Exhibit 1 — Confidential Under Protective Order — Blue Flame Medical LLC, Chain Bridge Bank, N.A., 1:20-cv-00658 (Document 158-2)

What This Document Is

Two short excerpts (report pages 10 and 15) from the expert report of Thomas C. Baxter, Jr. — a career Federal Reserve lawyer retained by JPMorgan — filed to support JPMC's reply brief (158.0). Clean extraction; no render needed.

Factual Summary

Paragraphs 25-28 describe Article 4A's architecture: most wire transfers are computer-processed without human review; a reversal restores the underlying obligation between originator (California) and beneficiary (Blue Flame) under the "money back guarantee"; and the wire at issue — nearly $457 million against a 2020 average Fedwire transfer of $4.57 million — was "100 times the size of the average" and "large by any measure" in Baxter's Federal Reserve experience. Paragraphs 39-42 catalog what Baxter calls Chain Bridge's "powerful incentives" to reverse: (1) the wire was about 50% of the bank's total assets and "franchise-threatening"; (2) Chain Bridge placed a hold on the funds "before ever speaking to JPMC" — footnoted to Evinger's 12:07 p.m. March 26 instruction "Place HOLD on funds" (CBB00000728) — and reversal, unlike a continued hold, arguably eliminated exposure to a lost-liquidity claim by Blue Flame; and (3) Chain Bridge's own wire-transfer policy required return where there was "any question as to the beneficiary's right to the funds." A footnote explains Chain Bridge implemented its hold as a "memo post," under which "the customer does not have liquidity." Another footnote quotes Brough's deposition: "If we had not received the request to return the wire, then I'm almost sure that we would have held the funds ...."

Key Facts

Baxter's benchmark figures: $457 million wire vs. $4.57 million average 2020 Fedwire transfer (100x), sourced to published Federal Reserve statistics; the wire equaled roughly 50% of Chain Bridge's assets.
The hold predated any Chain Bridge-JPMC contact: Evinger's "Place HOLD on funds" instruction at 12:07 p.m. March 26 (CBB00000728).
Baxter's memo-post explanation — the credit was reflected but the customer had no liquidity — is JPMC's expert's technical account of the same system event documented at 132.48 (the "920 - Memo Credit" screen), bearing on the standing credited/not-credited register.
The quoted Brough testimony ("If we had not received the request to return the wire... we would have held the funds") frames the return as responsive to a received request — phrasing consistent with Chain Bridge's recall-notice-from-JPMorgan account (150.21), even as quoted inside JPMC's own expert report arguing Chain Bridge instigated the recall.
Baxter opines Chain Bridge's wire-transfer policy mandated the return on these facts.

Source Caveats

Excerpts only (¶¶ 25-28, 39-42 of a longer report); Baxter's full opinions, qualifications, and the intervening paragraphs are not in this filing.
A retained expert's opinions for JPMorgan, reproduced as attributed opinion; the competing Chain Bridge expert (Grice) is excerpted at 158.3/158.5.

Date: 2021-05-27

Cite this document

“Exhibit 1 — Confidential Under Protective Order — Blue Flame Medical LLC, Chain Bridge Bank, N.A., 1:20-cv-00658 (Document 158-2).” Original at ecf.vaed.uscourts.gov, dated 2021-05-27. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2021-05-27-plaintiff-v-chain-bridge-bank-n-a/, SHA-256 75fbf177c234661bb49247d206cbfb965153dc166d849bead0fd6e7cccee3f1e.

Full text

Case 1:20-cv-00658-LMB-IDD Document 158-2 Filed 05/27/21 Page 1 of 4 PagelD#
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EXHIBIT 1
Case 1:20-cv-00658-LMB-IDDDocument 158-2 Filed 05/27/21 Page 2 of 4 PageID#
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CONFIDENTIAL UNDER PROTECTIVE ORDER

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
(Alexandria Division)

BLUE FLAME MEDICAL LLC,

Plaintiff,
Civil Action No. 1:20-cv-00658 (LMB/IDD)
v.

CHAIN BRIDGE BANK, N.A.,
JOHN J. BROUGH, and
DAVID M. EVINGER,

Defendants.

CHAIN BRIDGE BANK, N.A.,

Third-Party Plaintiff,

JPMORGAN CHASE BANK, N.A.,

Third-Party Defendant.

EXPERT REPORT OF THOMAS C. BAXTER, JR. ON BEHALF OF
THIRD-PARTY DEFENDANT JPMORGAN CHASE BANK, N.A.

MARCH 12, 2021
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CONFIDENTIAL UNDER PROTECTIVE ORDER

25. This did not mean there is no place for humans in wire transfer processing. There

are instances in wire transfer processing where human involvement may occur, as it did in this

case.

26. But it bears emphasis that, as of the time of Article 4A’s drafting and still today,

the vast majority of wire transfers are processed by computers and are not reviewed by humans.

27. Finally, it is important to understand the effect of a wire transfer reversal on the

relationship between the originator (the State of California) and the beneficiary (Blue Flame). In

many situations, a wire transfer is made to discharge an underlying indebtedness between the

originator and the beneficiary. If a wire transfer is reversed or not completed, the originator gets

its “money back” and the underlying obligation (if there is one) between the originator and

beneficiary is restored. 16

28. With those features of Article 4A’s architecture in mind, let us start with some

obvious details about the Wire Transfer. The Wire Transfer in this case is of an extraordinary

size – nearly $457 million. During 2020, the average Fedwire transfer was $4.57 million.17 The

subject Wire Transfer was 100 times the size of the average Fedwire transfer during 2020. The

amount is extraordinary, and I spent the bulk of my career at the Federal Reserve, where I saw a

number of large wire transfers. This is large by any measure.

16
For a description of the so-called “money back guarantee”, see Funds Transfers, supra note 2, at 41-44.
17
The Federal Reserve publishes all sorts of statistics about transfers over Fedwire. This $4.57 million figure
is the average transfer done over the course of 2020. Fedwire® Funds Service - Annual Statistics, The Federal
Reserve, https://www.frbservices.org/resources/financial-services/wires/volume-value-stats/annual-stats.html. You
can also assess the average transfer over any individual month. Fedwire® Funds Service - Monthly Statistics, The
Federal Reserve, https://www.frbservices.org/resources/financial-services/wires/volume-value-stats/monthly-
stats.html.

10
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CONFIDENTIAL UNDER PROTECTIVE ORDER

board of directors. This level of executive involvement, while in my view extraordinary for a

wire transfer, was no surprise to me given the risks that Chain Bridge faced.

39. The risk situation for Chain Bridge in this extraordinary situation is not like other

beneficiary banks handling more common reversal requests. Unlike the more common requests,

here there were powerful incentives propelling Chain Bridge to reverse the Wire Transfer. I will

explain these incentives.

40. First, there is the Wire Transfer’s size. This individual Wire Transfer represented

about 50% of all the bank’s assets; a simple error in handling a wire transfer of this size, for a

small community bank like Chain Bridge, could easily deplete the bank’s capital and cause it to

fail. To put it simply, this Wire Transfer was franchise-threatening for Chain Bridge.

41. Second, Chain Bridge placed a “hold” on the funds before ever speaking to JPMC

and did not make them available to the newly opened account, Blue Flame. 31 A Chain Bridge

decision to hold 32 the funds could arguably have deprived Blue Flame of liquidity. This can lead

to litigation between the bank imposing the hold and the adversely affected bank customer.

Here, the Wire Transfer was reversed instead, which Chain Bridge may have believed relieved it

of exposure to any potential claim for lost liquidity because there would be no credit balance.

42. Third, Chain Bridge’s own wire transfer policy required that the Wire Transfer be

returned. The policy provides: “If there is any question as to the beneficiary’s right to the funds,

31
CBB00000728 (email from David Evinger of Chain Bridge instructing Jennifer Lincoln of Chain Bridge,
“Place HOLD on funds” at 12:07 p.m. on March 26); Evinger Dep. 232:2-236:14; Brough Dep. 76:12-77:18,
196:12-198:4 . Banks use different ways to implement a “hold” on the proceeds of a wire transfer. Some may post
the credit to a suspense account, and others, like Chain Bridge, reflect the credit as a “memo post”. See Evinger
Dep. 260:7-11. The important point for this discussion is that the customer does not have liquidity – it does not have
access to the funds. See Brough Dep. 196:19-197:11.
32
Chain Bridge’s Chief Executive Officer, John Brough, explained: “If we had not received the request to
return the wire, then I’m almost sure that we would have held the funds . . . .” Brough Dep. 223:4-6.

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