Videotape Deposition of Thomas C. Baxter, Junior (E.D. Va., Dkt. 131-27, May 7, 2021)
Summary
Case 1:20-cv-00658, Document 131-27, is Exhibit 92, the transcript of the videotape deposition of Thomas C. Baxter, Junior, taken remotely by Zoom on Monday, April 12, 2021. The caption lists Blue Flame Medical LLC as plaintiff against Chain Bridge Bank, N.A., John J. Brough and David M. Evinger, with Chain Bridge Bank as third-party plaintiff against JPMorgan Chase Bank, N.A. In the portions shown, Mr. Orseck questions the witness about Fedwire records, including the Type/Subtype Code 1000 for a funds transfer, the code 1001 for a request for reversal, and the Fedwire Funds Service Format Reference Guide marked DX123. The witness says a 1001 message does not transfer value, and a later passage turns to an email from Fiona Ma to Jamie Dimon.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
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“Videotape Deposition of Thomas C. Baxter, Junior (E.D. Va., Dkt. 131-27, May 7, 2021).”
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Case 1:20-cv-00658-LMB-IDD Document 131-27 Filed 05/07/21 Page 1 of 20
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EXHIBIT 92
Thomas C. Baxter, Junior 4/12/2021
Case 1:20-cv-00658-LMB-IDD Document 131-27 Filed 05/07/21 Page 2 of 20Page 1 (1)
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1 IN THE UNITED STATES DISTRICT COURT
2 FOR THE EASTERN DISTRICT OF VIRGINIA
3 (Alexandria Division)
4 - - - - - - - - - - - - - - - X
5 BLUE FLAME MEDICAL LLC, :
6 Plaintiff, :
7 v. : Civil Action No.
8 CHAIN BRIDGE BANK, N.A., : 1:20-cv-00658
9 JOHN J. BROUGH and DAVID M. :
10 EVINGER, : CONFIDENTIAL
11 Defendants. :
12 _____________________________ :
13 CHAIN BRIDGE BANK, N.A., :
14 Third-Party Plaintiff, :
15 v. :
16 JPMORGAN CHASE BANK, N.A., :
17 Third-Party Defendant. :
18 - - - - - - - - - - - - - - - X
19 (Conducted Remotely)
20 Monday, April 12, 2021
21 Thomas C. Baxter, Junior
22
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1 Videotape Deposition via Zoom of THOMAS C. 1 APPEARANCES CONTINUED
2 BAXTER, JUNIOR, a witness herein, called for 2
3 examination by counsel for the Defendant/Third-Party 3 On Behalf of Defendant and Third-Party Plaintiff
4 Plaintiff Chain Bridge Bank, N.A. and Defendants 4 Chain Bridge Bank, N.A. and Defendants
5 John J. Brough and David M. Evinger in the 5 John J. Brough and David M. Evinger:
6 above-entitled matter, pursuant to notice, the 6 GARY A. ORSECK, ESQ.
7 witness being duly sworn by JOAN V. CAIN, a Notary 7 LESLIE C. ESBROOK, ESQ.
8 Public in and for the Commonwealth of Virginia, 8 ZACHARY N. FERGUSON, ESQ.
9 taken at 9:29 a.m. EDT, Monday, April 12, 2021, and 9 Robbins Russell Englert Orseck
10 the proceedings being taken down by Stenotype by 10 Untereiner & Sauber, LLP
11 JOAN V. CAIN, Court Reporter, and transcribed under 11 2000 K Street, Northwest
12 her direction. 12 Fourth Floor
13 13 Washington, D.C. 20006
14 14 Telephone: (202) 775-4500
15 15 Email: orseck@robbinsrussell.com
16 16 lesbrook@robbinsrussell.com
17 17 znferguson@robbinsrussell.com
18 18
19 19
20 20
21 21
22 22
Page 3 Page 5
1 APPEARANCES 1
APPEARANCES CONTINUED
2 2
3 On Behalf of Plaintiff: 3
On Behalf of Third-Party Defendant and the
4 WILLIAM H. GUSSMAN, JUNIOR, ESQ. 4
Deponent:
5 EKENEDILICHUKWU (KENI) E. UKABIALA, ESQ. 5
ALAN SCHOENFELD, ESQ.
6 Schulte Roth & Zabel, LLP 6
Wilmer Cutler Pickering Hale & Dorr, LLP
7 919 Third Avenue 7
Seven World Trade Center
8 New York, New York 10022 8
250 Greenwich Street
9 Telephone: (212) 756-2000 9
New York, New York 10007
10 Email: bill.gussman@srz.com 10
Telephone: (212) 230-8800
11 kenedilichukwu.ukabiala@srz.com 11
Email: alan.schoenfeld@wilmerhale.com
12 and 12
and
13 GREG KETCHAM-COLWILL, ESQ. 13
ALBINAS PRIZGINTAS, ESQ.
14 Schulte Roth & Zabel, LLP 14
Wilmer Cutler Pickering Hale & Dorr, LLP
15 901 15th Street, Northwest 15
1875 Pennsylvania Avenue, Northwest
16 Suite 800 16
Washington, D.C. 20006
17 Washington, D.C. 20005 17
Telephone: (202) 663-6000
18 Telephone: (202) 729-7476 18
Email: albinas.prizgintas@wilmerhale.com
19 Email: gregory.ketcham-colwill@srz.com 19
20 20
21 21
22 22
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1 "Type/Subtype Code." What does that refer to? 1 Q What is the purpose of that field?
2 A That's a 1000 designation, which is a funds 2 A So the purpose of that field is to indicate
3 transfer. 3 to the beneficiary what the -- what the funds are
4 Q Am I correct, Mr. Baxter, that the first 4 for. It's not information that the processing banks
5 two numbers in that designation, the one and the 5 would -- would pay attention to. It's there for the
6 zero, are the type and then the second two numbers, 6 benefit of the beneficiary of the wire transfer.
7 double zero, are the subtype? 7 Q Does the sending bank or somebody at the
8 A That's correct. 8 sending bank type in that information, where it
9 Q And do you recognize the type one zero as a 9 says, "Line 1," and "Line 2"?
10 funds transfer? 10 A That would typically be provided by the
11 A Yes. 11 originator.
12 Q And then the double zero for the subtype, 12 Q Are there -- for any of these fields, are
13 is that known as a basic value transfer? 13 there drop-down menus when you're preparing the wire
14 A Yes. 14 process?
15 Q What is a basic value transfer? 15 So, for example, we were talking about the
16 A It's -- it's essentially transferring over 16 Type/Subtype Code, and it says 1000. Does some
17 the Fedwire system funds rather than securities, 17 human being type in those numbers, or is that
18 and -- and those funds are being passed between 18 something you select from a menu?
19 Fedwire participants. Value is moving. 19 MR. SCHOENFELD: Objection.
20 Q If the transmittal were one of securities 20 THE WITNESS: I don't -- I don't know.
21 as opposed to dollars, would there be a different 21 BY MR. ORSECK:
22 subtype code? 22 Q Is it your understanding that the language
Page 35 Page 37
1 A Yes. 1 under Originator to Beneficiary is what I would call
2 Q What is the purpose of the inclusion of 2 a free text field, where you can include whatever
3 that information in this process? 3 information you want?
4 A Just to provide clarity as to what -- what 4 A There would be a limitation on the number
5 this is. 5 of characters you could put in that field but, yes.
6 Q A bit further down, there's a heading in 6 Q But so, for example, the sending bank could
7 bold that says, "Originator Information." Do you 7 type in, "Good luck on your new venture," if it
8 see that? 8 wanted to; is that right?
9 A I do. 9 A Yes. I assume that's within the number of
10 Q And the name of the originator is the 10 characters that are available.
11 California State Treasurer, right? 11 Q Yeah. Subject to the character limitation,
12 A I see that. 12 whatever it is, the sender can type in whatever it
13 Q Does that mean that California or a 13 feels like or nothing; is that right?
14 California government entity was the originator of 14 A Yes. Correct.
15 this wire transfer? 15 Q All right. I'd like to now look at a
16 A Yes. 16 second Fedwire Funds Processor document, and that is
17 Q Below that, several lines, there's a 17 Bates stamped CBB2780.
18 heading that says, "Originator to Beneficiary 18 MR. ORSECK: Leslie, what will that be
19 Information," and to the right it says, "By Order of 19 marked?
20 Department of General Services." 20 MS. ESBROOK: That will be marked
21 Do you see that? 21 Plaintiff's Exhibit 43.
22 A I do. 22 BY MR. ORSECK:
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1 1 reversal was JPMorgan?
Q Let us -- let us know when you have that,
2 2 A That's right.
please.
3 3 MR. ORSECK: Can we please mark the Fedwire
A Okay.
4 4 Funds Service Format Reference Guide. I think that
Q What is this document?
5 5 will be DX123.
A Again, it appears to me to be a record
6 6 Leslie, correct me if I'm wrong.
containing a Fedwire administrative message.
7 7 MS. ESBROOK: That's right. I'll drop it
Q JPMorgan was the sender of this message?
8 8 in the chat now.
A Yes.
9 9 (DEFENDANTS' Exhibit 123 was marked
Q And Chain Bridge the receiver?
10 10 for identification.)
A Yes.
11 11 BY MR. ORSECK:
Q Can you tell from the indications at the
12 12 Q Let me know when you have it, Mr. Baxter.
top that this message was sent at about 2:05 p.m.,
13 13 A I do.
on March 26th?
14 14 Q This is a multipage document. It appears
A Yes.
15 15 that it's issued by Fedwire, and the title is
Q What is the Type/Subtype Code associated
16 16 "Fedwire Funds Service Format Reference Guide,
with this message?
17 17 Effective November 19th, 2011."
A 1001.
18 18 Are you familiar with this document?
Q So the type is the same one zero, meaning
19 19 A I've seen this document before.
funds transfer, that we looked at in the previous
20 20 Q What is the purpose of this document?
message?
21 21 A It's to provide information regarding the
A Right. It's a service message associated
22 22 Fedwire format and what specific identifiers mean
with the funds transfer.
Page 39 Page 41
1 Q You -- maybe you anticipated my next 1 within the Fedwire format.
2 question. 2 Q Would you please turn to page 14?
3 What -- what do the second two digits in 3 A Okay. I have it open.
4 the Type/Subtype Code 1001 mean? 4 Q At the very top of page 14, there's a
5 A This is a request for a reversal associated 5 heading 13 that says, "Type Code Reference," and the
6 with a funds transfer that was already processed. 6 first one is one zero, Funds Transfer.
7 Q The funds transfer that it requests 7 Does that relate to the first two digits of
8 reversal of is indicated by the line that 8 both Fedwire messages that we've looked at so far?
9 says, "Previous message identifier"; is that 9 A Yes.
10 correct? 10 Q And that means, where those numbers are
11 A That's correct. 11 recorded, that the funds transfer, according to the
12 Q And that's the same IMAD number that we saw 12 description here at least, is, "A funds transfer in
13 on the earlier forward wire transfer, right? 13 which the sender and/or receiver may be a bank or a
14 A That's correct. 14 third party (i.e., customer of a bank)"?
15 Q What is the definition of a request for 15 Does that sound accurate to you?
16 reversal? 16 A Yes.
17 A So it would be a request by a Fedwire 17 Q Under heading 14, Subtype Code Reference,
18 participant, which would always be a bank, to 18 the double zero that we saw on the first message,
19 reverse a Fedwire funds transfer that has already 19 Plaintiff's Exhibit 20, has for Basic Funds
20 been accepted by the beneficiary's bank. 20 Transfer, which is a basic value funds transfer; is
21 Q Am I right that, in this instance, the 21 that right?
22 Fedwire participant who was issuing the request for 22 A Yes. This is what we spoke about earlier,
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1 that the first -- the first of the funds transfer 1
Q A bit earlier you referred to this message
2 is, with the 1000 code identified, a Fedwire funds 2 as an administrative message. Did you mean that to
3 transfer. 3 be synonymous with service message, or did you mean
4 Q In Plaintiff's Exhibit 43, the request for 4 something different?
5 reversal, it says here that the second two digits, 5 A I meant synonymous with service message.
6 zero one, are meant to reflect, "A non-value request 6 Q In other words, a message that is not
7 for reversal of a funds transfer originated on the 7 transferring value. It is instead transferring
8 current business day"; is that accurate? 8 information; is that right?
9 A That's what the document says. 9 A Correct.
10 Q Is that what you understand that subtype 10 Q There is a field, again at the bottom,
11 code to reference? 11 under Additional Information. Do you see that?
12 A Yes, that the subtype code 1001 is not a 12 A Yes.
13 Fedwire message that's transferring value. It's a 13 Q And as I read it, there's a portion of the
14 request for a reversal, which upon execution would 14 IMAD number associated with Exhibit 20, the forward
15 transfer value back. 15 transmittal wire.
16 Q There's a limitation in this description 16 Do you see that?
17 that is to be used for reversal of a funds transfer 17 A Yes.
18 originated on the current business day, correct? 18 Q And then there's the date?
19 A Correct. 19 A Yes.
20 Q And if the sending bank is requesting a 20 Q And the amount?
21 reversal of a wire that was sent on a prior business 21 A Yes.
22 day, then it would use a different subtype code? 22 Q Can you read the next words that follow
Page 43 Page 45
1 1 that, the first sentence?
A Right.
2 2 A "As per rem req pls return funds quoting
Q Would you look back at Exhibit 43, please,
3 3 our reference. Please take care to avoid
the service message?
4 4 duplication."
A Bear with me one second.
5 5 Q Do you understand the meaning of the
Q Yeah.
6 6 words "as per rem req please return funds quoting
A Okay. Mr. Orseck, I have it open.
7 7 our ref"?
Q About two thirds of the way down, there's
8 8 A So, and, again, I don't know what the
an indicator on the left that says, "Business
9 9 author of this intended, but on the basis of my
Function," and then it says, "SVC - Service
10 10 experience, what that might mean is as -- as per the
Message."
11 11 remitter's request. I mean, that -- I'm speculating
Do you see that?
12 12 because I don't know exactly what the author
A Yes.
13 13 intended, but on the basis of experience, that could
Q What do the words "Service Message"
14 14 be what this means. Again, free text information
indicate?
15 15 being provided for whatever -- whatever help it
A So from -- from my background and
16 16 might mean.
experience, a service message over Fedwire is a
17 17 Q These are words composed by somebody at
non-value message, and that contrasts with the
18 18 JPMorgan, right?
typical basic funds transfer, where the message is
19 19 A Yes.
also the money.
20 20 Q They're not composed by somebody at Chain
In a service message, it is simply
21 21 Bridge Bank?
communicating information. It is not, in this
22 22 A No. They would be read by someone at Chain
format, moving value.
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1 Bridge Bank. 1 in the day.
2 Q Do you have an understanding as to who the 2 Q Did JPMorgan use the correct type and
3 remitter is in that sentence? 3 subtype code if its purpose was to request a return
4 A So, again, and I'm speculating, the way I 4 of the funds from Chain Bridge Bank?
5 would interpret this is the remitter is the party 5 A Yes.
6 who will be sending back the funds. So I would 6 Q Would you please look back at your report,
7 interpret this to mean as per the remitter's 7 Exhibit 122, and I'd like to direct you to paragraph
8 request. That would reference Chain Bridge Bank. 8 30?
9 But, again, Mr. Orseck, I'm speculating 9 A Yes.
10 because I don't know what the author intended. 10 Q There's a footnote at the end of paragraph
11 MR. SCHOENFELD: I apologize, Gary. I 11 30. It's footnote 20 at the bottom of the page, and
12 objected to that question. It looks like it wasn't 12 it reads, "Rakesh Korpal, JPMC's corporate designee,
13 recorded, so I just wanted to state that for the 13 succinctly described this in his deposition
14 record. 14 testimony when he said, 'The recall request was
15 MR. ORSECK: Okay. 15 delivered to Chain Bridge Bank. Chain Bridge Bank
16 BY MR. ORSECK: 16 then returned the funds to JPMorgan Chase. JPMorgan
17 Q You read Mr. Korpal's deposition, right? 17 Chase then returned the funds to the State of
18 A Yes. 18 California...at about 4 p.m. Eastern.'"
19 Q And he testified that the intended meaning 19 Have I read that correctly?
20 here is that the State of California is the 20 A You did.
21 remitter. 21 Q Was, as best you understand it, Mr. Korpal
22 Do you remember his testimony to that 22 referring to this 2:05 p.m. service message,
Page 47 Page 49
1 effect? 1 Plaintiff's Exhibit 43?
2 MR. SCHOENFELD: Objection. 2 MR. SCHOENFELD: Objection.
3 THE WITNESS: I don't. 3 THE WITNESS: I wouldn't say referring
4 BY MR. ORSECK: 4 exclusively to the service message because the
5 Q Mr. Coffey said the same. Do you know who 5 service message is followed by action on the part of
6 Mr. Coffey is? 6 Chain Bridge Bank, which reverses the funds transfer
7 A I believe he's the JPMorgan employee who 7 and transfers value back through the funds transfer
8 worked for Mr. Korpal. 8 chain to the State of California.
9 Q If those two gentlemen who authored this 9 BY MR. ORSECK:
10 language say that the remitter is intended to refer 10 Q Fair point. I was trying to be complete
11 to California, would you credit that representation 11 and not cut off the quote.
12 by them, or do you think that's wrong? 12 What I really meant was, with respect to
13 MR. SCHOENFELD: Objection. Misstates the 13 the portion of his testimony you quote that
14 record. 14 says, "The recall request was delivered to Chain
15 THE WITNESS: I just don't know one way or 15 Bridge Bank," does that refer to this service
16 another. 16 message shown at Plaintiff's Exhibit 43?
17 BY MR. ORSECK: 17 MR. SCHOENFELD: Objection.
18 Q Okay. We can come back to that. 18 THE WITNESS: That is how I would interpret
19 What do the words "please return funds 19 it.
20 quoting our ref" mean, as best you understand it? 20 BY MR. ORSECK:
21 A That this is a reversal request seeking the 21 Q That is how you would interpret it? Is
22 return of a funds transfer that was executed earlier 22 that what you said?
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1 A Yes, sir. 1 in Federal Reserve documentation.
2 Q Mr. Baxter, I think you said earlier you 2 Q By your use of the word "purported," you're
3 have a dog-eared copy of at least some of the UCC 3 not questioning the legitimacy or appropriateness of
4 handy; is that right? 4 this service message; am I right?
5 A I do. 5 A You're right. I'm not.
6 Q Would you turn, if you have it, to Section 6 Q Pardon me. I'm just trying to find my
7 4A-211? 7 place for a minute.
8 A I have it in front of me, Mr. Orseck. 8 Would you turn to page 46 -- paragraph 46
9 Q The first sentence of subsection A of 9 of your report on page 18, please?
10 4A-211 reads, "A communication of the sender of a 10 A I have it before me.
11 payment order cancelling or amending the order may 11 Q Four lines from the bottom in paragraph 46,
12 be transmitted to the receiving bank orally, 12 you write, "The administrative actions taken by JPMC
13 electronically, or in writing." 13 not only tied the reversal to the original transfer,
14 Do you see that? 14 but the associated entries were necessary to execute
15 A I do. 15 another important element of Article 4A's
16 Q Is Exhibit 43, the 2:05 p.m. service 16 architecture -- and this was getting California its
17 message, a communication of the type described in 17 money back."
18 4A-211(a)? 18 Do you see where I'm reading?
19 MR. SCHOENFELD: Objection. 19 A I do.
20 THE WITNESS: Yes. 20 Q What do you mean by your reference to
21 BY MR. ORSECK: 21 administrative actions?
22 Q In paragraph 16 of your report -- and 22 A So the sending of the request for reversal
Page 51 Page 53
1 forgive me for jumping around. I'm trying to not 1 triggered action on the part of the Chain Bridge
2 make it too crazy. 2 Bank, and that action was essentially the
3 In paragraph 16 of your report, in the 3 cancellation of the payment order that it accepted
4 fourth line down, you refer to JPMC's purported 4 and the nullification of that acceptance, and when
5 cancellation request. Are you referring to this 5 that happens, there's an obligation on the part of
6 same service message of 2:05 p.m.? 6 all funds transfer participants to remit the value
7 A Yes. 7 that they've received on the forward process back
8 Q And I want to understand your use of the 8 through the chain so that money gets back to the
9 modifier "purported." 9 originator.
10 Do you intend to convey there that this 10 Q The reference here in your report is to
11 cancellation request is something other than what it 11 administrative actions taken by JPMC. Is the
12 appears to be or merely an alleged cancellation 12 sending of the service message, PX46, such an
13 request or not a real cancellation request, or do 13 administrative action?
14 you mean -- with that big wind up, why don't I just 14 A The administrative actions would be the
15 ask you: What do you mean, if anything, by that 15 discussion preceding the -- the sending of the
16 modifier? 16 service message and the sending of the service
17 A So I would call it a request for reversal 17 message itself.
18 of the administrative message that was sent by JPMC 18 MR. SCHOENFELD: Gary, did you mean to
19 to Chain Bridge Bank. That's -- that's what I'm 19 reference PX43.
20 referring to, that from -- from my experience and 20 MR. ORSECK: Yes. Did I not say that?
21 background, what I would look at this as a request 21 MR. SCHOENFELD: You said PX46.
22 for reversal, which is what it's designated as in -- 22 MR. ORSECK: Forgive me. Thank you for
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1 correcting it. I meant -- I meant 43. That's the 1 Are you -- are you saying that the question
2 2:05 p.m. wire. 2 you don't want to answer here is whether, as a
3 MR. SCHOENFELD: Correct. 3 matter of contract law, Chain Bridge Bank and
4 BY MR. ORSECK: 4 JPMorgan Bank had reached an agreement that Chain
5 Q So I had a question here for you whether 5 Bridge Bank would return the wire such that if Chain
6 something in the Fedwire funds guide, reference 6 Bridge Bank later decided not to it might be in
7 guide we looked at earlier identifies these -- any 7 breach?
8 of these steps as administrative actions, but am I 8 MR. SCHOENFELD: Objection.
9 right in understanding your prior testimony to be 9 THE WITNESS: The way I would answer that
10 that when you described this 2:05 p.m. wire as an 10 question, Mr. Orseck, is I don't feel I'm here as
11 administrative message, that's another way of 11 someone who should be offering a legal opinion as to
12 calling it a service message? 12 what the agreement between the banks was. On the
13 A So I wouldn't -- I wouldn't characterize, 13 basis of my experience, there was an agreement
14 Mr. Orseck, the service message as a wire. I would 14 between Chain Bridge and JPMorgan Chase that when
15 characterize it as a service message, if you will. 15 the service message was received, the funds transfer
16 It's not transferring value. It's seeking action. 16 would be reversed.
17 Q Thank you for correcting me. I didn't mean 17 BY MR. ORSECK:
18 to call it that. I've got wire on the brain. 18 Q Is there anything in Section 211 that in
19 What I should have asked is: In your 19 any way constrains the recipient of a request for a
20 testimony a moment ago that your reference to 20 reversal to comply with that request?
21 administrative actions in paragraph 46 of your 21 A So I'm going to have to ask that you
22 report refers in part to Exhibit 43, you mean that 22 clarify your question in one respect, Mr. Orseck,
Page 55 Page 57
1 it's an administrative message also known as a 1 and that is you talked about the recipient.
Here
2 service message, correct? 2 we've got a receiving bank that is the beneficiary's
3 A Yes, and the actions that preceded JPMC and 3 bank, and in this context where the beneficiary's
4 led it to send that service message. 4 bank has accepted a Fedwire, there's a need for an
5 Q Once Chain Bridge Bank received the 2:05 5 agreement by the beneficiary's bank to return or
6 p.m. service message, it remained at liberty to 6 reverse the Fedwire.
7 elect not to wire the money back to JPMorgan, 7 Q When you say there is a need for an
8 correct? 8 agreement by the beneficiary's bank to return or
9 A So -- and the reason I'm pausing is that 9 reverse the wire, what do you mean?
10 the reversal of the wire transfer is typically 10 A That without an understanding by the
11 within the discretion of the beneficiary's bank. I 11 beneficiary's bank, an acquiescence, that the funds
12 think there's a question, given the dialogue between 12 transfer is going to be reversed that it won't be
13 Chain Bridge and JPMC, whether there was an 13 reversed, and there are some beneficiary's banks who
14 agreement that when the service message was received 14 have a policy that they will not reverse a wire
15 by Chain Bridge, it would reverse the funds 15 transfer.
16 transfer. 16 Q Yeah. So let me broaden my question.
17 So, you know, I'll leave that as a legal 17 Under Section 211 of Article 4A, when any
18 conclusion, but the -- there is a question whether 18 bank receives a request for reversal after
19 the beneficiary's bank still had that discretion or 19 acceptance of the wire, it's up to that receiving
20 whether the agreement was the funds will be returned 20 bank to decide whether or not it wants to return the
21 as soon as we get the service message. 21 money; is that right?
22 Q Let me make sure I understand this. 22 A Yes.
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1 Chain Bridge Bank that this funds transfer was, on 1 example.
2 the basis of the circumstances known to the bankers, 2 Can you first answer my question? Is it
3 either unauthorized or mistaken. 3 the language of 211(f) that you rely on for that
4 BY MR. ORSECK: 4 proposition?
5 Q I'm going to ask the same question. 5 A It's the language 211(f), certainly, but
6 You said that there's a question about 6 it's also the -- the overall statute, Article 4A,
7 whether indemnity applies based on whether or not 7 and how it's designed to work.
8 the receiving bank's conduct was proper. You're now 8 Q Okay. But I'm asking for specific
9 saying that's not what happened here. But since 9 language. Do you have specific language, or I just
10 you've stated the principle, I'm asking you if you 10 have to understand the architecture of the whole
11 have any support for it. 11 statute?
12 MR. SCHOENFELD: Objection. 12 A Well, we talked about -- we talked about by
13 THE WITNESS: And -- and I'll go back to 13 a sender, Mr. Orseck. So let me give you another --
14 what I originally said, and that is if there were a 14 Q Can you point me to -- I want to know where
15 situation, and this is not one of them, where a 15 you're referring to. What do you mean by a sender?
16 beneficiary's bank acted unlawfully in reversing a 16 A It's the -- the sentence? Subparagraph
17 wire transfer, that I don't think that unlawful 17 (f) --
18 conduct could be indemnified. 18 Q Right.
19 BY MR. ORSECK: 19 A -- which reads, "Unless otherwise provided
20 Q What is your support for that? 20 in an agreement of the parties or in a
21 A My understanding of the way indemnification 21 funds-transfer system rule, if the receiving bank,
22 works. 22 after accepting a payment order, agrees to
Page 107 Page 109
1 Q Anything else? 1 cancellation or amendment of the order by the sender
2 A No. 2 or is bound by a funds-transfer system rule allowing
3 Q You said in your paradigmatic situation the 3 cancellation or amendment without the bank's
4 sender elicits the return of the wire through a 4 agreement, the sender, whether or not cancellation
5 proffer of indemnity. That's what you said? 5 or amendment is effective, is liable to the bank for
6 A Yes. 6 any loss and expenses, including reasonable
7 Q Can you point me to any authority for the 7 attorney's fees incurred by the bank as a result of
8 proposition that indemnity applies only in an 8 the cancellation or amendment or attempted
9 instance where the sender uses the promise of 9 cancellation or amendment."
10 indemnity to induce or elicit the reversal by the 10 Q Okay. You just read the entirety of
11 receiving bank? 11 Section (f), right?
12 A Again, I'll refer to the language in 12 A Yes. But I emphasized the specific
13 subdivision (f) of Section 211 of 4A, which speaks 13 words "by the sender" or "the sender."
14 about action being taken by the sender, and -- and 14 Q And that's the -- that's the language you
15 those words in the statute are important for them. 15 rely on for the proposition that indemnity attaches
16 Q So it's the -- it's the words in subsection 16 when the sender elicits -- only when the sender
17 (f) of 211 that you rely on for the proposition that 17 elicits the return of the money through a proffer of
18 indemnity applies only when it's used by the sender 18 indemnity. Am I understanding that correctly?
19 to elicit a return of the funds? 19 A That's the operation of subparagraph F.
20 A And I'll give another -- I'll give another 20 Q Okay.
21 example. 21 A I was going to refer you to another
22 Q Sir, can you -- I don't want another 22 provision of Article 4A to illustrate a point.
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1 Shall I do that now, Mr. Orseck? 1 A Yes.
2 Q If there is other language in Article 4A 2 Q Look at paragraph 19 of your report. It
3 that supports the proposition that indemnity is 3 begins on page 7. It's all on page 7. And this, in
4 limited to circumstances where it is used to elicit 4 summary form, I believe is where you lay out your
5 return of the wire, I'm happy for you to -- I'd like 5 principal reasons why there's no indemnity
6 you to point me to it. 6 obligation here, right?
7 A Okay. So -- and, again, I'm not talking 7 A Yes.
8 about the case before us but a hypothetical case, 8 THE COURT REPORTER: I'm sorry, Counsel. I
9 and let's look at the language of Section 4A-209 9 clicked Exhibit 69 and it started playing. I think
10 subparagraph (c), and specifically the second 10 it's not playing now. I apologize. I was trying to
11 sentence speaks, "Acceptance does not occur under 11 save it.
12 subsection (b)(2) or (b)(3) if the beneficiary of 12 MR. ORSECK: All right. I didn't hear it.
13 the payment order does not have an account with the 13 Shall I continue?
14 receiving bank, the account has been closed, or the 14 THE COURT REPORTER: Yes.
15 receiving bank is not permitted by law to receive 15 BY MR. ORSECK:
16 credits for the beneficiary's account." 16 Q Your first principal reason, Mr. Baxter, is
17 Q Okay. You rely on that language as well? 17 you say that -- I'm reading from your report,
18 A Yes. Because here's -- here's the 18 "Indemnification under 4A-211(f) contemplates a
19 hypothetical case, and I know it's not our case, but 19 scenario where the sender is seeking cancellation
20 the hypothetical case could be that -- that the 20 from the receiving bank (which might be the
21 beneficiary's bank asks the intermediary bank to 21 beneficiary's bank), and the receiving bank complies
22 send a service message reversing an earlier funds 22 as an accommodation to the sender," right?
Page 111 Page 113
1 transfer because the beneficiary's bank doesn't have 1 A Yes.
2 an account for the beneficiary. Let's assume that 2 Q So, in other words, you're saying that the
3 the beneficiary's bank then sends the funds back. 3 motivation or reason for the reversal by the
4 Is there an indemnity in that instance? I 4 receiving bank must be that it's doing it to
5 would say no, because the indemnification is not 5 accommodate the sender; is that right?
6 being sought on behalf of the sender, and that's an 6 A Yes.
7 illustration of -- of the point I was trying to 7 Q And if it's doing it to accommodate its own
8 make, Mr. Orseck, that you can't read subparagraphs 8 selfish interest, then 211(f) doesn't apply?
9 (f) of 211 in isolation. 9 A Yes.
10 Q You need to read it, at a minimum, together 10 Q And to determine the motivation of the
11 with 4A-209(c)? 11 receiving bank, we look to all surrounding
12 A And the other provisions of 4A that -- 12 circumstances?
13 Q Okay. 13 A Yes.
14 A -- operate as an integrated whole. 14 Q And that's what you did here?
15 Q Is there somewhere that I could look to 15 A The circumstances that I was aware of and
16 support the proposition that the paradigm scenario 16 saw in the record.
17 you laid out is the only scenario in which indemnity 17 Q You said in the paradigm scenario where
18 under 211(f) attaches? 18 indemnification does apply, there may be a colloquy
19 A I'm not aware of such a thing. 19 between the two banks before the funds are returned,
20 Q Is the receiving bank, upon receiving a 20 right?
21 request for reversal, free to decline that 21 A Yes.
22 invitation for any old reason it likes? 22 Q So if, during that colloquy, the receiving
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1 bank states, and the call is recorded, "Yes, we'll 1 of the service message what's going to happen, that
2 return the wire as an accommodation to your 2 essentially preempts the application of 211(f)?
3 request," in that circumstance indemnity? 3 MR. SCHOENFELD: Objection.
4 A Yes. 4 THE WITNESS: Yeah. They're essentially
5 Q What happens if they have their colloquy 5 taking a mulligan on the funds transfer.
6 and, same scenario, the receiving bank says, "We'll 6 BY MR. ORSECK:
7 return the wire as an accommodation to your request, 7 Q And where in 211(f) would I look for that
8 but, you know, it occurs to us that doing so will 8 outcome?
9 have the additional salutary effect of avoiding any 9 A Well, if we're excluding other points,
10 negative publicity and litigation risk for us" -- so 10 we're going to look at those words by the sender.
11 that's another good reason to do it -- and they go 11 Q And your theory is that because those words
12 ahead and send the money back; indemnity or no 12 say that the receiving bank agrees to cancellation
13 indemnity? 13 of the order by the sender, if they've agreed that
14 MR. SCHOENFELD: Objection. 14 there's going to be a service message, it's no
15 THE WITNESS: And that they will accept a 15 longer an order by the sender?
16 service message reversing the funds transfer. 16 A They're collectively agreeing as to the
17 There's no discussion of an indemnity in that? 17 disposition of the earlier wire transfer.
18 BY MR. ORSECK: 18 Q Okay. Understood.
19 Q No discussion of indemnity. They say, 19 What if they have their colloquy, the
20 "We're going to do this as an accommodation, but 20 receiving bank says it will return the wire and it
21 also it suits our own purposes as well." 21 hopes that the accommodation is helpful to the
22 A "And send us a service message, and we'll 22 sender, but the main reason it's doing so is to
Page 115 Page 117
1 act on it"? 1 avoid any negative publicity and litigation risk,
2 Q No. They don't say anything about service 2 but they say nothing about service messages? It's
3 messages, but they get one and they return the 3 just that the receiving bank expresses its multiple
4 money. 4 reasons why it would want to send the money back;
5 A I would say there's a question on the -- 5 indemnity or no indemnity?
6 Q Okay. What if we adopt your condition? 6 MR. SCHOENFELD: Objection.
7 The receiving bank says, "We'll do it as an 7 THE WITNESS: So I don't know how the money
8 accommodation -- it also suits our purposes by the 8 gets back. Is the earlier wire transfer reversed?
9 way -- and please send us a service message"? 9 BY MR. ORSECK:
10 A "Which we'll act on?" 10 Q Yeah. So the sending bank sends a reversal
11 Q Sure. And the sending bank sends the 11 message, as you said is typical, at the end of this
12 service message, the money is returned; indemnity or 12 conversation. They haven't discussed whether the
13 no indemnity? 13 sending bank's going to do that, but that's what the
14 A No indemnity. The banks have collectively 14 sending bank does; indemnity or no?
15 agreed as to what to do. 15 MR. SCHOENFELD: Same objection.
16 Q And the collective agreement that they 16 THE WITNESS: The sending bank sends the
17 reached is what? 17 administrative message requesting reversal, there's
18 A To reverse the funds transfer. 18 been no discussion of the sending of that request
19 Q And they have not said a single word about 19 for reversal, and the beneficiary bank acts on the
20 whether there will or will not be indemnity? 20 request for reversal?
21 A Correct. 21 BY MR. ORSECK:
22 Q And the fact that they've agreed in advance 22 Q Correct.
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1 1 potential reputational risks is in fact why Chain
concluded to respond to the service message by
2 2 Bridge Bank agreed to return the funds?
returning the wire?
3
A This particular reason I don't know whether 3 A And, again, I don't -- I don't pretend to
4
it was in the knowledge of the bankers from Chain 4 climb into the heads of either Mr. Brough or
5 5 Mr. Evinger, but on the basis of my experience,
Bridge.
6
Q When I asked you about Mr. Coffey earlier, 6 there's reason for this concern.
7
you said I don't know what he had in his head. Is 7 Q Would JPMorgan Chase have had reason for
8 8 the same concern?
it a similar point here?
9 9 A Yes.
A I don't know what was in Mr. Brough's or
10 10 Q I'm going to paragraph 47. No. I'm
Mr. Evinger's head.
11 11 jumping ahead. Give me a moment here.
Q The second thing you say in paragraph 41 is
12 12 Oh, yeah. Paragraph 64, please, on page
that Chain Bridge Bank may have believed that
13 13 25.
returning it "Relieved it of exposure to any
14
potential claim for lost liquidity," by Blue Flame. 14 A Yeah.
15 15 Q Do you have it?
Do you see where I'm reading?
16 16 A I do.
A Yes.
17 17 Q In paragraph 64 you say, "Third, if Chain
Q Same question here: Are you expressing an
18 18 Bridge did not reverse the Wire Transfer, it would
expert opinion that such concerns are in fact why
19 19 need to take some kind of action to deal with the
Chain Bridge Bank returned the wire?
20 20 increase in cash on its balance sheet," right?
A Again, I'm -- I'm not trying to get into
21
the heads of Mr. Brough or Mr. Evinger, but I, on 21 A Yes.
22
the basis of my experience, am aware of situations 22 Q Did you read Mr. Brough's and Mr. Evinger's
Page 127 Page 129
1 where if you hold availability of a credit from a 1 depositions on this point?
2 particular bank customer, that can lead to exposure 2 A Yes.
3 to that customer. 3 Q I take it you have not read
4 Q In paragraph 42 on page 16 -- it's a long 4 Ms. Williamson's deposition, the CFO. She was
5 paragraph, but maybe ten lines from the bottom you 5 deposed yesterday.
6 say, "In my view, there is no question that Chain 6 A I have not.
7 Bridge had overwhelming doubts about Blue Flame's 7 Q Do you recall Mr. Brough and Mr. Evinger
8 right to these funds." 8 testifying that balance sheet concerns are not what
9 Do you see that? 9 animated its desire to return the funds?
10 A Yes. 10 MR. SCHOENFELD: Objection.
11 Q And you've seen support in the record for 11 THE WITNESS: Yes.
12 that proposition, right? 12 BY MR. ORSECK:
13 A Yes. 13 Q Is it your expert opinion that in fact
14 Q Did JPMorgan Chase, likewise, have doubts 14 that's not true and that balance sheet concerns are
15 about Blue Flame's right to these funds? 15 a reason why Chain Bridge Bank returned the funds?
16 A Yes. 16 A Yes.
17 Q In paragraph 43 you say, and you say it 17 Q Yes, you believe that to be untrue when
18 again later in your report, that Chain Bridge Bank 18 they say that's not the reason they returned the
19 faced clear reputational risks by not returning the 19 funds?
20 funds. 20 A I wasn't quarreling with the truthfulness
21 I have the same question here. Are you 21 of the individuals, but I think many times bankers
22 expressing an expert opinion that concern about 22 believe that they can invest cash in a particular
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1 way and there won't be any problems and they turn 1 break. Is this a convenient time for lunch for you?
2 out to be wrong, that one of the benefits of 2 I know Alan's got a -- I'm sorry.
3 reversal of this funds transfer is you didn't have 3 Can we just go off the record, please?
4 that situation at all. 4 THE VIDEOGRAPHER: Sure. Off the record at
5 Q Let me try to ask it better, Mr. Baxter. 5 12:28.
6 Do you believe that, in their subjective 6 (Discussion off the record.)
7 mind, Mr. Brough and Mr. Evinger in fact decided 7 (Whereupon, at 12:29 p.m., the
8 that Chain Bridge Bank would return the funds 8 deposition in the above-entitled matter was
9 because they were in fact concerned about what these 9 recessed, to reconvene at 1:02 p.m., this same day.)
10 funds would do to Chain Bridge Bank's balance sheet 10
11 if they didn't return the money? 11
12 MR. SCHOENFELD: Objection. 12
13 THE WITNESS: And I think I understand the 13
14 question, Mr. Orseck, and, again, I wouldn't presume 14
15 to try to put myself into their minds. 15
16 On the basis of my experience, it's -- it's 16
17 one less thing they needed to do and to worry about 17
18 to get these funds off the balance sheet and to do 18
19 it in a safe way. 19
20 BY MR. ORSECK: 20
21 Q And just -- I'm sorry if I covered this, 21
22 but the relevance of these potential incentives that 22
Page 131 Page 133
1 you've identified here are that they further your 1 AFTERNOON SESSION
2 conclusion or support your conclusion that there was 2 (1:02 p.m.)
3 an agreement between JPMorgan and Chain Bridge Bank 3 THE VIDEOGRAPHER: On the record at 1:02.
4 to reverse the wire? 4 CONTINUED EXAMINATION BY COUNSEL FOR DEFENDANT AND
5 A Yes. 5 THIRD-PARTY PLAINTIFF CHAIN BRIDGE BANK, N.A. AND
6 Q In terms of the application of 211(f), and 6 COUNSEL FOR DEFENDANTS JOHN J. BROUGH AND
7 going back to your paradigm scenario of there being 7 DAVID M. EVINGER
8 a colloquy, for purposes of determining whether 8 BY MR. ORSECK:
9 211(f) applies, does it matter which bank initiates 9 Q Mr. Baxter, you've said in your report and
10 the conversation with the other bank about its 10 on the record that there was an agreement between
11 concerns regarding the transaction? 11 Chain Bridge Bank and JPMC here. What are the terms
12 A I don't think it matters which bank is the 12 of that agreement?
13 first caller, but I do think the dialogue between 13 A So the terms of the agreement were the
14 the banks matters greatly. 14 bankers had applied it that the funds transfer
15 Q Does it matter which bank is the first one 15 should be reversed, that the way to accomplish that
16 to express out loud that it has concerns about the 16 objective was for JPMorgan Chase to send a service
17 transaction? 17 message to Chain Bridge Bank, which Chain Bridge
18 A I don't think so. 18 would accept and execute by doing a reversing funds
19 Q Does it matter which one is the first who 19 transfer, and that is what happened.
20 in fact has concerns about the transaction? 20 Q Any other terms to the agreement between
21 A I don't believe so. 21 the parties?
22 MR. ORSECK: Okay. I'd like to take a 22 A It was a pretty simple agreement.
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1 THE COURT REPORTER: I'm sorry. I didn't 1 Q When was Article 4A enacted?
2 hear you. 2 A My recollection is it was enacted in New
3 THE WITNESS: It was a pretty simple 3 York in approximately 1990, but, again, I -- you
4 agreement. 4 know, I'm speaking of my recollection.
5 BY MR. ORSECK: 5 Q Have you provided advice in an advisory
6 Q Any other detail or terms to the agreement? 6 capacity to the committee since 1990?
7 A No. 7 A So I was -- I was involved with the Uniform
8 Q In paragraph 1 of your report, you say that 8 Law Commission with the enactment process, which is
9 you were an advisor to the drafting committee that 9 a little separate from the full committee, the
10 produced Article 4A, right? 10 drafting committee that actually was responsible for
11 A Correct. 11 the text of the article.
12 Q When did that process occur, referring to 12 So -- so, you know, there's a little -- a
13 drafting Article 4A? 13 little bit of overlap between advice and help to the
14 A That was a multiyear process. My -- my 14 Uniform Law Commission and advice to the drafting
15 recollection is it ran from 1987 through 15 committee itself. I did --
16 approximately sometime in 1990. 16 Q What -- what -- when you say you were
17 Q Were you advisor -- I'm sorry. 17 involved with the Uniform Law Commission, when
18 A I'm sorry. I'm speculating as to the exact 18 was -- when did that work end?
19 period of time, but it was multiyear and around that 19 A So it ended when the last state enacted
20 period of time, Mr. Orseck. 20 Article 4A, certainly. There was a more difficult
21 Q Were you advisor that entire time? 21 and extended process with respect to Articles 3 and
22 A That's my recollection, yes. 22 4, the revisions that were done at the same time,
Page 135 Page 137
1 Q Were there other advisors? You say you 1 and for New York at least, those have never been
2 were an advisor. Were there multiple advisors? 2 enacted in New York.
3 A As I remember it, there were. 3 Q My question was, if you can answer it:
4 Q Can you give a little better sense as to 4 When was the last time you performed an advisory
5 what your role was and what you did? 5 function for the Uniform Law Commission?
6 A Yeah. I attended all the drafting 6 A I don't remember the last point in time,
7 committee meetings, and there were multiple drafting 7 and -- and I do work currently for the ULC. But
8 committee meetings. I would provide advice on the 8 with respect to the -- to the three, four, 4A
9 basis of my experience with respect to wire 9 project, I would guess it was around 2000.
10 transfers to the full committee. There were a 10 Q Has Article 4A been amended since 2000?
11 series of questions that I was asked to opine on 11 A No.
12 about wire transfer practice and procedure and 12 Q Was your advisory work directed solely to
13 current state of wire transfer law, and -- and 13 the text of Article 4A, or did you also have a role
14 there's a record of my writing on behalf of the Fed 14 with respect to the official comment?
15 back to the drafting committee and advising the 15 A Both.
16 drafting committee in response to particular 16 Q Is there anything in the text of Section
17 questions. 17 211 and the official comments thereto that you
18 When the drafting process completed, I was 18 disagreed with at the time?
19 also asked to participate in several meetings with 19 A Not that I remember.
20 the New York legislature, which I did, and to help 20 Q Was there any commentary that you proposed
21 with the enactment of Article 4A and the revisions 21 that was rejected and not included?
22 to Articles 3 and 4 in other states as well. 22 A Not that I can recall.
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1 Q Have you ever worked as a commercial 1 Q Has a guest lecture ever touched on Section
2 banker? By that, I mean outside of the Fed. 2 211 of Article 4A?
3 A No. 3 A No.
4 Q Have you ever sent a wire transfer? 4 Q You list vice chair of the Committee on
5 A Yes. 5 International Monetary Law of the International Law
6 Q When did you do that? 6 Association. Can you briefly tell us what that
7 A It would have been in my capacity as 7 entails?
8 general counsel and executive vice president to the 8 A Yeah. This is a committee of the
9 Federal Reserve Bank. I don't remember exactly the 9 International Law Association, which is comprised of
10 year. But there were occasions where, given my 10 lawyers who are active in the -- in monetary law
11 nonlegal responsibilities, I had cause to send 11 around the world, including the general counsel of
12 funds. 12 the IMF, the general counsel of the Bank of England,
13 Q Were you -- did you ever issue -- have you 13 the general counsel of the European Central Bank,
14 ever issued a request for reversal? 14 and periodically meet to discuss international
15 A And you're speaking about me personally, 15 monetary law issues and to formulate, on occasion,
16 Mr. Orseck? 16 resolutions as to how law and practice should change
17 Q Yeah. 17 to accommodate particular issues.
18 A No. 18 Q Has that touched on wire transfer law?
19 Q Have you had some involvement in the 19 A No.
20 issuance of a request for reversal? 20 Q You list a guest lecturer at law schools.
21 A Yes. 21 Is that -- does that overlap what you were referring
22 Q What's that? 22 to earlier about Mr. Roth's course?
Page 139 Page 141
1 1 A So -- so most of the law school lectures
A Well, certainly, when I was at the Fed in
2 2 involve various aspects of the last financial
my capacity as a Federal Reserve official and as
3
general counsel, I -- I was involved in a number of 3 crisis, the one from 2007 to 2009. I also, when I
4 4 was at Sullivan & Cromwell, did an annual class on
different matters where reversal requests were
5 5 representing a client before a federal regulator.
issued.
6 6 Q Have you delivered any guest lectures at
Q You may have answered this before,
7 7 law schools relating to subjects addressed by
Mr. Baxter. If so, forgive me. But you've not
8
testified as an expert in the last four years. Have 8 Section 211(f)?
9 9 A No.
you ever testified as an expert witness before?
10 10 Q You were at Sullivan & Cromwell from 2016
A Yes.
11 11 to 2020, give or take?
Q Was that in the two criminal cases you
12 12 A About four-and-a-quarter years, from
mentioned this morning?
13 13 October 2016 to December 2020.
A The one criminal case, Mr. Orseck, resulted
14 14 Q You say you provided advice to a variety of
in a trial, and I was a trial witness in the United
15 15 financial institutions on subjects ranging from
States versus Sliker. The other case settled with a
16 16 governance and regulation affairs to payment system
criminal disposition, and I never testified.
17
Q You list senior fellow at NYU Law School. 17 issues, right?
18 18 A Yes.
Do you teach any courses there?
19 19 Q While you were at S&C, did you advise
A I don't teach a course. I do guest lecture
20 20 financial institutions on the question whether a
at Paul Roth's financial services class at Paul's
21 21 reversal of a wire transfer would be subject to
request, and I've done that over the last, I think,
22 22 indemnification under 211(f)?
three, four, five years.
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1 go off, right? 1 prior answer?
2 MR. ORSECK: Yeah. 2 A Yes.
3 MR. SCHOENFELD: Yeah, please. 3 Q David Evinger says to Mr. Korpal, "Is there
4 THE VIDEOGRAPHER: Off the record at 1:53 4 any way for JPMorgan to issue a recall for the wire
5 p.m. 5 so that while you intervene in this you have the
6 (Recess.) 6 funds and feel more comfortable?"
7 THE VIDEOGRAPHER: On the record at 2:20. 7 Is that the statement that you had in mind
8 BY MR. ORSECK: 8 regarding Chain Bridge Bank's direction to JPMorgan
9 Q Mr. Baxter, you state an opinion that Chain 9 to reverse the wire?
10 Bridge Bank directed the reversal of this wire, 10 A So there is also the following statement
11 correct? 11 about JPMorgan Chase being comfortable with Chain
12 A Yes. 12 Bridge holding the funds, and, you know, it was
13 Q What is your evidentiary basis for that 13 between the two options: Chain Bridge continuing to
14 conclusion? 14 hold the funds or the suggestion from Chain Bridge
15 A It was the -- principally the phone call 15 that a reversal request be sent by JP, and that
16 between the executives of Chain Bridge Bank and 16 would reverse the earlier funds transfer. That was
17 Mr. Korpal. 17 the alternative.
18 Q You say principally. Is there other 18 Q Let's take them one at a time, though. The
19 evidence that you had in mind when you wrote that, 19 first one that I just recited back to you was David
20 other than the phone call you just mentioned? 20 Evinger saying, "Is there any way for JPMorgan to
21 A Well, there were the incentives we talked 21 issue a recall?"
22 about earlier. 22 Is that a communication that you consider
Page 171 Page 173
1 1 to support your conclusion that Chain Bridge
Q Yeah. I'm referring -- I'm referring to
2 2 directed the reversal?
not the motive behind it, but, rather, the directing
3 3 A Yes.
to JPMorgan.
4 4 Q And then Mr. Korpal responds, "Well, I feel
Did you have any other communications in
5 5 comfortable that you're holding the money right now.
mind besides the phone call you just mentioned?
6 6 I can issue a recall, but I don't think you and I
A No. That was the principal piece.
7 7 want to get on the front page of The Wall Street
Q I'd like to play that for you -- I think I
8 8 Journal, especially if this is a legitimate
know the one you're talking about -- and then ask
9 9 transaction," and then Mr. Brough responds, "Okay,"
you a couple of questions.
10 10 right?
I believe this is Plaintiff's Exhibit 79,
11 11 A And -- and that he wants to hear back.
and it's a 1:35 Eastern Time phone call on
12 12 That -- that happens later.
March 26th.
13 13 Q Mr. Brough says, "Okay." Mr. Korpal
MR. ORSECK: Do you have that, Leslie?
14 14 says, "If you give me a few more minutes," and then
MS. ESBROOK: I've got it.
15 15 Mr. Evinger says, "We look forward to hearing back
MR. ORSECK: Okay. Let's play that,
16 16 from you," and they both say, "Thank you."
please.
17 17 A Yeah.
(Plaintiff's Exhibit 79 was played
18 18 Q So is Mr. Evinger's statement, "We look
for the witness.)
19 19 forward to hearing back from you," is that also
BY MR. ORSECK:
20 20 supportive of your conclusion that Chain Bridge Bank
Q Mr. Baxter, we've just listened to the
21 21 directed the reversal?
audio recording of Plaintiff's Exhibit 79. Is that
22 22 A So the way I look at the colloquy between
the phone call exchange you had in mind in your
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Case 1:20-cv-00658-LMB-IDD Document 131-27 Filed 05/07/21 Page 18 45
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1 the bankers is that -- that the Chain Bridge 1 often abbreviated conversations that -- that you
2 executives would prefer JPMorgan to request a 2 need to review to reach a determination as to who
3 reversal and they're waiting to hear back that 3 wanted what, and, you know, what you're getting from
4 JPMorgan will do that. That's their -- that's their 4 me is my impression of what I read in the -- and
5 preferred outcome, rather than continuing to hold 5 what I listened to in the recording of these
6 the money. 6 conversations.
7 Q Mr. Korpal says, "I feel comfortable 7 And I fully take the point that others may
8 holding the money," and Mr. Brough says, "Okay," 8 take away different views from this, but that's --
9 right? 9 that's the basis of my view as to what the bankers
10 A I don't think so. I think Mr. Korpal is 10 were concluding in this particular conversation.
11 saying he's comfortable with Chain Bridge holding 11 BY MR. ORSECK:
12 the money. 12 Q Is it part of your expert opinion in this
13 Q Yeah. That's right. He says, "Well, I 13 case to tell us what Mr. Evinger meant?
14 feel comfortable that you're holding the money right 14 A No.
15 now," and then Mr. Brough says, "Okay," right? 15 Q In paragraph 19 of your report -- I've come
16 A Yeah. 16 back to that a few times -- you say, in the last
17 Q And is that part of the exchange that you 17 four lines, "As noted, Section 4A-211(f) would also
18 consider as Chain Bridge Bank's direction? 18 be inapplicable even if the reversal of the Wire
19 A Yes. 19 Transfer had been a joint decision by Chain Bridge
20 Q Okay. Did you read Mr. Korpal's testimony 20 and JPMC. After all, the reversal in a joint
21 on this point? 21 decision scenario would not be initiated 'by the
22 A I did. 22 sender,' as required by 2A-11(f)," right?
Page 175 Page 177
1 Q And I'll quote to you from page 250. He 1 A Yes.
2 says he didn't understand this as a question, but he 2 Q Can you explain your reasoning there?
3 understood Evinger to be making a suggestion. Is 3 A Yes.
4 that consistent with your reading of this? 4 Q Would you?
5 A That's Mr. Korpal's impression. My 5 A Yes. It gets back to the -- the discussion
6 impression is that Chain Bridge preferred a request 6 of the paradigm case, where the beneficiary's bank
7 for a reversal. 7 is induced to a reversal by action on the basis of
8 MR. SCHOENFELD: Gary, I apologize. Hold 8 what they're hearing from the sender's agent,
9 on one second. 9 typically a financial institution, typically the
10 Tom, it's a little bit hard to hear you 10 originator's bank, and contrast that to a situation
11 when you're reclining backwards. If you could 11 where the beneficiary's bank and the intermediary
12 either just speak up a little bit or lean forward, 12 bank get together and essentially agree on what the
13 that'd be helpful. 13 proper disposition should be, and that is a
14 THE WITNESS: I'm sorry. 14 reversal.
15 BY MR. ORSECK: 15 And as, you know, I look at this record,
16 Q So are you -- Mr. Baxter, are you providing 16 you can read the record as having Chain Bridge
17 an expert opinion here as to what Mr. Evinger meant 17 suggest to JP that a reversal is the right answer.
18 that differs with what Mr. Korpal thinks he meant? 18 You could also read the record as seeing
19 MR. SCHOENFELD: Objection. 19 collective -- a collective decision by JPMorgan and
20 THE WITNESS: So on the basis of my 20 Chain Bridge that reversal was the right answer.
21 experience and dealing with colloquy between the 21 Q And so under either scenario, if you read
22 bankers in a reversal situation, I mean, there are 22 it as a result of Chain Bridge's suggestion or if
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Case 1:20-cv-00658-LMB-IDD Document 131-27 Filed 05/07/21 Page 19 46
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1 you read it that the reversal was a result of a 1 first sentence. You say, "Here, both JPMC and Chain
2 joint agreement by the parties, in either of those 2 Bridge were concerned about the subject Wire
3 scenarios, 211(f) rules out indemnity? 3 Transfer. Their collective concern arose from their
4 A Correct. 4 own respective internal processes, which identified
5 Q And I know that from the text of 211(f), 5 the Wire Transfer as highly suspicious before the
6 the -- 6 State of California realized what was happening."
7 A The facts and the circumstances and the 7 That's what you wrote?
8 text. 8 A Yes.
9 Q Sorry? 9 Q When did California realize what was
10 A The facts and circumstances of this case 10 happening?
11 and the text. 11 A I don't know.
12 Q And I mean the text of 211(f). 12 Q Do you know how they realized what was
13 A And all of Article 4A. 13 happening?
14 Q Okay. You say in paragraph 29 of your 14 A I believe they -- they started to focus on
15 report, on page 11, "The Wire Transfer received 15 this wire transfer when they heard from either Chain
16 substantial attention at both JPMC, including 16 Bridge or JPMorgan Chase.
17 because the bank's machines flagged it as anomalous, 17 Q And what was happening?
18 and at Chain Bridge Bank." 18 A The bankers were expressing concern about
19 What is your support for the proposition 19 whether the wire transfer was authorized or a
20 that the wire transfer received substantial 20 mistake.
21 attention at JPMC? 21 Q Look at paragraph 59, please. And I will
22 A So -- so one of the characteristics of wire 22 ask you to flip over to page 24.
Page 179 Page 181
1 processing in a large financial institution like 1
A Yeah.
2 JPMorgan Chase is that there'll be suspicious 2 Q The second full sentence reads, "And the
3 activity monitoring being done, as I say here, by 3 record shows that JPMC personnel concurred with the
4 machine to look for a transaction that's not 4 Chain Bridge executives because of JPMC's concern
5 consistent with the customer profile. 5 for its customer, the State of California."
6 And as I understand how this particular 6 Read that correctly?
7 transaction came to the attention of individual 7 A Yes.
8 executives at JPMorgan, it began by getting kicked 8 Q What is the basis for that statement
9 out through some kind of suspicious activity 9 regarding JPMC's concern for its customer?
10 monitoring routine and then reviewed by specific 10 A So the -- the different positions of the
11 individual executives at JPMorgan Chase, who looked 11 two banks is JPMC had executed this payment order
12 at it and thought, similar to virtually everyone who 12 which resulted in the wire transfer before the
13 looked at this, that this is a strange wire 13 suspicious activity came to its attention, and
14 transaction for -- for the State of California. 14 that's the way suspicious activity monitoring works,
15 Q Do you know whether all of that happened 15 is it tends to work after the fact. And -- and so
16 prior to JPMorgan and Chain Bridge first speaking to 16 JPMC's concerns about this particular funds transfer
17 one another about the transaction? 17 were not concerns that would stop it from acting
18 A I believe that to be the case, although it 18 because it already acted.
19 wasn't far in advance. Because we're talking about 19 And -- and so when you put yourself in that
20 essentially a four-hour window of time here. 20 position, what are the concerns? The concerns have
21 Q Would you look at paragraph 37, please, on 21 to be, well, if this is unauthorized, we've already
22 page 14 of your report. I want to ask you about the 22 transferred it, and that's going to cause a problem
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Case 1:20-cv-00658-LMB-IDD Document 131-27 Filed 05/07/21 Page 20 47
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1 between us and our customer, the State of 1
Q Do you understand Mr. Leonard to be an
2 California, or a possible problem. 2 individual at JPMC?
3 Q Were JPMC's concerns legitimate concerns in 3 A I don't know.
4 your opinion? 4 Q Have you seen this document before?
5 A Yes. 5 I can tell you it's not on your list of
6 Q I didn't ask you, Mr. Baxter: Have you 6 materials considered.
7 ever served -- have you ever advised or served as an 7 A I don't recall seeing it.
8 expert or consultant in any capacity to JPMC before? 8 Q About halfway down Mr. Leonard's email, he
9 A Would that include giving legal advice? 9 says, "The Deputy Treasurer believes there are
10 Q Oh, sure. Did you do that when you were at 10 several red flags to the transaction that the State
11 Sullivan & Cromwell? 11 should have flagged. While meeting the minimum
12 A Yes. 12 fiduciary requirements, he felt that multiple
13 Q Other than that, have you done business in 13 departments fell short in how this was handled."
14 any way with JPMorgan as an advisor or a consultant? 14 Do you see where I'm reading?
15 A No, except for this case. 15 A I do.
16 Q Yeah. What about with Wilmer Cutler? Have 16 Q Have you formed any opinions in this case
17 you served as a consultant or a testifying expert or 17 about whether California's diligence fell short?
18 an advisor in some other capacity before? 18 A No.
19 A No. 19 Q He goes on to report, "The State is
20 MR. ORSECK: Can we please put up in the 20 extremely grateful for JPMorgan's leadership and the
21 chat -- it's marked as Exhibit 97. The Bates is 21 steps we took to get this money recovered."
22 JPMC392. 22 Do you see that?
Page 183 Page 185
1 MS. ESBROOK: Sure. 1 A I do.
2 BY MR. ORSECK: 2 Q Did JPMorgan display leadership and take
3 Q And you'll let me know when you have that. 3 steps to get the money recovered?
4 A I see a Plaintiff's Exhibit 79. Is that 4 MR. SCHOENFELD: Objection.
5 what we're talking about? 5 THE WITNESS: It certainly took steps to
6 Q No. 6 get the money recovered. My pausing is on the
7 MS. ESBROOK: It's Plaintiff's Exhibit 97. 7 leadership part.
8 I just threw it in the chat. 8 BY MR. ORSECK:
9 THE WITNESS: Oh, I'm sorry. Transposition 9 Q Gotcha.
10 error. 10 MR. ORSECK: Okay. Can we get up
11 Okay. 11 Defendants' Exhibit 90, nine zero, please.
12 BY MR. ORSECK: 12 MS. ESBROOK: Sure. Let me find it.
13 Q You should have a document where there's an 13 MR. ORSECK: Tab 11 for us, and it's
14 email in the middle of the first page from Alexander 14 JPMC386.
15 Leonard and then one at the top that's redacted from 15 MS. ESBROOK: Okay. It's in the chat.
16 Rakesh Korpal. Is that what you have? 16 BY MR. ORSECK:
17 A That's what I see. 17 Q Let me know when you have it.
18 Q The one from Mr. Leonard is dated 18 A I have it.
19 March 27th, 2020. That's the day after -- that's 19 Q This is an email from Fiona Ma to Jamie
20 the day after the wire transfer and reversal, 20 Dimon of JPMC, and if you look at the bottom email,
21 correct? 21 you'll see that Fiona Ma is the California State
22 A That's what I believe to be the case, yes. 22 Treasurer.
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