Court: United States District Court for the Southern District of New York
Case Name: McBeth v. Porges
Citation: 2018 U.S. Dist. LEXIS 195094
In this financial dispute case, the defendant hedge fund challenges the qualifications of the plaintiff’s securities expert witness. The court, however, determines the expert’s overall securities experience permits him to opine across industry issues. The expert is permitted to present advanced mathematical conclusions and explain his methodology for the benefit of the jury’s understanding of this complex financial matter.
The expert’s testimony, however, is excluded in part for presenting legal conclusions. Despite the expert’s robust industry experience, the court had to step in as gatekeeper to prohibit unsubstantiated conclusions that could improperly impact the jury.
This case involved a financial dispute between an investor plaintiff and a hedge fund defendant. The plaintiff invested $5 million in the defendant’s hedge fund after consultation with one of the defendant’s employees. This included sharing marketing materials and an audit report of the defendant’s past investment success. Within 10 months of the plaintiff’s investment, the fund lost all its money. Following several meetings with the defendant, in which they reportedly agreed to refund the lost money, the plaintiff was repaid only $200,000. In response, the plaintiff filed a suit against the defendant and retained a securities expert witness to help support their case.
The Plaintiff’s Securities Expert Witness
The plaintiff’s securities expert witness was a nationally recognized expert in the mutual fund industry. He currently worked as a Principal at Securities Litigation & Consulting Group (SLCG). He also authored numerous articles in peer-reviewed journals. His research focused primarily on portfolio management, with a particular emphasis on mutual funds.
Before joining SLCG, the expert was an assistant professor at the Babcock Graduate School of Management at Wake Forest University, where he taught corporate finance, advanced risk analysis, and securities and portfolio management courses to MBA students. Previously, he served as a visiting economist for a one-year appointment at the Securities and Exchanges Commission (SEC), where he offered advice to the Chief Economist on investment management and policy issues. The expert had also previously written expert witness reports and appeared in NYSE, AAA, and NASD court arbitration hearings, and testified as an expert witness in numerous state and federal lawsuits.
The defendant challenged the expert’s testimony, calling into question his qualification to opine on the specific financial issues in this case, his methodologies, and how his conclusions aided the triers of fact.
In response to the defendant’s challenge, the court noted that the expert’s overall experience in the securities industry, including his year at the SEC, qualified him as an expert on general industry issues. Further, the expert was allowed to testify on the accounts that he understood to be included in the defendant’s Performance Statistics. The court explained this was permissible because “[a]n expert opinion requires some explanation as to how the expert came to his conclusion and what methodologies or evidence substantiate that conclusion,” citing Riegel v. Medtronic, Inc.
Similarly, the expert was allowed to testify about his estimates on the Performance Statistics because they were not straightforward calculations, but complex ones that used compounding and percentages and were therefore undoubtedly beyond the mathematical ability of the jury. The court, however, prohibited the expert from testifying that the excluded accounts adversely influenced the performance figures or that the defendant’s debts generated a conflict of interest because such testimony amounts to impermissible legal conclusions.
The motion to exclude the securities expert witness’s testimony was granted in part and denied in part.
Key Takeaways for Experts
Experts are reminded to always keep evidentiary standards in mind and only opine on what can be backed by industry research and knowledge. Remember, you’re retained to clarify the technical, specialized details that fall within your field—resist including personal opinion or conclusions.