Lack of FINRA License Does Not Exclude Accounting Expert From Fraudulent Transfer Case

    FINRA Expert

    Court: United States Bankruptcy Court for the Middle District of Florida, Orlando Division
    Jurisdiction: Federal
    Case Name: Sec. Investor Prot. Corp. v. N. Am. Clearing, Inc.
    Citation: 2012 Bankr. LEXIS 2041


    The plaintiff, a trustee of the debtor, a regulated clearing firm, sought to recover money paid by the company to the defendant, the debtor’s owner, alleging that the payments were fraudulent transfers recoverable pursuant to Sections 548 and 550 of the Bankruptcy Code and the Florida Uniform Fraudulent Transfer Act (FUFTA). It was further alleged that the payment was in breach of the owner’s fiduciary duty to the company and caused it loss to the amount of payment and constituted unlawful distribution under section 607.0834 of the Florida Business Corporation Act. The defendant made a motion to exclude the testimony of the plaintiff’s accounting expert witness.

    The Expert

    The plaintiff’s expert witness was a certified public accountant and certified management accountant. He also had experience serving as the chief restructuring officer for multiple Chapter 11 debtor companies. He had 25+ years of experience in financial matters and had previously served as an expert witness in several bankruptcy cases, including cases dealing with fraudulent transfers.


    The defendant argued that the plaintiff’s expert was not qualified to testify about the capitalization of a debt clearing company such as the debtors, because he had no experience auditing or working for a brokerage or financial clearing firm. The defendant also argued that the expert was not licensed by the Securities and Exchange Commission (SEC) or Financial Industry’s Regulatory Authority (FINRA), and had only testified as an expert on the undercapitalization of the debtor. The court noted that even though the expert had not testified as a FINRA expert but only as an undercapitalization expert, he knew the relevant provisions of the SEC and FINRA. The question of whether the debtor was in compliance with SEC and FINRA regulations could be of probative value when finding if its capitalization was adequate, however, it could not be considered definitive.

    The court also noted that the expert witness’s experience was relevant to the plaintiff’s case because he could show that the debtor received a less-than-reasonable value in exchange for the payments – which would render them fraudulent. Regarding the defendant’s argument that the plaintiff’s expert report was not proper, as it relied solely on the report provided to him by Financial Industry Technical Services (FITS) employees – the court found no merit in it.

    The court accepted the expert’s testimony that FITS had provided the type of information that would help accountants reasonably in forming opinions on the issue of capitalization of companies like the debtor. It was noted that an expert may rely on facts or data provided by others to reach his opinion. Those facts or data need not be admissible, so long as they are of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject. (citing  American Key Corp. v. Cole Nat’l Corp., 762 F.2d 1569, at 1580 (11th Cir. 1985)). The accuracy of the data relied on by the expert, according to the court, was a question for cross-examination of the expert at the time of trial.

    The court also noted that even though the expert could rely on external facts and data to form his opinion, he could not rely on the opinion of others for the same.


    The court found the plaintiff’s accounting expert witness to be an expert according to the standard set by Daubert and found his testimony to be relevant and reliable, thus dismissing the defendant’s motion to exclude his expert testimony.