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Declaration of Frank C. Torchio for Settlement Purposes

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Case 2:07-cv-05295-MRP -MAN Document 987 Filed 10/11/10 Page 10 <strong>of</strong> 17 Page ID<br />

#:39169<br />

total common stock damages, which compares with 95.6% <strong>of</strong> shares held by institutional<br />

shareholders on average during the Jarrell Inflation Period. 14<br />

25. After calculating aggregate damages, I adjusted the computed aggregate<br />

damages to account <strong>for</strong> inflationary gains. If an investor sells shares at a price that has<br />

higher artificial inflation than the inflation in the purchase price, then the investor has an<br />

inflationary gain. That is, this investor benefitted from the misrepresentation <strong>for</strong> that<br />

purchase and sale round-trip transaction. If that round-trip transaction was the only<br />

transaction <strong>for</strong> an investor, then that investor obviously would have zero damages. There<br />

are circumstances, however, when an investor can have multiple round-trip transactions;<br />

some round-trips may have inflationary losses and some may have inflationary gains.<br />

The preceding damage computations are based on the underlying assumption that only<br />

the inflationary losses are used. It is quite likely that, at trial, if a specific investor has<br />

inflationary losses on certain round-trip transactions, but also has inflationary gains on<br />

other round-trip transactions, the inflationary gains (if any) should <strong>of</strong>fset inflationary<br />

losses. If institutional losses are <strong>of</strong>fset by institutional gains, I calculated that<br />

institutional damages would decline by approximately 7%. I use this 7% discount as an<br />

estimate <strong>of</strong> the reduction in common stock damages due to inflationary gains.<br />

26. There<strong>for</strong>e, if Plaintiffs had prevailed at trial, after reducing <strong>for</strong> inflationary<br />

gains, I estimated common stock damages to be approximately $2.08 billion 15 on 585<br />

million damaged shares, which equals $3.56 per share on average.<br />

14 Institutional shareholders held 95.6% on average <strong>of</strong> Countrywide’s shares<br />

outstanding during the Jarrell Inflation Period (measured each quarter from December 31,<br />

2005 through June 30, 2007).<br />

15 Computed as $2.239 billion times 93% (93% = 1 - 7%).<br />

10

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