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Collateralized Debt Obligations (CDOs) Explained for a Jury

Ken Lopez
By: Ken Lopez

Trial Graphics, Courtroom Presentations, Trial Consulting, Trial Technology, PowerPoint, Securities Litigation, White Collar, Prezi, Information Design

by Ken Lopez

Quite often, the subject matter at issue in a major trial is very complex and technical and is not intuitively obvious for a jury composed of laypersons, or even a judge, to understand.

In fact, that’s why trial consulting companies like us emerged in the early 1990s – to help lawyers explain in a clear visual manner what’s at stake in a case, so that judges and jurors will be able to understand the facts and make a well reasoned decision.

As a Texas trial lawyer has written, “The typical jury has a 14th-grade education, a 12th-grade comprehension level, and a 9th grade attention span. The implications of this are important in presenting scientific or technical information to a jury. For one thing, it means you cannot assume the jury will have any pre-existing knowledge or understanding of the information you are trying to convey, particularly if it involves a scientific or technical matter.”

In cases involving product liability, patents, the environment, antitrust, and other areas of law, courtroom presentations ranging from the most basic photograph or chart to the most complex computer-generated presentation have been a staple for sophisticated litigators for decades.

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In securities litigation, however, lawyers have been much slower to adopt visual courtroom presentations that can help juries understand their cases. Yet as Wall Street has become much more complex than just stocks and bonds, quite often the issues in a securities trial have become every bit as opaque to the average juror with that 12th-grade comprehension level as a complicated patent infringement case would be.

Now, as litigation from the financial collapse of 2008 and 2009 is finding its way into court, jurors are being asked to understand and to pass judgment on complex financial matters such as collateralized debt obligations (CDOs).

A typical definition of a CDO is that it is “a type of structured asset-backed security (ABS) with multiple ‘tranches’ that are issued by special purpose entities (SPVs) and collateralized by debt obligations including bonds and loans.” This definition will make little or no sense to most jurors, and a lawyer who tries to present the concept on this level in a courtroom will have little or no success.

Below, we use a new presentation tool called Prezi to explain CDOs in an intuitive way that is tailored to help juror understanding.  Like much of our work in securities litigation, this is not a trial graphics-heavy presentation at all.  Rather, our work was spent on how to best tell the story more than how to show it.

Use the play button or your right arrow to step through the presentation.
Zoom in or out, move to other sections of the presentation and return
to the script by hitting the play or back key.

Prezi is a new type of presentation program that permits the litigator to create non-linear courtroom presentations and to escape the sameness that sometimes pervades PowerPoint exhibits. Rather than slides, Prezi relies on a large canvas or mind-map type of presentation that permits the viewers to zoom in and out of a visual story.

This Prezi exhibit shows how CDOs are created, packaged and sold and how the flow of mortgage income keeps them afloat in good times – and what happens when mortgage payments dry up.

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