Finance Expert Witness Report on Financial Crisis Losses Found Partially Admissible

ByZach Barreto

|

Updated onFebruary 4, 2020

Finance Expert Witness Report on Financial Crisis Losses Found Partially Admissible

Court: United States District Court for the Southern District of New York’
Jurisdiction:
Federal
Case

Name:
Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec.
Citation:
2019 U.S. Dist. LEXIS 160087

Facts

The plaintiff, a financial investment company, invested in three collateral debt obligations (CDOs), consisting primarily of residential mortgage-backed securities. Those investments upended in 2007 and 2008. The CDOs defaulted and the plaintiff’s entire investment was lost. The plaintiff alleged that the defendant, who created the three CDOs, did not disclose any conflicts of interest or their prior knowledge that the CDOs were bound to fail. Specifically, the plaintiff claimed that a hedge fund client of the defendant exerted undue influence over the CDOs. The plaintiff alleged the hedge fund client had picked inferior collateral for two of the debt obligations to give advantage to their plan to bet against the CDOs.

The plaintiffs filed a suit alleging fraud, conspiracy, rescission, fraudulent conveyance, aiding and abetting, and unjust enrichment. They retained a finance expert witness to support their case.

The Finance Expert Witness

The finance expert witness held a Ph.D. in economics and had over 30 years of experience in analyzing market structure, corporate behavior, and financial performance. He taught economics and finance and spent six years as an economist at the San Francisco Federal Reserve Bank. The finance expert also held various roles in the private sector as an economist and consulted as a specialist economist on legal issues surrounding financial products, including mortgage-backed securities and CDOs.

The expert offered a report opining on the general CDO market, financial rating agency behavior, and the hedge fund client’s business methods of selecting the CDO’s collateral. The defendant challenged the admissibility of the expert’s report. The defendant particularly focused on the expert’s testimony as to what the rating agencies would have done if certain information had been revealed, which was used to justify the expert’s estimate of out-of-pocket costs. The defendant claimed the finance expert lacked experience in ratings.

Discussion

The court noted that a large part of the expert’s study was dedicated to the general factual discussion of the hedge fund client’s business and their method of selecting collateral for debt obligations. The court noted, however, that the report did not purport to address any factual claims which they were considering when ruling on the motion for summary judgment. The court ruled that the expert had set out the evidence on which his opinions were based. The court considered the expert’s statements of fact as the context for his expert opinion but they relied on the evidence cited in the Rule 56.1 statements of the parties to determine the relevant facts.

The court also considered the finance expert’s testimony regarding the materiality of the collateral selection process for the CDO investors as background only. The court based this ruling on SEC v. Tourre and United States v. Tomasetta, stating the determination of the materiality of the alleged fraud was to be made by the fact-finder, not by the plaintiff. The court also recognized that the plaintiff had agreed during oral argument that the expert’s testimony was not essential in order to prove materiality. Regarding the defendant’s challenge to the expert’s testimony on rating agencies, the court noted that the plaintiff did not rely on his expert opinion on ratings because they had retained another expert for that area.

The court also noted that the defendant was free to challenge the validity of the expert’s findings however they found that the expert’s report did not contain mere conclusions. The court ruled that the expert’s report relied on credible sources and was therefore admissible. The Court noted that “[t]o the extent that [the expert’s] conclusions are broader than supported by the data … that goes to weight rather than admissibility,” citing In re: N. Sea Brent Crude Oil Futures Litig.

Held

The defendant’s motion to exclude the finance expert witness’s testimony was denied but with one exception. Since the expert’s rebuttal opinion was not addressed by the scheduling order, the motion to exclude the expert’s supplemental declaration was granted.

About the author

Zach Barreto

Zach Barreto

Zach Barreto is a distinguished professional in the legal industry, currently serving as the Senior Vice President of Research at the Expert Institute. With a deep understanding of a broad range of legal practice areas, Zach's expertise encompasses personal injury, medical malpractice, mass torts, defective products, and many other sectors. His skills are particularly evident in handling complex litigation matters, including high-profile cases like the Opioids litigation, NFL Concussion Litigation, California Wildfires, 3M earplugs, Elmiron, Transvaginal Mesh, NFL Concussion Litigation, Roundup, Camp Lejeune, Hernia Mesh, IVC filters, Paraquat, Paragard, Talcum Powder, Zantac, and many others.

Under his leadership, the Expert Institute’s research team has expanded impressively from a single member to a robust team of 100 professionals over the last decade. This growth reflects his ability to navigate the intricate and demanding landscape of legal research and expert recruitment effectively. Zach has been instrumental in working on nationally significant litigation matters, including cases involving pharmaceuticals, medical devices, toxic chemical exposure, and wrongful death, among others.

At the Expert Institute, Zach is responsible for managing all aspects of the research department and developing strategic institutional relationships. He plays a key role in equipping attorneys for success through expert consulting, case management, strategic research, and expert due diligence provided by the Institute’s cloud-based legal services platform, Expert iQ.

Educationally, Zach holds a Bachelor's degree in Political Science and European History from Vanderbilt University.

Find an expert witness near you

What State is your case in?

What party are you representing?