Expert Witness Profiler

Tag: Fraud

  • Banking Expert’s Opinions Regarding the Card Processing Industry Admitted

    Banking Expert’s Opinions Regarding the Card Processing Industry Admitted

    This action is about holding Chargebacks911 (“CB911”), its CEO (Monica Eaton) and its former CEO (Gary Cardone) accountable for their roles in keeping a massive online Keto diet pill scam (the “Keto Racket”) profitable, viable, and undetected while it victimized Plaintiffs and tens of thousands of other consumers across the country.

    Defendants filed a motion to exclude the testimony of two of Plaintiffs’ experts, Kenneth Musante and Kerrie Merrifield. 

    Musante opined that Global e-Trading, which does business as Chargebacks911, “provided critical and necessary support which allowed the fraudulent merchants to continue processing consumer payments. But for [Global e-Trading’s] assistance, the fraud would have either been muted or ended much sooner than it otherwise did.”

    Merrifield was “retained to review the documents and the ‘shipping,’ ‘refunds,’ and ‘charge backs’ Excel spreadsheets produced in the [case] in order to determine the differences between amounts that were charged United States customers that purchased either the, ‘buy 2, get 1 free’ (referred to as 3 bottles) or ‘buy 3, get 2 free’ (referred to as 5 bottles) promotion of either Instant Keto, Ultra Fast Keto Boost, or Keto Boost products, and the amounts these customers expected to be charged and is offset by any refunds and charge backs.” She opined that the total damages for the Keto Entities’ diet pill scheme is $18,779,274.

    According to Plaintiffs, they offered “Merrifield as an expert for only one thing: to filter and calculate numbers from hundreds of thousands of rows in a spreadsheet. Her assignment was to find select rows in a spreadsheet with values that fit into criteria that Plaintiffs’ counsel provided and to perform math on those values.”

    Banking Expert Witness

    Kenneth Musante has a Bachelor of Science in Managerial Economics, an MBA, and “graduated from the Pacific Coast Bankers School in Seattle, WA.” He has has more than thirty years’ experience with the banking industry and with the major credit card companies, such as Visa, Mastercard, Discover, American Express.

    Get the full story on challenges to Kenneth Musante’s expert opinions and testimony with an in-depth Challenge Study. 

    Accounting Expert Witness

    Kerrie Merrifield is a Certified Public Accountant (CPA) and has over 35 years of experience accounting with an emphasis on forensic accounting and damages calculations. She has been the Director of Litigation Support for Axiom Forensics since 2008. 

    Want to know more about the challenges Kerrie Merrifield has faced? Get the full details with our Challenge Study report. 

    Discussion by the Court

    Kenneth Musante

    Global e-Trading maintained that Musante’s report included numerous impermissible legal conclusions, lacked a reliable methodology, and would not be helpful to the jury and is irrelevant.

    However, Musante pointed to the documents he reviewed in reaching his opinions based on his experience in the banking and card processing industries. And, in his deposition, Musante explained that he reviewed the complaint and other materials in the case, created an outline based on that review and his experience.

    While Defendants may have legitimate questions about Musante’s conclusions based on his document review or take issue with the documents he relied upon, the Court held that these issues can be explored on cross-examination.

    While the Court understands Plaintiffs’ position that Musante used the words “fraud” and “fraudulent” in the vernacular sense, the Court is concerned with the potential to confuse the jury by use of these words with legal significance. It is likely a jury would believe Musante was offering a legal conclusion that certain transactions legally constituted fraud. Thus, the Court prohibited Musante from using the words “fraud” and “fraudulent” in offering his expert opinions. However, the Court declined to exclude Musante’s use of the phrase “sham transactions” in relation to the microtransactions scheme or the term “bad actors.” Neither “sham” nor “bad actor” is a legal term of art, and the Court is not concerned about jury confusion over the use of these words.

    Moreover, it is permissible for Musante to testify — among other things — that, in his opinion, Global e-Trading “was instrumental” in helping the Keto Entities continue accessing card processing and selling its keto diet pills to consumers. While Musante’s opinions touch on an ultimate issue, Musante does not merely instruct the jury on what result to reach.

    Kerrie Merrifield

    Defendants also sought to limit the testimony of Kerrie Merrifield. Global e-Trading insisted that Merrifield is unqualified to offer certain opinions, her methodology is unreliable, and her opinions unhelpful to the jury such that her opinions should be excluded under Rules 702 and 403.

    Qualification

    Global e-Trading insisted that Merrifield was not qualified “to testify competently regarding the matters she intends to address,” specifically regarding “the price U.S. consumers expected to pay for their purchase.” But, indeed, Plaintiffs insisted that they were not offering Merrifield as an expert on consumer expectations.

    Although Merrifield’s calculations required an assumption about what consumers expected to pay, the Court did not interpret Merrifield as offering an expert opinion regarding consumer expectations.

    Reliability 

    Merrifield “reviewed various documents that were produced” in discovery and performed “various technical steps” “along with applying forensic accounting procedures in order to properly extract the data needed and to perform an accurate analysis.”

    She filtered through data and used data within large spreadsheets of payment and shipping information to calculate the class-wide damages in this case.

    The fact that the documents and spreadsheets Merrifield consulted were provided by Plaintiffs and that Merrifield consulted Plaintiffs’ counsel regarding certain assumptions did not render Merrifield an unreliable “mouthpiece” for Plaintiffs’ counsel.

    While Defendants may have legitimate questions about Merrifield’s reliance on the data within the spreadsheet or any assumptions underlying her analysis, the Court held that these supposed problems can be explored on cross-examination.

    Helpfulness to the Jury

    The Court also determines that Merrifield’s opinions and calculations will be helpful to the jury. Defendants are incorrect that Merrifield’s analysis involved “a simple math calculation that most kids in junior high could perform.” Rather, as Plaintiffs point out, the data Merrifield sifted through to make her calculations “is on a spreadsheet containing over 414,000 rows” such that she “had to use advanced Excel techniques to arrive at her numbers.” It is certainly helpful to the jury to have an analysis of the voluminous data from the spreadsheets provided to them rather than reviewing all the data in the spreadsheets themselves to reach a damages calculation.

    The Court held that Merrifield’s damages calculation, made after sorting through the voluminous data, will help the jury decide what damages to award, if it finds Defendants liable.

    Held

    • The Court granted in part and denied in part Defendant Global E-Trading, LLC’s Daubert motion to exclude the testimony of Kenneth J. Musante.
    • The Court denied Defendant Global E-Trading, LLC’s Daubert motion to exclude the testimony of Kerrie Merrifield.

    Key Takeaway:

    The Court considered all of Musante’s opinions, with the exception of his use of the legal terms “fraud” and “fraudulent,” helpful to the jury. The card processing industry and its procedures are unfamiliar to the average juror. For that reason, the Court held that Musante’s opinions regarding that industry and whether Defendants’ practices violated the rules of that industry or assisted the Keto Entities will be helpful to the jury. 

    Moreover, the Court held that Merrifield’s consideration of Plaintiffs’ counsel’s hearsay statements, which a reasonable damages expert would consider in conducting her analysis, was permissible under Rule 703.

    Case Details:

    Case Caption: Sihler Et Al V. Global E-Trading, Llc Et Al
    Docket Number: 8:23cv1450
    Court Name: United States District Court, Florida Middle
    Order Date: May 16, 2025
  • Forensic Science Expert Witness’ Conclusions About Citigroup’s Security Standards Rejected

    Forensic Science Expert Witness’ Conclusions About Citigroup’s Security Standards Rejected

    Hamrit, a citizen of Algeria who lives in Washington, D.C., has been a Citibank customer with a personal checking and savings account since July 2019. In early May 2020, Hamrit’s relationship manager at Citibank, Jim Riutta, encouraged Hamrit to join the Citi Personal Wealth Management (“CPWM”) program.

    He alleged that, while monitoring the trading activity for AERC stock, “a malfunction occurred on the brokerage account function of the Citibank App resulting in a ‘buy’ order of 7650 shares of AERC being wrongly executed at the purchase price of USD51.39 per share for a total purchase price of USD393133.50 excluding estimated commissions of USD2.95.” Hamrit maintains that he never confirmed this transaction, yet “[t]he Citibank App automatically swept the funds for this transaction from [his] personal accounts” without his authorization or approval.

    The narrow issue to be determined by the Court is whether Plaintiff opened the online brokerage account which is the subject of the hearing (the “C29 Account”), and in doing so agreed to the unambiguous arbitration provision (the “Arbitration Agreement”) in the Account Application and Client Agreement (the “Client Agreement”).

    Defendants Citigroup Global Markets, Inc., Citi Personal Wealth Management, and Citigroup, Inc. (collectively, “Citigroup”) filed a motion in limine to exclude the proffered expert testimony of Larry F. Stewart.

    Forensic Science Expert Witness

    Larry F. Stewart is a forensic scientist that specializes in chemistry and document security. He has earned an Associate of Arts degree from Florida Technological University in Orlando, a Bachelor of Science in Forensic Science degree from the University of Central Florida, also in Orlando and a Master of Forensic Sciences degree from Antioch University in Yellow Springs, Ohio. Also, Stewart has worked for the U.S. Government as a scientist and manager for over 25 years and in private practice for over 17 years.

    Get the full story on challenges to Larry Stewart’s expert opinions and testimony with an in-depth Challenge Study. 

    Discussion by the Court

    Hamrit sought to offer expert conclusions from Larry F. Stewart that fall into two buckets. First, Stewart testified that the security standards Citigroup employed did not align with those of the National Institute of Standards and Technology (“NIST”) for high value transactions. Second, Stewart concluded that Citigroup’s system did not truly verify Hamrit’s identity given discrepancies in the account opening documentation.

    Citigroup argued that Stewart is not qualified to offer an opinion regarding the financial technology matters relevant to whether Hamrit electronically executed the arbitration agreement, and also contended that Stewart’s testimony would not be helpful to the trier of fact as his opinions did not stem from any specialized expertise but instead merely convey lay observations.

    Qualifications

    The parties disagree on whether Stewart’s experiences qualify him to offer an expert opinion on the narrow issue of the trial: whether Hamrit electronically executed an arbitration agreement with Citigroup when his online brokerage account was opened.

    Citigroup contended that Stewart is not qualified to offer an expert opinion concerning whether Hamrit electronically executed an arbitration agreement because he “has no demonstrated expertise in cybersecurity, financial technology, opening of online accounts, or computer science generally.”

    A key piece of evidence in this case is a document called a ThreatMetrix report. One of Citigroup’s witnesses at trial, a Citigroup fraud risk officer named Eustacio Valfre, explained that this report captures “[e]ach digital session” that a client has on Citigroup’s online platform and that the report “has a bunch of different data points that [Citigroup’s fraud officers] review” when assessing fraud risk. 

    The Court held that Stewart plainly is not qualified to offer an expert opinion regarding the ThreatMetrix report. During voir dire, Stewart testified that he has never received any training concerning ThreatMetrix, has never offered an opinion concerning ThreatMetrix, and has never drafted a report concerning ThreatMetrix. 

    Relevance and Reliability

    There are multiple instances of Stewart basing his testimony on insufficient or incomplete information to draw conclusions regarding the authenticity of the records at issue.

    To begin with, the Court requires no expertise, for example, to observe that Hamrit’s “residential address at the date of the Account Application and Client Agreement was different from the residential address stated therein,” that Hamrit’s “immigration status is different from that stated in the Account Application and Client Agreement,” or that a document has “different fonts,” contains a “blurred image,” or lacks a signature. These are simply lay observations concerning the contents of two documents, which in no way rely on Stewart’s purported expertise in document security. 

    Stewart’s purported opinion that Citigroup did not verify Hamrit’s identity because there were discrepancies in the account opening documentation, therefore, does not rely on any expertise but is drawn from lay matters that the Court is “capable of understanding and deciding without the expert’s help.’”

    Stewart’s proffered conclusion that Citigroup’s security standards were insufficient relied on a fundamentally flawed premise as he assumed the absence of biometric authentication. Stewart testified that Hamrit’s purported account-opening transaction did not comply with the standards of the NIST for large dollar transactions. Yet, the undisputed evidence at trial established that Hamrit’s account had in place biometric identification for access and that such access was indeed used when his online brokerage account was opened.

    Held

    The Court granted the Defendants’ motion in limine to exclude the proffered expert testimony of Larry F. Stewart.

    Key Takeaways:

    • Stewart’s failure to base his conclusions on complete and accurate information severely diminishes any probative value of his testimony. And in particular, Stewart’s flawed assumption that biometric access was not in place when Hamrit’s online brokerage account was opened, in the face of overwhelming and undisputed evidence to the contrary, renders his conclusion about whether Citigroup met the NIST’s standards devoid of any probative value and require exclusion of that conclusion.
    • Stewart’s purported expertise in “document security” was devoid of any knowledge or training that would allow him to opine on the probative value of the information in a technical product like the ThreatMetrix report that captures a variety of pieces of digital evidence and requires specialized training to properly understand and interpret.

    Case Details:

    Case Caption: Hamrit V. Citigroup Global Markets, Inc. Et Al
    Docket Number: 1:22cv10443
    Court: United States District Court, New York Southern
    Order Date: November 26, 2024
  • Standard Out-Of-Pocket Damages Methodology Employed by Economics Expert Witness Deemed Reliable

    Standard Out-Of-Pocket Damages Methodology Employed by Economics Expert Witness Deemed Reliable

    In 2007, SCANA received legislative approval to construct two nuclear reactors at the V.C. Summer Nuclear Generating Station in Fairfield County, South Carolina” (the “Nuclear Project”). Deloitte served as SCANA’s external auditor for over 70 years. International Brotherhood of Electrical Workers Local 98 Pension Fund alleges that, “[t]hroughout the Class Period, Deloitte repeatedly violated its professional responsibilities, failed in its role of gatekeeper and deceived investors about SCANA’s accounting for, and expected completion of” the Nuclear Project.

    Deloitte allegedly “gave unqualified, ‘clean’ audit reports on SCANA’s financial statements and internal control over financial reporting, misleading investors into believing that SCANA would complete the Nuclear Project in time to obtain $1.4 billion in nuclear tax credits[,] despite voluminous evidence that SCANA could not possibly achieve this goal.”

    The Consolidated Complaint alleged that SCANA, its investors, government regulators, and Deloitte understood that the success of the Nuclear Project depended on SCANA obtaining $1.4 billion in federal production tax credits and being able to raise energy rates on consumers to cover construction costs.

    Plaintiff International Brotherhood of Electrical Workers Local 98 Pension Fund filed a motion for class certification, appointment of class representative, and appointment of class counsel (the “Class Certification Motion”) while Deloitte filed a motion to exclude the damages-related opinion offered in Dr. Matthew D. Cain’s expert report.

    Economics Expert Witness

    Matthew D. Cain is a Ph.D in Finance, a Senior Fellow at the Berkeley Center for Law and Business, and a Senior Visiting Scholar at Berkeley Law School, University of California. He teaches courses, delivers guest lectures, participates in academic seminars, and conducts research in various topic areas related to finance, economics, accounting, law, and business.

    His research is focused on topics including empirical corporate finance, corporate governance, board independence, mergers and acquisitions, hostile takeovers, shareholder lawsuits, negotiations, financial contracting, disclosures of financial information, and shareholder activism. Cain worked at the SEC between 2014 and 2018 as a Financial Economist. Before working at the SEC, he was an Assistant Professor of Finance at the University of Notre Dame. Cain has also published research in leading peer-reviewed finance, accounting, law, and economics journals.

    Want to know more about the challenges Matthew Cain has faced? Get the full details with our Challenge Study report. 

    Discussion by the Court

    Deloitte did not challenge Cain’s qualifications, and the Court concluded that Cain is qualified to opine on the matters discussed in his reports.

    Based on his analysis, Cain “formed the opinions that the market for shares of SCANA’s Common Stock was efficient during the Class Period” and that “damages in this matter can be calculated on a class-wide basis subject to a common methodology.” Deloitte challenged only Cain’s opinion regarding damages and, thus, the Court limited its discussion to Cain’s damages-related opinion.

    Cain’s first report, dated April 30, 2021 (the “First Report”), explained that “[t]he ‘out-of-pocket’ method of calculating damages represents a standard and well-accepted methodology under Section 10(b) of the Exchange Act” and that the “approach calculates damages formulaically as the artificial inflation in the share price at the time of purchase minus the artificial inflation in the share price at the time of sale.”

    Deloitte challenged Cain’s damages-related opinion on two bases. First, Deloitte argued that IBEW asserted two damages theories––a materialization of risk theory and a corrective disclosure theory––but that Cain’s report ignored the materialization of risk theory.

    Deloitte’s Challenge Regarding the Materialization of Risk Theory

    Deloitte contended that Cain’s report appears to be referencing corrective disclosures rather than risk.

    However, as the Fourth Circuit has explained, “the ultimate loss causation inquiry under either the corrective disclosure theory or the materialization of a concealed risk theory is the same: whether a misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security.”

    The First Report stated that Cain will use the out-of-pocket method for
    calculating damages on a class-wide basis. The out-of-pocket method calculates the difference between the price at which the stock sold and the price at which the stock would have sold absent any artificial inflation cause by a Defendant’s alleged misrepresentations or omissions.

    Accordingly, the Court concluded that Cain has offered a reliable damages model consistent with IBEW’s liability case and has demonstrated that IBEW’s damages are attributable to that theory of liability.

    Deloitte’s Challenge Regarding Damages Attributable Only to Deloitte

    Deloitte next argued that Cain failed to identify or offer a “methodology by which damages attributable to SCANA, its officers, or others could be separated from damages attributable to Deloitte.” However, at the class certification stage in a securities fraud class action, a methodology is not required “to make an allowance for any damages caused by things other than the Defendants’ alleged fraud.”

    Moreover, Cain has explained that “event studies are widely-employed to calculate artificial inflation [and] measure stock price reactions to corrective disclosures which reveal the relevant truth that was concealed by alleged material omissions and/or misrepresentations.”

    Additionally, Cain opined, “to the extent that reliable evidence is introduced to show that a material portion of the difference in the artificial inflation between the purchase and sale of the securities may be attributed to non-fraud related factors, the impact of such ‘confounding information’ on the price of SCANA securities can be determined on a common, classwide basis using various accepted methodologies.” Accordingly, the Court concluded that Cain’s damages-related opinion should not be excluded.

    Held

    • The Court denied Deloitte’s motion to exclude damages-related expert opinion of Dr. Matthew D. Cain.
    • The Court granted IBEW’s motion for class certification, appointment of class representative, and appointment of class counsel.

    Key Takeaways:

    Cain’s damages-related opinion were admissible because Cain has offered a reliable damages model consistent with IBEW’s liability case and has demonstrated that IBEW’s damages are attributable to that theory of liability.

    Moreover, at the class certification stage in a securities fraud class action, a methodology is not required “to make an allowance for any damages caused by things other than the Defendants’ alleged fraud.”

    Case Details:

    Case Caption: International Brotherhood Of Electrical Workers Local 98 Pension Fund V. Deloitte & Touche Llp Et Al
    Docket Number: 3:19cv3304
    Court: United States District Court, South Carolina
    Order Date: November 12, 2024
  • Corporate Law Expert Witness Improperly Opines on Defendant’s Mental State

    Corporate Law Expert Witness Improperly Opines on Defendant’s Mental State

    Douglas Worman owns and operates Worman Forest Management, LLC (“WFM”), a limited liability company providing forestry services to various public and private entities. Worman’s spouse owned CRW Resources, LLC (“CRW”), another forestry services limited liability company. Worman was a signer on several of CRW’s bank accounts.

    In 2015, Worman entered into a factoring agreement with another business as the lender. From 2015 through at least September 2018, Worman’s customers submitted invoices to him, and he submitted invoices to the lender for factoring.

    From July 2018 through September 2018, Worman wrote checks between WFM’s and CRW’s bank accounts at two financial institutions—Mountain West Bank and Numerica Credit Union. Worman and his wife later obtained a loan on behalf of CRW from another financial institution, Carolina Bank.

    In May 2023, Worman was indicted on seventeen counts of wire fraud, four counts of bank fraud, and one count of false statements to a bank or other federally insured institution.

    In the indictment, the Government asserts, generally, that Worman inflated and/or falsified invoices from subcontractors and vendors to artificially inflate his factoring requests, then received funds from the factoring lender for work he and his business did not actually perform. The Government also alleges that Worman engaged in check kiting by writing checks between WFM and CRW bank accounts and taking advantage of the float time wherein the account balances appeared inflated. Finally, the Government alleges Worman concealed a material fact in his loan application to Carolina Bank, a federally insured financial institution. Worman has pleaded not guilty to the charges and denies any wrongdoing.

    The Government sought exclusion of Professor Daniel Morrissey as an expert witness pursuant to Federal Rules of Evidence 702, 704, 401, and 403.

    Corporate Law Expert Witness

    Daniel J. Morrissey holds both a bachelor’s (Phi Beta Kappa) and a law degree from Georgetown University. After law school he served as a law clerk for U.S. District Judge Richard Austin in Chicago. He then worked as an attorney in the enforcement division of the Securities and Exchange Commission in Washington, D.C. and Los Angeles. After a period of private practice in Los Angeles, he became a law professor at the University of Tulsa, where he earned the rank of tenured, full professor. He has also served as a visiting professor of law at Pepperdine University, the University of Denver, and Seton Hall University, and as an adjunct professor at Loyola of Los Angeles.

    In 1994 he was appointed dean at St. Thomas University School of Law in Miami, and served in that capacity until 1999. In 2001 he was appointed Dean of Gonzaga School of Law and served in that capacity until 2004. He has published a number of articles in the areas of corporate securities law and jurisprudence.

    Fortify your strategy by reviewing a Challenge Study detailing grounds for excluding Daniel Morrissey’s expert testimony. 

    Discussion by the Court

    Government asserted that Morrissey’s testimony impermissibly instructs the jury on the law and usurps its role by applying the law to the facts of this case; incorrectly comments on a witness’ credibility and Defendant’s mental state.

    Morrisey opined on the law regarding the elements of the crimes Worman is charged with, including the requisite intent.

    The Court held that he applied that law to the facts of this case to draw legal conclusions regarding the legitimacy of the Factoring Agreement and the legal sufficiency of Worman’s federal charges. Morrissey’s report both comments on the law and intrudes upon the jury’s role in applying the law to the facts of this case. The Court found that Morrissey’s opinions are rife with evidentiary defects that demonstrate their inadmissibility. Furthermore, Morrisey improperly opines on Worman’s mental state and concludes that he lacked the intent necessary to result in a conviction in this case.

    Key Takeaway:

    Morrissey’s testimony intrudes upon both the roles of the Court and the jury by opining on the law applicable to this case and by applying the law to the facts. It is well settled that the judge instructs the jury in the law. Furthermore, the Ninth Circuit “has repeatedly affirmed that an expert witness cannot give an opinion as to her legal conclusion, i.e., an opinion on an ultimate issue of law.”

    Held

    The Court granted the Government’s motion and excluded the testimony and report of Daniel Morrisey.

    Case Details:

    Case Caption: United States V. Worman
    Docket Number: 2:23cr136
    Court: United States District Court, Idaho
    Order Date: August 1, 2024
  • Accounting Expert Witness’ Opinions on Due Diligence Procedures Admitted

    Accounting Expert Witness’ Opinions on Due Diligence Procedures Admitted

    A district judge in Mississippi held that the accounting expert witness was more than qualified to testify about the due diligence requirements in the stock purchase agreement in question.

    Facts of the case:

    Casey Morgan (“Morgan”) and Jimmy Ward (“Ward”) (collectively “Plaintiffs”) previously owned and operated Bigfoot Land Services, Inc. (“Bigfoot” or “the company”), an Oklahoma-based land services company. The Plaintiffs had a long-standing business history with the Defendants, specifically, Mr. Joseph Logan Sewell, Jr. (“Sewell”)—and in approximately 2021, the parties began discussing Sewell’s purchase of Bigfoot. The culmination of those negotiations was a Purchase and Sale Agreement dated June 3, 2022 (“Purchase and Sale Agreement” or “Contract”), where the Plaintiffs sold the entirety of their shares of stock in Bigfoot to Sewell Investments, LLC, Logan N. Sewell, and Colorado Buck Family, LP. The price tag for this stock purchase totaled Two Million Seven Hundred Seventy Thousand One Hundred Forty and 96/100 Dollars.

    After the acquisition, the Defendants realized that Bigfoot was operating at a loss and subsequently mailed a letter dated October 7, 2022, alleging that the Plaintiffs fraudulently misrepresented Bigfoot’s valuation and demanding that the Plaintiffs “rescind the Purchase and Sales Agreement and return all exchanged considerations on or before October 14, 2022.” 

    The Plaintiffs commenced this action against the Defendants on November 4, 2022, in the United States District Court for the Southern District of Mississippi, intending to enforce the Agreement.

    They asserted that the Defendants breached the Agreement by failing to pay the Plaintiffs $85,000 for work Bigfoot performed prior to the sale and making purchases on the company credit card under Morgan’s credit without authorization. The Plaintiffs further contended that the Defendants defaulted on the Promissory Note executed in Ward’s favor and repudiated the Agreement with their demand to rescind the Agreement via the Demand Letter dated October 7, 2022.

    Motion to exclude

    The Plaintiff’s retained expert Westley “Wes” Winborne intended to testify that the Defendants did not perform relevant tasks in order to validate that the Plaintiffs’ financial records could be relied on.

    The Defendants contended that Winborne’s testimony had to be based on not only experience but also some reliable, objective methodology. The Defendants also alleged that Winborne’s testimony would have been unfairly prejudicial and would have misled the jury because the testimony improperly placed a legal duty upon the Defendants that was not recognized under Oklahoma law.

    It was undisputed that Winborne’s opinions did not cite to any peer-reviewed publications, potential rates of error, or controls used. Nor did he appear to have considered alternative theories in reaching his opinion on the due diligence procedures. However, his procedures could be tested.

    Winborne’s relevant field is that of providing accounting services in the sale and purchase of a company, including “litigation support, contract costing, strategic planning and related services.” Winborne submitted that he employed the same kind of data and the same methodology as he had in assisting clients in the sale and purchase of similarly situated construction businesses.

    Accounting Expert Witness

    Wes Winborne is the managing partner of HORNE’s construction group where he offers financial guidance and advisory services to the construction industry. 

    Wes joined the firm in 2000 and has more than 20 years of experience providing audit, tax and client advisory services to contractors.  He has served on the boards of various local and national construction associations.

    Wes received his Bachelor of Accountancy and his Master of Accountancy from Mississippi State University.

    To learn about other cases where Wes Winborne has been involved as an expert witness, order an Expert Witness Profile report.

    Discussion by the Court

    Is Winborne qualified?

    According to Winborne’s Expert Witness Report, Winborne is a CPA with “over 20 plus years of experience providing audit, accounting and tax services to numerous small and medium sized businesses and their owners.” 

    These services included “litigation support, contract costing, strategic planning and related services.” Winborne also testified that he has provided services in transactions concerning the purchase and sale of construction businesses on approximately 80 different occasions.

    The Defendants argued that despite this experience, Winborne’s theories were based on what Winborne would have done and not based on objective and reliable methodology.

    Having considered the parties’ briefs on the qualifications of Winborne, the Court concluded at this stage that pursuant to Rule 702 he appeared to be qualified to render his opinions on the relevant due diligence performed in a stock purchase based on his education as well as his experience, skill, and knowledge gained from his role as a managing partner of a construction accounting firm.

    Is Winborne’s testimony relevant and reliable?

    In his report, Winborne laid out the due diligence procedures, based on his 20 years of experience as a certified public accountant and his review of financial documents provided by the Plaintiffs in relation to this matter.

    The Defendants’ objections to Winborne’s testimony concerned the credibility of his conclusions and the level of certitude of the procedures on which he relied. The Defendants further argued that Winborne’s testimony would impose a legal duty to perform due diligence not recognized by Oklahoma law.

    Upon reviewing the Expert Report, the Court was not convinced that this was the case; instead, it appeared that Winborne was only describing the due diligence procedures he performed, including the kinds of data and methodologies he relied on, in his day-to-day business, as he did when deriving his opinions in this case.

    The Court held that Winborne’s opinions were consistent with the facts of the case.

    The agreement included a clause indicating that the Defendants agreed to perform due diligence prior to the purchase and that the Plaintiffs would provide full access to Bigfoot’s books and records to assist in the due diligence process. Winborne is a certified public accountant with years of experience in the purchase and sale of similarly situated construction businesses. The very nature of Winborne’s testimony involved the due diligence he would have performed in his day-to-day business as the managing partner of a construction accounting firm. Accordingly, the Court concluded that Winborne’s opinions on due diligence procedures were relevant and reliable in this matter.

    Held

    After reviewing the Defendants’ arguments, the applicable law, and the evidence the Defendants sought to exclude, the Court found that Winborne’s proposed testimony appeared to be sufficiently relevant and reliable pursuant to Rule 702. Thus, the Court denied the Defendants’ motion to exclude the testimony of the Plaintiff’s expert Westley “Wes” Winborne.

    On January 23, 2024, both parties had filed dueling motions for partial summary judgment. The Plaintiffs’ allegations rested on the Defendants’ alleged breach and anticipatory repudiation of the Agreement. The Plaintiffs further averred that the Defendants failed to assert valid fraud claims to survive summary judgment. The Defendants’ Motion sought rescission of the Agreement, contending that the Plaintiffs had committed fraud by offering alleged materially false representations prior to the agreement. The Court denied both motions for partial summary judgment.

    Key Takeaway:

    An expert’s testimony “must be relevant, not simply in the sense that all testimony must be relevant, but also in the sense that the expert’s proposed opinion would assist the trier of fact to understand or determine a fact in issue.” Winborne is a certified public accountant with years of experience in the purchase and sale of similarly situated construction businesses. The very nature of Winborne’s testimony involves the due diligence he would perform in his day-to-day business as the managing partner of a construction accounting firm.

    Case Details:

    Case Caption: Morgan Et Al V. Sewell Et Al
    Docket Number: 5:22cv89
    Court Name: United States District Court, Mississippi Southern
    Order Date: April 24, 2024
  • Court rejects expert opinions justifying Trump’s business records citing lack of credibility

    Court rejects expert opinions justifying Trump’s business records citing lack of credibility

    After a rigorous three-year investigation conducted by the Office of the Attorney General, involving in-depth interviews with over 65 witnesses and the examination of extensive documentation provided by the Defendants and other involved parties, it was established Defendants Donald J. Trump (“Trump”), Trump Organization LLC and the Trump Organization, Inc. (collectively with the other named entities, the “Trump Organization”), Allen Weisselberg, and the other individuals and entities affiliated with Trump and his companies named as Defendants, were engaged in a pattern of fraudulent activities and misrepresentations spanning the years 2011 through 2021. These deceptive practices primarily revolved around the preparation of Trump’s annual financial statements, known as the Statements of Financial Condition.

    The investigation revealed a consistent and deliberate pattern of fraudulent conduct orchestrated by upper management within the Trump Organization. This conduct was deemed a collective effort to manipulate the content and presentation of the Statements of Financial Condition. Moreover, crucial information was deliberately withheld or concealed from Mazars, the entity responsible for compiling these financial statements. It’s important to note that Mazars, in its role of compiling assertions of Trump and the Trustees’ into financial-statement format rather than conducting comprehensive audits, remained unaware of many of the fraudulent strategies and misrepresentations embedded within the financial statements.

    These fraudulent actions were not isolated incidents but were instead part of a systematic effort that received approval at the highest levels of the Trump Organization, including Donald J. Trump himself. The intent behind these actions was to present a misleading and inaccurate financial portrayal through the annual statements.

    New York University Stern School of Business research professor, Eli Bartov testified that upon his review, he did not identify any indications of fraud within Trump’s family real estate company’s financial statements. This assessment contrasts with the allegations made by the New York state’s attorney general, who pointed to overstated property values meant to secure advantageous loan and insurance terms.

    Jason Flemmons, a forensic accountant who’s a senior managing director at Ankura, an international consultancy firm and a a former deputy chief accountant at the U.S. Securities and Exchange Commission acknowledged that Trump’s annual net-worth statements spanning a decade exhibited “glaring” issues. However, he attributed the content of these statements to Trump’s accountants, asserting that they held the ultimate responsibility for the statement’s contents.

    Accounting Expert Witnesses

    Eli Bartov, renowned for his expertise in accounting and academia, serves as a Professor of Accounting at New York University’s Leonard N. Stern School of Business. With a Ph.D. from UC Berkeley in 1989, he’s recognized globally for his award-winning research and teaching prowess. His extensive research spans a diverse array of topics including financial reporting, executive compensation, social media’s impact on capital markets, forensic accounting, stock price dynamics, M&A analysis, and diverse facets of equity valuation and trading strategies.

    Jason Flemmons, currently serving as a Senior Managing Director at Ankura in Washington, DC, boasts an extensive career spanning more than 25 years. His expertise lies in forensic accounting, corporate investigations, and technical accounting and auditing. Notably, Flemmons previously held the position of Deputy Chief Accountant within the Securities and Exchange Commission’s Division of Enforcement. In this pivotal role, he oversaw and actively conducted a multitude of investigations focused on financial and accounting fraud, involving SEC registrants and other involved parties.

    Discussion by the Court

    The Court held that the “overarching point” of Bartov’s testimony was that Trump’s subject statements of financial condition were “accurate in every respect” yet the Statements of Financial Condition were found to consist of numerous inadvertent errors with even a previous ruling to that effect. Bartov contended that no expert countered or disputed his testimony, nor did any expert testify that they had uncovered evidence of fraud.

    During his testimony, Bartov disclosed that he dedicated approximately 650 hours to the case, charging at a rate of $1,350 per hour, resulting in compensation totaling around $877,500. He clarified that payments for his services came from both the Trump Organization and Save America, a political action committee that backed Trump’s prospective 2024 election campaign. Bartov held this rate to represent his standard billing fees.

    Justice Arthur Engoron wrote that the testimony merely demonstrated that, for a considerable sum of money, certain experts could be swayed to align their statements with the desires of those footing the bill.

    During his testimony, Flemmons admitted to lacking expertise in property valuation, yet attempted to offer opinions on property values. He testified that a wide variety of “methodologies” could legally be used in estimating property and asset values. These methodologies could produce net-worth values that differ from each other by “orders of magnitude.”

    He emphasized that according to ASC 274, as long as a method permitted by the standards was selected by the Defendant, figures could be inserted into such methods without regard for their accuracy or relation to reality.

    Additionally, Flemmons conceded the necessity of discounting future income to present value in financial statements but paradoxically stated there were no departures from Generally Accepted Accounting Principles (GAAP) when Defendants failed to apply a discount rate to future income.

    He expressed the opinion that Mazars should have pursued items in the Statements of Financial Condition (SFCs), but firmly stated that it would have been “highly unusual” for Mazars to inquire about any appraisals in the possession of the client.  “There would be no obligation or expectation on the part of Mazars or any accountant performing compilation services” to request appraisals that weren’t the basis for values on the statements, said Flemmons.

    Held

    The Court held that the testimony of Defendant’s expert Eli Bartov and Jason Flemmons lacked credibility. Closing arguments in the trial are set for January 11, 2024.

    Key Takeaways:

    The Court noted discrepancies in Eli Bartov’s assertion of accuracy with regard to Statements of Financial Condition, considering previous findings of errors. Justice Arthur Engoron flagged concerns about substantial compensation potentially influencing expert alignment with the paying party’s interests. Jason Flemmons emphasized the wide legal scope of methodologies for estimating property values, often without accuracy or relation to reality, as allowed by accounting standards. Flemmons’ stance on GAAP compliance presented a contradiction regarding discounting future income. Additionally, while suggesting Mazars should have pursued items in the Statements of Financial Condition, Flemmons deemed it “highly unusual” for them to inquire about unrelated appraisals, absolving Mazars from obligation in such cases.