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`Exhibit 3
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`HIGHLY CONFIDENTIAL
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`SUPREME COURT OF THE STATE OF NEW YORK
`COUNTY OF NEW YORK
`State of New York, ex rel.
`Edelweiss Fund, LLC,
` Index No. 1005559/2014
` P l a i n t i f f ,
` v.
`J.P. Morgan Chase & CO., et al,
`REBUTTAL REPORT OF PROFESSOR EINER R. ELHAUGE
`APRIL 18, 2024
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`TABLE OF CONTENTS
`Table of Contents ............................................................................................................................ 2
`Introduction ..................................................................................................................................... 4
`I. VRDO Industry Background ....................................................................................................... 4
`A. Variable Rate Demand Obligations (“VRDOs”)................................................................... 4
`1. Defining Feature of VRDOs: The Tender Put ................................................................... 5
`2. Relevant Considerations for Potential VRDO Issuers ....................................................... 5
`3. Relevant Considerations for Potential VRDO Investors ................................................... 6
`B. Market Overview for VRDOs ............................................................................................... 6
`1. Relevant Market Participants and Features ....................................................................... 6
`2. Mechanics of VRDO Rate Resetting and Remarketing .................................................... 6
`II. The Alleged Wrongdoers Took Ac tions That Were Contrary to Their Independent Incentives,
`But Consistent With Their Collective Incentives ........................................................................... 7
`A. The General Economic Theory of Whethe r Parallel Conduct Reflects Independent or
`Collective Incentives .................................................................................................................. 7
`B. The Alleged Wrongdoers Co uld Collectively, But Not Individually, Increase Profits by
`Elevating VRDO Interest Rates Above Competitive Levels ..................................................... 7
`1. The Alleged Wrongdoers’ Inability to I ndividually Elevate Interest Rates Above
`Competitive Levels Means Any Such Elevation Must Reflect Collective Incentives Rather
`Than Independent Incentives ................................................................................................. 7
`2. The Alleged Wrongdoers’ Independent Co mpetitive Incentives Were to Set VRDO
`Interest Rates at Market-Clearing Competitive Interest Rates .............................................. 8
`3. Elevating All VRDO Interest Rates A bove Competitive Levels Would Advance the
`Collective Incentives of th e Alleged Wrongdoers by Decreasi ng the Number of Investor
`Puts, Thus Reducing the Need to Provide Remarketing and LOC Services ......................... 8
`i. Inflating VRDO Reset Rates Above But-For Levels Would Decrease Puts Below
`But-For Levels. ............................................................................................................... 10
`ii. Decreasing Puts Would Financially Benefit the Alleged Wrongdoers ............... 21
`iii. The Financial Benefits of Reducing Puts Meant that the Alleged Wrongdoers Had
`Collective Incentives to Inflate VRDO Reset Rates Above But-For Levels, But No
`Independent Incentives to Do So. ................................................................................... 26
`C. Other Expert Findings Indicate that the Alleged Wrongdoers Set Interest Rates Above
`Competitive Levels .................................................................................................................. 32
`D. The Alleged Wrongdoers Co llectively Projected and Shared Rates in a Way That Was
`Consistent with Collective Incentives, But Not with Independent Competitive Incentives .... 38
`1. Operation of The J.J. Kenny Index and the PARS Index Through January 2013 ........... 38
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`2. The J.J. Kenny Index and PARS Index Were Predictive of SIFMA in a Pattern That Was
`Not Economically Rational Absent Collusion or Coordination .......................................... 39
`3. Professor McCrary’s Responses Are Not Economically Persuasive............................... 40
`i. Both Indexes Involved Projec ted Rates. ............................................................. 41
`ii. The Alleged Wrongdoers’ Role as Middlem an Remarketing Agents Is Consistent
`with Collusion or Coordination. ..................................................................................... 48
`iii. Transparency Is Consistent with Collusion or Coordination. ............................. 48
`iv. Variations Between Submissions to the In dexes Are Consistent with Collusion or
`Coordination. .................................................................................................................. 53
`v. Variations Between the Indexes Are Cons istent with Collusion or Coordination.
` 55
`vi. The Timing of Rate Resets Is Consiste nt with Collusion or Coordination. ........ 59
`vii. The Alleged Wrongdoers’ Participation in the Indexes Is Consistent with
`Collusion or Coordination............................................................................................... 61
`viii. The Index Mechanisms for Collusi on or Coordination Did Not Exclude the
`Majority of the Alleged Wrongdoers’ VRDO rate resets. .............................................. 64
`ix. Variations in VRDO Rates and Spread s Are Consistent with Collusion or
`Coordination. .................................................................................................................. 64
`x. The PARS and J.J. Kenny Indexes Were Highly Predictive of SIFMA in a Way
`That is Hard to Square with Independent Rate Setting. .................................................. 68
`xi. Direct Inter-Firm Communications Supplemented the Co mmunications Made
`Through the PARS and J.J. Kenny Indexes .................................................................... 78
`E. The Alleged Wrongdoers Had the Collect ive Market Power to Raise Rates Above
`Competitive Levels .................................................................................................................. 81
`1. The Relevant Market Is VRDO Remarketing ................................................................. 81
`2. The Alleged Wrongdoers Had a High Collective Market Share in the VRDO Remarketing
`Market .................................................................................................................................. 87
`3. The VRDO Remarketing Market Exhibits High Barriers to Entry ................................. 87
`4. The Alleged Wrongdoers Had Collectiv e Market Power in the VRDO Remarketing
`Market .................................................................................................................................. 92
`5. Market Concentration Figures Indicate Collusion is More Likely Than Coordination .. 98
`APPENDIX A: MATERIALS RELIED UPON ......................................................................... 102
`EXHIBIT A ................................................................................................................................ 103
`EXHIBIT B ................................................................................................................................ 122
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`INTRODUCTION
`1. I submitted my initial report in this case on September 14, 2023,1 and a
`Corrected version thereof on October 7, 2023. 2 All references and citations in this
`report to my “initial report” or the “Elhauge NY Report” herein are to the October
`7, 2023 Corrected report unless specified otherwise. On March 15, 2024, reports
`were submitted in this case on behalf of Defendants by Justin McCrary, Ph.D. (the
`“McCrary NY Report”),3 Andrea L. Eisfeldt Ph.D. (the “Eisfeldt NY Report”),4 and
`Lynnette Kelly (the “Kelly NY Report”).5 This report responds to the points made
`in those reports to the extent they are relevant to my opinions.
`I. VRDO INDUSTRY BACKGROUND
`A. Variable Rate Demand Obligations (“VRDOs”)
` 2. In Section I.A of my initial report, I discussed background evidence
`regarding the VRDO industry. I explained that this evidence showed that VRDOs
`are a type of debt security (bond) issued by public entities to finance expenditures,
`and that although subject to standard risks such as credit, interest rate, call, and
`conversion risk,
`6 they are considered a low-risk asset class, resulting in part from
`their being seen as akin to a short-term security because of their “tender put” feature.7
`Additionally, I explained that VRDOs are accompanied by liquidity/credit support
`in the form of a Letter of Credit (“ LOC”) or Stand-By Purchase Agreement
`1 Expert Report of Professor Einer R. Elhauge, September 14, 2023, State of New York, ex
`rel. Edelweiss Fund, LLC v. J.P Morgan Chase & CO., et al.
`2 Corrected Expert Report of Professor Einer R. Elhauge, October 7, 2023, State of New
`York, ex rel. Edelweiss Fund, LLC v. J.P Morgan Chase & CO., et al . (hereinafter cited as the
`“Elhauge NY Report”).
`3 Expert Report of Justin McCrary, Ph.D., March 15, 2024, State of New York, ex rel.
`Edelweiss Fund, LLC v. J.P Morgan Chase & CO., et al . (hereinafter cited as the “McCrary NY
`Report”).
`4 Expert Report of Andrea L. Eisfeldt, Ph.D., March 15, 2024, State of New York, ex rel.
`Edelweiss Fund, LLC v. J.P Morgan Chase & CO., et al . (hereinafter cited as the “Eisfeldt NY
`Report”).
`5 Expert Report of Lynnett e Kelly, March 15, 2024, State of New York, ex rel. Edelweiss
`Fund, LLC v. J.P Morgan Chase & CO., et al. (hereinafter cited as the “Kelly NY Report”).
`6 See also Elhauge NY Report Section I.A.3 and infra Section I.A.3 (discussing VRDO
`risks).
`7 See also Elhauge NY Report Section I.A.1 and infra Section 1.A.1 (describing this
`“tender put” feature of VRDOs).
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`(“SBPA”), which further reduces the VRDO risk profile. I further explained that
`this evidence shows that VRDO interest rates typically reset weekly or daily, and
`that a remarketing agent’s role is to resell redeemed VRDOs at the lowest interest
`rate.
`8 I also explained that the VRDO ma rket is regulated by the Municipal
`Securities Rulemaking Board (MSRB), and that tax-exempt money market funds are
`the main investors in VRDOs. Defense experts do not dispute these points.
`1. Defining Feature of VRDOs: The Tender Put
` 3. In Section I.A.1 of my initial report, I discussed background evidence
`regarding the defining feature of VRDOs: the “tender put,” a “demand feature” of
`VRDOs which allows investors to ‘put’ or ‘tender’ VRDOs back to the issuer on the
`interest reset date.9 I explained that this evidence shows that after the VRDO has
`been tendered, it is the remarketing agent’s responsibility to find a new investor for
`the VRDO, and that if this cannot be done, it is known as a “failed remarketing.” I
`further explained that in the event of such a failed remarketing the liquidity provider,
`in the form of a LOC or SBPA, is to act as a buyer of last resort for the VRDO. I
`also explained that the evidence shows this structure allows issuers to secure long-
`term financing at relatively low rates compared to typical long-term fixed rate bond
`issuances. Defense experts do not dispute these points.
`2. Relevant Considerations for Potential VRDO Issuers
` 4. In Section I.A.2 of my initial report, I discussed background evidence
`regarding the relevant considerations potential VRDO issuers face.
`10 As alre a d y
`noted, the main advantage of VRDOs is that they allow for long-term financing at
`short-term interest rates. Additionally, I explained that VRDOs offer other financial
`advantages, such as debt restructuring flexibility, early prepayment options, fixed-
`rate bond conversions, and help to diversify the issuer’s investor base. I explained
`that VRDOs involve similar risks to issuers as other forms of municipal debt
`financing, such as interest rate and credit risk. However, I explained that a
`distinctive risk for issuers considering VRDOs is a failed remarketing, which leads
`to the liquidity provider holding the bond and the issuer paying a highly elevated
`interest rate. Additionally, issuers face price risk for the liquidity provider services.
`Defense experts do not dispute these points.
`8 See also Elhauge NY Report¶ 32 and infra Section I.B.1.
`9 Elhauge NY Report Section I.A.1.
`10 Elhauge NY Report Section I.A.2.
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`3. Relevant Considerations for Potential VRDO Investors
` 5. In Section I.A.3 of my initial report, I discussed background evidence
`regarding the relevant considerations potential VRDO investors face.11 I explained
`that because VRDOs trade at par (i.e., the face value of the bond does not vary), the
`floating interest rate is one of the most important factors impacting investors’
`demand for VRDOs. I explained that adva ntages of VRDOs include favorable tax
`treatment, relatively low risk, further insu rance in the form of liquidity provisions,
`and high liquidity resulting from the tend er put option discussed in Section I.A
`above. I further explained that risks of investing in VRDOs include default risk,
`credit risk, call risk (issuer pays back VRDO early), and liquidity risk (liquidity
`provider refuses to buy the VRDO). Defense experts do not dispute these points.
`B. Market Overview for VRDOs
`1. Relevant Market Participants and Features
` 6. In Section I.B.1 of my initial report I provided an overview of the
`evidence regarding relevant market part icipants and features relevant to my
`analysis.12 These include issuers, underwriters, tender agents, remarketing agents,
`investors, trustees, the MSRB, LOC and SB PA providers, the Securities Industry
`and Financial Markets Association Municipal Swap Index (“SIFMA Index”), and
`credit rating agencies. Defense experts do not dispute these points.
`2. Mechanics of VRDO Rate Resetting and Remarketing
` 7. In Section I.B.2 of my initial report, I provided an overview of the
`evidence relating to the mechanics of VRDO rate resetting and remarketing. 13 I
`explained that remarketing agents reset interest rates on their reset dates, usually
`weekly or daily, based on factors such as inventory, economic and financial
`conditions, and VRDO-specific characteristics. I also explained that after a VRDO
`is “put back” by the current bondholder, the remarketing agent is obligated to find a
`new investor for that VRDO, at “the lowest rate that permits the sale of the VRDOs
`at 100% of their principal amount (par) on the interest reset date.”
`14 I then explained
`11 Elhauge NY Report Section I.A.3.
`12 Elhauge NY Report Section I.B.1.
`13 Elhauge NY Report Section I.B.2.
`14 Elhauge NY Report¶41 & n.118 (citing SIFMA Model Risk Disclosures 2021 Guidance
`Pursuant to MSRB Rule G-17).
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`that if no new investor is found, the remarketing agent must decide whether to take
`the bond into their own “inventory,” or to inform the VRDO’s trustee of a “failed
`remarketing,” leading the liquidity provider to have to pay the selling bondholder
`and to take the bond as a “bank bond” at a highly-elevated interest rate. Defense
`experts do not dispute these points.
`II. THE ALLEGED WRONGDOERS TOOK ACTIONS THAT WERE CONTRARY TO THEIR
`INDEPENDENT INCENTIVES,B UT CONSISTENT WITH THEIR COLLECTIVE
`INCENTIVES
`A. The General Economic Theory of Whether Parallel Conduct Reflects
`Independent or Collective Incentives
`8. In Section II.A of my initial report, I explained: (a) the economic
`distinction between parallel conduct that reflects independent versus collective
`incentives; (b) that conduct that is only consistent with the latter must reflect either
`conspiracy or coordination; (c) why it does no t matter to the liability issues in this
`case whether defendants conspired or coordinated to advance those collective
`incentives; (d) that the relevant parallel conduct can involve the sharing of price
`information; and (e) that the most antic ompetitive form of information exchange
`involves the exchange of information about the future prices that firms project or
`plan to charge.
`15 I also pointed out that in their Illinois Reports, defense experts did
`not contest any of these theoretical points. 16 In their New York repor ts, defense
`experts likewise do not contest any of these theoretical points.
`B. The Alleged Wrongdoers Could Collectively, But Not Individually, Increase
`Profits by Elevating VRDO Interest Rates Above Competitive Levels
`1. The Alleged Wrongdoers’ Inability to Individually Elevate Interest Rates Above
`Competitive Levels Means Any Such Elevation Must Reflect Collective Incentives
`Rather Than Independent Incentives
`9. In Part II.B.1 of my initial report, I explained that: (a) a firm without
`market power cannot independently elevat e market-wide interest rates on VRDOs
`above but-for competitive levels; (b) no indi vidual defendant had market power to
`15 Elhauge NY Report ¶¶ 42-45.
`16 Elhauge NY Report ¶¶ 46.
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`raise VRDO rates and thus none had independent incentives to elevate interest rates
`above competitive levels. 17 I also pointed out that Professor McCrary’s Illinois
`report agreed with both those propositions.18 His New York report likewise agrees
`with both these propositions.19
`10. Part II.B.1 of my initial report also opined that if the alleged
`wrongdoers collectively had market power, they would have collective incentives to
`elevate interest rates above competitive levels.
`20 Professor McCrary does dispute
`that opinion, for unpersuasive reasons that I discuss below in Section II.B.3.
`11. Finally, Part II.B.1 of my initia l report opined that, if rates were
`elevated above competitive levels, that must rationally reflect the pursuit of their
`collective incentives, rather than their independent incentives.
`21 Although Professor
`McCrary disputes whether rates were elevated above competitive levels, 22 he does
`not dispute that, if they were, those rates cannot reflect independent incentives, so
`that only collective incentives could explain those elevated rates.
`2. The Alleged Wrongdoers’ Independent Competitive Incentives Were to Set
`VRDO Interest Rates at Market-Clearing Competitive Interest Rates
`12. In Part II.B.2 of my initial report, I found that the alleged wrongdoers
`lacked independent incentives to set interest rates above market-clearing competitive
`interest rates.
`23 I also pointed out that Professor McCrary’s Illinois report agreed
`with that finding.24 His New York report likewise agrees with this proposition.25
`3. Elevating All VRDO Interest Rates Above Competitive Levels Would Advance
`the Collective Incentives of the Alleged Wrongdoers by Decreasing the Number of
`Investor Puts, Thus Reducing the Need to Provide Remarketing and LOC Services
`13. In Part II.B.3 of my initial repo rt, I reached three central conclusions:
`(1) inflating VRDO reset rates above but-for levels would decrease puts below but-
`17 Elhauge NY Report ¶¶ 47-48.
`18 Elhauge NY Report ¶ 50; McCrary Illinois Report ¶ 166.
`19 McCrary NY Report ¶¶ 65, 235.
`20 Elhauge NY Report ¶ 49.
`21 Elhauge NY Report ¶ 49.
`22 McCrary NY Report ¶¶ 4, 9, 195-196, 236.
`23 Elhauge NY Report ¶¶ 51-53.
`24 Elhauge NY Report ¶ 54; McCrary Illinois Report ¶ 146.
`25 McCrary NY Report ¶ 222
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`for levels; (2) decreasing puts would financially benefit the alleged wrongdoers; and
`(3) thus, the alleged wrongdoers had collective incentives to inflate VRDO reset
`rates above but-for levels, even though they had no independent incentives to do so.
`I also explained that although Professor McCrary disagreed with each of these
`conclusions, his arguments on each point were economically flawed. Below I show
`that his responses on each of these points is likewise economically erroneous.
` 14. More generally, Prof. McCrary claims that I “do[] not conduct any
`empirical analysis to test [my] assertion that the Alleged Participants have an
`incentive to collectively raise VRDO reset rates in order to avoid the costs and efforts
`associated with remarketing VRDOs that are put” and claims that he “performed
`such an analysis and reported the results in my Illinois report.”
`26 As I already
`demonstrated in my initial report, and show again below, Prof. McCrary’s empirical
`analysis is flawed, and even if it were no t flawed, it would be consistent with my
`economic conclusion that the alleged wrongdoers had incentives to collectively
`inflate rates to reduce puts.
`27 Moreover, my initial report described empirical
`analysis confirming that the alleged co nduct was aligned with the collective
`incentives, and not the independent incentives, of the alleged wrongdoers.28
` 15. Prof. McCrary also states that “it is worth emphasizing again that
`Professor Elhauge has no evidence that there was an agreement among the Alleged
`Participants,” that I have “not subjected [my] hypothesis that there was an agreement
`to empirical scrutiny” and that “[w]hen confronted with my direct empirical analysis
`of his hypothesis, Professor Elhauge quibbles with the analysis rather than pointing
`to any other evidence that supports his theory.”
`29 As an initial matter, my assignment
`was not to determine whether there “was an agreement among the Alleged
`Participants,” but was instead to “evaluate whether the economic evidence indicates
`that the alleged wrongdoers’ actions are consistent with their independent
`competitive incentives or instead are consistent with collective economic incentives
`that would make the actions irrational without collusion or coordination.”
`30
`Moreover, my initial report described a variety of empirical evidence supporting at
`conclusion that the alleged wrongdoers beha ved consistently with their collective
`incentives, rather than their independent incentives,31 as well as an empirical analysis
`showing that, given the relatively unconcentrated nature of the market for VRDO
`26 McCrary NY Report ¶ 201.
`27 Elhauge NY Report ¶¶ 59-65.
`28 See Elhauge NY Report ¶¶ 55-57, 70-79.
`29 McCrary NY Report ¶ 201.
`30 Elhauge NY Report ¶ 2.
`31 See Elhauge NY Report Sections II.B-D.
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`remarketing services, collusion is a more likely explanation for the alleged
`wrongdoers’ observed behavior than coordination.32
`i. Inflating VRDO Reset Rates Above But-For Levels Would Decrease Puts
`Below But-For Levels.
`16. Professor McCrary does not contest my point that an elevation of
`VRDO interest rates above their but-for levels would decrease the number of puts
`on VRDO bonds to below their but-for levels. Instead, Professor McCrary argues
`that if inflated VRDO interest rates lower the number of puts of VRDOs, then an
`increase in rate inflation (as measured by Mr. Wendt’s efficient market ratio) should
`decrease the amount of inventory held by remarketing agents, and he claims that his
`Exhibit 22 shows that this relationship does not hold.
`33
`17. In Section II.B.3.i of my initial report, I showed that Professor
`McCrary’s claim fails as a matter of both empirics and economic theory. I showed
`that, empirically, Professor McCrary provided no evidence that the BOOM data on
`inventory that he used is equivalent to data on the inventory held by the alleged
`wrongdoers.
`34 I also showed that, even if he were accurately measuring the alleged
`wrongdoers’ inventory levels, his claim fails as a matter of economic theory because
`it conflates actual inventory levels with but-for inventory levels, conflates puts with
`inventory levels, and ignores the problem of reverse causation.35 Professor McCrary
`disputes the above analyses in a number of ways,36 which I address in the paragraphs
`below.
`18. On the empirical claim, Prof. McCrary argues that I am mistaken in my
`critique of his use of the BOOM data, claiming that record evidence shows that
`“there is no discrepancy between total inventories and inventories reported on
`BOOM.”
`37 In reality, it is his claim that is contradicted by record evidence. For
`instance, record evidence demonstrates th at at least two alleged wrongdoers, Bank
`32 Elhauge NY Report Section II.E.5.
`33 McCrary NY Report Section IV.F.
`34 See Elhauge NY Report Section II.B.3.i.
`35 See Elhauge NY Report Section II.B.3.i.
`36 See generally McCrary NY Report Section IV.F (“Data on Inventory Levels and Alleged
`VRDO Rate Inflation Contradict Professor Elhauge’s Theory”).
`37 McCrary NY Report ¶¶ 206-207.
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`of America,38 and Fifth Third,39 did not even participate in the BOOM system.40 This
`would obviously produce a discrepancy between “total inventories and inventories
`reported on BOOM,” and a rather large one since Bank of America was usually the
`single largest remarketer, with market shares ranging from 14-19%.
`41 Moreover,
`while Bank of America did not participate in BOOM, an instructional booklet
`created by Bank of America’s Mr. Brew er for “when I was out of the office”
`explained that to “send inventory via Bloomberg” one had to “Highlight rows you
`want to send out via Bloomberg,” indicating that even those remarketing agents who
`utilized BOOM might not make all of their inventory available through it.
`42
`Additionally, other record evidence questioned the accuracy of the inventory levels
`indicated by BOOM.43
`38 Brewer (Bank of America) Dep. at 48:11-49:11 (“Q. So the next line references MMMR
`- BOOM Inventory. Do you see that? A. Yes. Q. What is that a reference to? A. So aside from
`Bank of America, most other remarketing agents remarket their bonds through a system called
`BOOM, which is a Bloomberg platform that's used fo r short-term trading in general; it's used for
`commercial paper, VRDOs. So when we look at the MMMR, there's a function on Bloomberg that
`when you do that, it pulls up the Bloomberg inventory, and you can see the amount of bonds that
`had been put back to dealers. You don't see the dealer or -- you know, you just see an aggregate
`number of VRDOs that had been put for both dail ies and weeklies. So you had the ability to see
`what the inventories were away from us in aggreg ate. So that's what that function shows you. Q.
`Did Bank of America post its upon [sic] invent ory on BOOM, as well? A. No. Bank of America
`and municipalities di d not participate in the BOOM system.”). See also Tomeny (Bank of
`America) Dep. at 39:10-11 (“Bank of America did not use the BOOM system to market our
`inventory.”).
`39 Winkler (Fifth Third) Dep. at 171:8-14 (Q. Yes, okay. And it also has Fifth Third's
`inventory up there, if somebody else wanted to l ook? A. Fifth Third does not -- we don't put our
`inventory on the Boom page. Just like MMD, we don't put our inventory on MMD.”).
`40 See also CITI-NY-VRDO-00248787 (Heppolette Exh. 45) at -789 (April 22, 2019 email
`thread with one email stating “… I believe BAML does not report on BOOM. There may be others
`as well.” A subsequent email confirms “BAML does not offer on BOOM”).
`41 Elhauge NY Report Table 11.
`42 See BOFA-VRDO-NY-00697800 (Brewer Exh. 3); Brewer (Bank of America) Dep. at
`43:23-44:4 (“Q. And what is Exhibit 3? A. This is basically a document I created for when I was
`out of the office, basically instructions on how to -- the process of resetting VRDOs and the tools
`you should use to do that.”).
`43 Luong (Barclays) Dep. at 139:8-24 (“Q. Okay. And what information, if any, would you
`require from BOOM to help you in resetting rates on VRDOs? … A. I don't -- you know, I don't
`remember if there was a linkage there, but, you know, I just remember BOOM was an indicator.
`You know, I don't think it was fully accurate, but it gave you a trend at least of how much inventory
`was, you know, on the street, and I don't know, you know, how many banks were part of the street,
`but you knew the number was up, that means there was a lot of inventory on the street, and if the
`number was down, or low, then it means that there was not much inventory on the street.”).
`FILED: NEW YORK COUNTY CLERK 11/18/2025 07:19 PMINDEX NO. 100559/2014
`NYSCEF DOC. NO. 3415 RECEIVED NYSCEF: 11/18/2025
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`HIGHLY CONFIDENTIAL
`12
`19. In addition, Prof. McCrary’s Exhibit 22 suffers from other
`methodological flaws which make it an unreliable representation of purported
`changes in defendant inventory levels over time.
`20. For one, Prof. McCrary notes th at Exhibit 22’s “Weekly Resets
`Inventory Ratio uses the BVRDWC index from BOOM.” 44 But Prof. McCrary’s
`backup shows that there are five other weekly inventory indexes on BOOM
`(BVRDWT1, BVRDWT2, BVRDWT3, BVRD WT4, BVRDWT5), as well as a
`daily reset VRDO inventory index (BVRDDR).
`45 While “BVRDWC” provides the
`“Weekly street inventory on BOOM” and BVRDDR provides the “Daily street
`inventory on BOOM,”46 this is “cash today that’s available for settlement today.”47
`The other five weekly i ndexes show weekly VRDOs available for “settlement
`tomorrow, [] settlement two days from now, three days from now, four days from
`now” so that “With weeklies, you're getting cash or T plus 5 numbers.”
`48 The
`evidence thus indicates that Prof. McCrary’s Exhibit 22 is only looking at one subset
`of VRDO inventory -- “Weekly street inventory on BOOM” which is “cash today
`that’s available for settlement today,” which does not represent all VRDOs put by
`investors. Indeed, the evidence indicates remarketers looked at total inventory, not
`44 McCrary NY Report at Exhibit 22, Note 1.
`45 McCrary Backup “Inventory Indices”, (“Sheet1, Column A, Cells 23:33079”).
`46 BOFA-VRDO-NY-00697800 (Brewer Exh. 3) (under “Bloomberg Functions” showing
`“MMMR - Boom Inventory”; “BVRDWC - Weekly street inventory on BOOM”; “BVRDDR -
`Daily street inventory on BOOM”).
`47 See Brewer (Bank of America) De p. at 50:18-51:6 (“Q. Interest ing. So it really is just
`one or two numbers; dailies held in inventory, week lies held in inventory?. .. A. Well, just to be
`clear, weeklies, they show you the number, because weeklies are put five days forward. So it shows
`you the number that is cash toda y that's available for settleme nt today, and then settlement
`tomorrow, the settlement two days from now, three days from now , four days from now. With
`weeklies, you're getting cash or T plus 5 numbers.”).
`48 Brewer (Bank of America) Dep. at 50:18-51:16 (“Q. Interesting. So it really is just one
`or two numbers; dailies held in inventory, weeklies held in inventory?... A. Well, just to be clear,
`weeklies, they show you the number, because weeklies are put five days forward. So it shows you
`the number that is cash today that's available for settlement today, and then settlement tomorrow,
`the settlement two days from now, three days fr om now, four days from now. With weeklies,
`you're getting cash or T plus 5 numbers. Q. The next line references BVRDWC, just described as
`"Weekly street inventory on BOOM." And what is that a reference to? A. It's a sub -- so MMR is
`BOOM inventory. If you want to see a breakdown, it will give you dailies and weeklies. But if you
`g