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SEC v. Goldstone

Area of Law:

Securities fraud. SEC alleged fraud against the former officers (CEO, CFO, and CAO) of a mortgage company.

Grounds:

SEC moved to exclude the defendants’ expert opinions, arguing the experts were opining on the ultimate legal issues; lacked the necessary qualifications; and their opinions were not based on sufficient data.
Defendants moved to exclude SEC’s expert opinions, arguing the experts lacked the necessary qualifications; the opinions were irrelevant; and the opinions were not based upon a relevant standard of care or sound methodology.

Outcome:

Both motions were granted in part and denied in part.

Analysis:

The court precluded both parties’ experts from testifying on the ultimate legal conclusions. Although under the Tenth Circuit law, witnesses are permitted to testify about how the law applies to a certain set of facts, so long as they provide adequate explanations for their conclusions, here the experts sought to draw conclusions only the jury can properly draw. The court found that both parties’ experts’ opinions would not assist the jury but substitute the experts’ opinions. The Court applied this ruling uniformly to both the SEC and the defendants to avoid unfair prejudice.

The court, however, allowed the parties’ event studies, which provided a regression analysis attempting to show how the market price of a company’s stock responds to publicly reported events. These studies could help the trier of fact determine what a reasonable investor would consider material and also help calculate damages.

The court also detailed its rulings with respect to specific portions of particular experts’ testimony and limited some testimony as cumulative.