston, Massachusetts, in January 2005, and was settled favorably for Ernst & Young mid-trial.