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October 07, 2011
Brattle Principal Michael Cragg’s Testimony Contributes to Favorable Ruling for U.S. Department of Justice in Principal Life Insurance Company v. United States of America

Experts at The Brattle Group assisted attorneys for the U.S. Department of Justice to obtain a favorable ruling in recent litigation involving Principal Life Insurance Company. In 2000, Principal Life Insurance Company entered into a complex structured finance transaction with two large French commercial banks. The American life insurance company contributed $300 million into subsidiaries of the French banks, and claimed foreign tax credits from a $1.2 billion portfolio of assets held before the transaction by the French banks. To provide the incentive for the French entities to enter the transaction, the $300 million was structured as a below market loan. A team of Brattle experts reviewed the documents and financial models behind the transaction and provided testimony analyzing the substantive economic effects of the transaction. During a two-week trial in Iowa, Brattle principal Dr. Michael Cragg provided testimony that the transaction was only structured to extract foreign tax credits from the U.S. Treasury, and that no risk or ownership of the underlying assets had been transferred to Principal Life Insurance. In October 2011, the Court ruled in favor of the United States, awarding the government back taxes, interest, penalties, and court costs. In his opinion, Judge Jarvey extracted several exhibits directly from Dr. Cragg’s testimony, and specifically adopted Brattle’s explanations and analysis in rendering his decision for the government. Dr. Cragg was supported by Brattle principal Lynda Borucki and senior associate Evan Cohen.