The Federal Reserve System had charged a Bankers Trust trader with unsafe and unsound banking practices in connection with several customer transactions involving complex derivative instruments. One claim involved the accuracy of a formula the bank had provided to customers in order to describe a proposed transaction. The other claim involved the volatility assumption used by the trader to value the bank’s side of an actual transaction for hedging purposes.

A NERA expert testified on behalf of the trader.

Following the hearing the administrative law judge found that there was never “even a possibility of fraud” in the formula presented to the customers and “just no possibility that the [volatility] entries... could be considered false.”