[Last Updated Nov. 12, 2013]
FEDERAL COURT DECISIONS
EXPERT WITNESS IN ACCOUNTING AND SOX COMPLIANCE; WITNESS MAY TESTIFY AS TO "RED FLAGS" AS TO POSSIBLE FRAUD OR MONEY LAUNDERING, BUT IS PRECLUDED FROM TESTIFYING AS TO REASONABLENESS OF PLAINTIFF'S BELIEF ABOUT A CLIENT'S BEHAVIOR, OR TO BOLSTER PLAINTIFF'S TESTIMONY ON MATTERS ON WHICH EXPERT HAS NO PERSONAL KNOWLEDGE
In Sharkey v. J.P. Morgan Chase & Co. , No. 10-3824 (S.D.N.Y. Oct. 9, 2013), the Defendants moved to strike the testimony of the Plaintiff's expert witness on the ground that her testimony concerns lay matters of which she has no personal knowledge, and inappropriately usurps the role of the jury. The Plaintiff's expert had testified as to concerns lay matters of which she has no personal knowledge, and inappropriately usurps the role of the jury. the expert's testimony concerned her knowledge of SOX compliance and training, and customer identification programs utilized to seek out any instances of fraudulent behavior. The expert had vast experience in this area. The Defendant's objection arose from the expert's testimony as to the reasonableness of the Plaintiff's belief that a client was engaged in money laundering and violating the statutes enumerated in SOX and the reasonableness of the Plaintiff's recommendation to terminate that client. The court agreed, and excluded this portion of the expert's testimony. The court also excluded the expert's testimony relating to the Defendant's internal processes of which she had no personal knowledge. The court, however, found that the witness had been established as an expert as to accounting and SOX compliance programs, and was qualified to testify as to the type of transactinos which might be of concern to an accountant, and those matters which are considered "red flags" under SOX pertaining to possible fraud and/or money laundering the financial industry, including "(1) a client's unwillingness to provide new information or documentation after repeated requests ...; (2) the fact that a client was operating in several high-risk industries; (3) suspicious fund transfer activity, including trading in an escrow account; (4) the large number of open accounts; and (5) a client's refusal to close any accounts, including those with a zero balance." Slip op. at 9, quoting expert's deposition testimony. The court notted that the expert had explained why these types of conduct were red flags and the types of fraudulent activity they suggested. The court state that "This type of information and testimony is not accessible to a lay person and is admissible as expert testimony." Id.
EXPERT TESTIMONY; MOTION TO EXCLUDE; DAUBERT GATEKEEPING FUNCTION IS NOT A REPLACEMENT FOR THE ADVERSARY SYSTEM
In Ciavarra v. BMC Software, Inc. , No. 4:07-CV-00413 (S.D.Tex. Feb. 7, 2008), the court denied the Defendants' motion to exclude the Plaintiff's expert witness testimony, holding that Daubert type gatekeeping was not intended to serve as a replacement for the adversary system, and that since the case would be a bench trial, the Defendants' could challenge the experts' opinions through cross examination. The Defendants had challenged the Plaintiff's damages expert on the ground that he made erroneous assumptions about the date that the Plaintiff would find new work and that such work would pay lower commissions, and on the ground that the expert had on limited knowledge about the online salary survey on which he based his estimates. The Plaintiff was also proffering an expert on liability to address whether the revenue recognition issue the Plaintiff had reported was material to the Defendants' finances. The Defendants challenged this opinion, relying on an SEC Staff Accounting Bulletin that indicated that materiality involves the impact of reported misrepresentations or unreported omissions. The court found that the nature of the Plaintiff's complaint was such that the SEC Bulletin did not render the expert's opinions inadmissible. Finally, the Defendants argued that this expert had failed to consider uncontroverted evidence and the DOL and SEC investigations. The court found that the evidence issue could be explored at trial, and that the court would be aware of the DOL and SEC investigations, but would evaluate the claim on a de novo basis.
ADMINISTRATIVE REVIEW BOARD DECISIONS
ADVERSE INFERENCE BASED ON PARTY'S FAILURE TO CALL CRITICAL WITNESS WITHIN THE PARTY'S CONTROL
In Barrett v. e-Smart Technologies, Inc. , ARB Nos. 11-088, 12-013, ALJ No. 2010-SOX-31 (ARB Apr. 25, 2013), the Respondent argued on appeal that the ALJ improperly drew an adverse inference, when determining whether the Respondent established the clear-and-convincing-evidence affirmative defense, from the Respondent's failure to offer evidence from the persons most knowledgeable about the Complainant's circumstances. The ARB held:
The ALJ did not err in drawing a negative inference from Respondent's failure to call critical witnesses within its control. See Underwriters Labs., Inc. v. NLRB , 147 F.3d 1048, 1054 (9th Cir. 1998) ("[W]hen a party fails to call a witness who may reasonably be assumed to be favorably disposed to the party, an adverse inference may be drawn regarding any factual question on which the witness is likely to have knowledge.").
USDOL/OALJ Reporter at 8. The ARB also noted that the ALJ had found, independently of any adverse inferences, that the Respondent's evidence fell short of meeting the clear-and-convincing-evidence burden of proof.
EVIDENCE; ALJ ERRED IN EXCLUDING CONGRESSIONAL REPORT ABOUT INCIDENT THAT OCCURRED AFTER THE COMPLAINANT'S PROTECTED ACTIVITY AND DISCHARGE, WHERE THE REPORT CORROBORATED THE COMPLAINANT'S TESTIMONY
In Zinn v. American Commercial Lines Inc. , ARB No. 10-029, ALJ No. 2009-SOX-25 (ARB Mar. 28, 2012),the Respondent's business included transportation of various industrial products by barges on waterways using its own or hired tugboats. The Complainant raised a concern that the Respondent's report in its 10-K Form that it had been upholding safety might be a misrepresentation in view of incident reports indicating that one of its vendors used unlicensed tugboat personnel. The ARB held that the ALJ abused his discretion in excluding a Congressional staff report proffered by the Complainant that was material and relevant to the question of whether the Complainant had a reasonable belief that the Respondent's Form 10-K may have misrepresented a fact. The ALJ had excluded the report because it was about an incident that occurred after the Complainant had been terminated and after her protected activity. The ARB found that the incident had occurred only 15 days after the Complainant's termination and was relevant because it corroborated the Complainant's testimony that the Respondent had used a tugboat operator which had used unlicenced pilots.