VALERIE CAPRONI, United States District Judge.
The Securities and Exchange Commission ("SEC") filed suit against Revelation Capital Management, Ltd. ("Revelation") and Christopher P.C. Kuchanny, Revelation's founder, Chairman, Chief Executive Officer, Chief Investment Officer, and sole shareholder (collectively, Defendants), alleging that Defendants violated Rule 105 of Regulation M, see 17 C.F.R. § 242.105. Currently before the Court are Defendants' Motion to Exclude the Testimony of Plaintiff's Expert Witness Guy Erb (Dkt. 42) and SEC's Motion to Strike Defendants' Expert Report and Preclude the Expert from Testifying (Dkt. 39). For the following reasons, Defendants' Motion is DENIED, and Plaintiff's Motion is GRANTED.
Rule 105 of Regulation M prohibits any person who makes a short sale of securities during a restricted period prior to the pricing of the securities in a firm commitment offering from then purchasing securities in that same offering. 17 C.F.R. § 242.105(a). Rule 105 only applies to offerings that are conducted on a firm commitment basis. 17 C.F.R. § 242.105(c); see also Defs. Erb Mem. at 1 n.1, 11; Pl. Erb Opp. at 4.
The SEC claims that Defendants violated Rule 105 of Regulation M when they shorted securities of Central Fund of Canada Limited ("Central Fund") during the restricted period preceding Central Fund's November 2009 offering (the "Offering") and then purchased securities from the Offering. Compl. ¶¶ 2, 16-17 (Dkt. 2). According to the SEC, Defendants made approximately
Many of the facts in this case are not in dispute. Defendant Revelation is a Bermudian corporation, and Defendant Kuchanny is a citizen of the United Kingdom and a resident of Bermuda. Id. ¶¶ 10-11; Answer ¶¶ 10-11 (Dkt. 17). Central Fund is a closed-end fund incorporated and based in Canada that is listed on both the New York Stock Exchange and the Toronto Stock Exchange. Compl. ¶ 12; Answer ¶ 12. Defendants admit: that Revelation directed the short sales of Central Fund securities between November 3 and 9, 2009, compare Compl. ¶ 17 with Answer ¶ 17; that Central Fund filed an underwriting agreement with the SEC following the Offering, Answer ¶ 16; and that Revelation directed the purchase of securities from Central Fund's Offering, compare Compl. ¶ 16 with Answer ¶ 16.
Defendants deny, however, that they engaged in any illegal trading or wrong-doing and deny that Rule 105 applies to the Offering. Answer ¶ 2. Specifically, they "deny that the Offering constituted a firm commitment follow-on offering" under Rule 105 and assert, instead, that "[t]he Offering was made on a `best-efforts' basis." Id. ¶ 16.
There are two motions before the Court: the Defendants' motion to exclude the testimony of Plaintiff's expert, Guy Erb, and Plaintiff's motion to strike the expert report of and preclude testimony from Defendants' expert Dennis Dumas. Plaintiff retained Erb to "opine on the assertion by [Defendants] that the underwriting of Central Fund shares in the Offering was on a `best efforts' basis, not as a `firm commitment' underwriting." Yoskowitz Decl., Ex. 1, ¶ 5 (Dkt. 44-1) (hereinafter, "Erb Report"). According to Plaintiff, Erb's testimony is offered to assist the fact finder in resolving the meaning of the term "firm commitment" as it is used by participants in the securities industry. Pl. Erb Opp., at 4. Erb's principal opinion is that "the underwriting of the Offering was in all respects a firm commitment underwriting." Erb Report ¶ 18. Defendants move to exclude Erb's testimony arguing that he is unqualified to opine on this issue, that his testimony is unreliable and, under Rule 403, unfairly prejudicial.
Defendants retained Dumas "to analyze and critique certain factors relating to the exercise of extraterritorial jurisdiction over the Defendants in the Litigation." Pl. Dumas Mem., Ex. 1, ¶ 3 (hereinafter, "Dumas Report"). According to Defendants, Dumas will "aid the fact finder in understanding what factors entities like Revelation may have considered at the time of purchasing securities in the Canadian Offering and what expectations it would have had regarding the implications of the purchase and the application of U.S. law." Defs. Dumas Opp. at 2. Dumas's principal opinion is that "the exercise of jurisdiction over Defendants' participation in the Central Fund offering is not consistent with the factors considered by market participants in evaluating jurisdictional reach and choice of law." Dumas Report ¶ 31. Plaintiff moves to strike Dumas's expert report and to preclude him from testifying because his report is irrelevant to any issue before the fact finder or the Court, offers an impermissible legal opinion, is unreliable
Rule 702 of the Federal Rules of Evidence governs the admissibility of expert testimony and provides that:
Fed. R. Evid. 702. The district court acts as a gatekeeper under Rule 702 and is charged with "ensuring that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand." Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993); see also Louis Vuitton Malletier S.A. v. Sunny Merch. Corp., 97 F.Supp.3d 485, 503 (S.D.N.Y. 2015) ("A trial court should therefore admit expert testimony only where it is offered by a qualified expert and is relevant and reliable."); Forte v. Liquidnet Holdings, Inc., No. 14 CIV. 2185 (AT), 2015 WL 5820976, at *5 (S.D.N.Y. Sept. 30, 2015) ("In order for an expert opinion to be admissible, the witness `must be qualified as an expert, the testimony must be reliable, and the testimony must assist the trier of fact.'" (quoting In re Fosamax Prods. Liab. Litig., 645 F.Supp.2d 164, 172 (S.D.N.Y. 2009))). This gatekeeping obligation "applies not only to testimony based on `scientific' knowledge, but also to testimony based on `technical' and `other specialized' knowledge." Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999). A district court has broad discretion to carry out its gatekeeping function. In re Pfizer Inc. Sec. Litig., 819 F.3d 642, 658 (2d Cir. 2016). The proponent of the expert testimony bears the burden of establishing by a preponderance of the evidence that the proffered testimony meets the admissibility requirements of Rule 702. R.F.M.A.S., Inc. v. So, 748 F.Supp.2d 244, 253 (S.D.N.Y. 2010); Dreyer v. Ryder Auto. Carrier Grp., 367 F.Supp.2d 413, 424-25 (W.D.N.Y. 2005).
Defendants move to exclude Erb's testimony arguing that Erb is unqualified to opine on whether the Offering at issue was conducted on a firm commitment basis. They further argue that Erb's testimony is unreliable and, under Rule 403, unfairly prejudicial.
Defendants argue that Erb is unqualified to opine on whether the Offering was conducted on a firm commitment basis because his experience is limited to a small handful of securities underwritings, none of which was Canadian and all of which were conducted on a firm commitment basis. Moreover, Erb's experience did not focus on the mechanics of underwriting, but instead focused on other aspects, such as due diligence. Defs. Erb Opp. at 1-2, 12-14; Defs. Erb Reply, at 2-4.
"Courts within the Second Circuit `have liberally construed expert qualification requirements' when determining if a witness can be considered an expert." Cary Oil Co. v. MG Ref. & Mktg., Inc., No. 99 Civ. 1725 (VM), 2003 WL 1878246, at *1 (S.D.N.Y. Apr. 11, 2003) (quoting TC Sys. Inc. v. Town of Colonie, N.Y., 213 F.Supp.2d 171, 174 (N.D.N.Y. 2002)); see also Tourre, 950 F.Supp.2d at 674 ("Courts have construed the inquiry into an expert's qualifications with an eye towards the `liberal thrust of the Federal Rules and their general approach of relaxing the traditional barriers to opinion testimony.'" (quoting Daubert, 509 U.S. at 588-89, 113 S.Ct. 2786) (internal quotation marks omitted)). In light of this liberal construction, "courts in this circuit have noted that an expert `should not be required to satisfy an overly narrow test of his own qualifications.'" Arista Records, 2011 WL 1674796, at *3 (quoting Johnson & Johnson Vision Care, Inc. v. CIBA Vision Corp., No. 04 Civ. 7369 (LTS)(HBP), 2006 WL 2128785, at *6 (S.D.N.Y. July 28, 2006)). An expert who is qualified in one field cannot offer an opinion about aspects of the case in another field for which the expert is not qualified — the expert must stay within the reasonable confines of his subject area and not render expert opinion on an entirely different field or discipline. Id. at *2; Dreyer, 367 F.Supp.2d at 425. But "[i]f the expert has educational and experiential qualifications in a general field closely related to the subject matter in question, the court will not exclude the testimony solely on the ground that the witness lacks expertise in the specialized areas that are directly pertinent." In re Zyprexa Prods. Liab. Litig., 489 F.Supp.2d 230, 282 (E.D.N.Y. 2007) (citing Stagl v. Delta Air Lines, Inc., 117 F.3d 76, 80 (2d Cir. 1997)); see also Cary Oil, 2003 WL 1878246, at *2 ("`[L]ack of extensive practical experience directly on point does not necessarily preclude [an] expert from testifying.' A formal education in a particular field is sufficient to qualify a witness as an expert." (quoting Valentin v. N.Y. City, No. 94 CV 3911 (CLP), 1997 WL 33323099, at *15 (E.D.N.Y. Sept. 9, 1997)) (internal citation omitted)). "[Q]uibble[s]" such as these are "properly explored on cross-examination and [go] to [an expert's] testimony's weight and credibility — not its admissibility." McCullock, 61 F.3d at 1043.
Plaintiff has established that Erb is adequately qualified as an expert to testify about the characteristics of the Offering as understood by the securities industry. Erb has approximately twenty-five years of experience
Defendants argue that, despite his lengthy work history in finance-related positions, Erb lacks sufficiently particularized knowledge and experience to qualify him to opine on the nature of the Offering at issue here. Defs. Erb Mem. at 12. Specifically, Defendants argue that Erb's experience in underwritings is limited to his time at Goldman Sachs and to the due diligence and document creation aspects of underwritings. Id. at 13 (citing Erb Dep. 15:4-17:3). They argue that he has no experience in the mechanics of underwriting, which are at issue here, and he has no specialized underwriting training or education. Id. Moreover, they argue that all the underwritings in which he participated were firm commitment — none was on a different basis; and he has no experience with Canadian offerings. Id. (citing Erb Dep. 36:8-13).
The Court disagrees that these concerns make Erb unqualified. From his experience in the securities industry in an international capacity and his previous work on underwritings, Erb has provided more than adequate credentials to qualify him as an expert who can assist the fact finder in understanding the underwriting at issue. He need not have experience or education directly on point. In re Zyprexa Products, 489 F.Supp.2d at 282 ("If the expert has educational and experiential qualifications in a general field closely related to the subject matter in question, the court will not exclude the testimony solely on the ground that the witness lacks expertise in the specialized areas that are directly pertinent." (quoting Stagl, 117 F.3d at 80)). Thus, even if Defendants' arguments are all accurate, they go to the weight, not the admissibility, of Erb's testimony. Put differently, Defendants' quibbles with Erb's credentials are properly explored on cross-examination. McCullock, 61 F.3d at 1043.
Defendants also argue that Erb's Report and testimony are unreliable under Rule 702 and should be excluded because Erb: (1) impermissibly equates, without explanation, the term "underwritten" with a "firm commitment offering," Defs. Erb Mem. at 14-15; (2) relies on the language of the Offering documents but fails to take into account witness statements that the language in the Offering documents did not accurately describe the events that actually occurred in the Offering, id. at 15-16; (3) fails to consider that the underwriter of this Offering, CIBC World Markets, Inc. ("CIBC"), had firm bids prior to pricing, id. at 17-18; (4) fails to account for differences between offerings filed under the Multijurisdictional Disclosure System ("MJDS"), such as this one, and those that are purely United States offerings, id. at 18-19; and (5) cites to secondary materials, the Offering documents, and testimony of fact witnesses that do not support the opinions and conclusions he reached, id. at 19-23.
The Court looks to the indicia of reliability identified by Rule 702, "namely,
Id. at 266 (quoting Daubert, 509 U.S. at 593-94, 113 S.Ct. 2786) (internal citations omitted); see also Kumho Tire, 526 U.S. at 151, 119 S.Ct. 1167 ("[S]ome of Daubert's questions can help to evaluate the reliability even of experience-based testimony."). The reliability inquiry is "fluid" and necessarily varies from case to case. See Daubert, 509 U.S. at 594, 113 S.Ct. 2786 ("The inquiry envisioned by Rule 702 is ... a flexible one"); Kumho Tire, 526 U.S. at 150, 119 S.Ct. 1167 ("[T]he gatekeeping inquiry must be tied to the facts of a particular case." (internal quotation marks and citation omitted)).
The Second Circuit has cautioned that not every flaw in an expert opinion warrants exclusion of the testimony. Amorgianos, 303 F.3d at 266-68. The Court must exclude an expert opinion when it "is based on data, a methodology, or studies that are simply inadequate to support the conclusions reached." Id. at 266. Yet, "[w]here an expert otherwise reliably utilizes scientific methods to reach a conclusion, lack of textual support may `go to the weight, not the admissibility' of the expert's testimony." Id. (quoting McCullock, 61 F.3d at 1044).
Id. (quoting In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 746 (3d Cir. 1994); Daubert, 509 U.S. at 596, 113 S.Ct. 2786).
Indeed, "the Second Circuit [has] espouse[d] a particularly broad standard for the admissibility of expert testimony." Colon ex rel. Molina v. BIC USA Inc., 199 F.Supp.2d 53, 75 (S.D.N.Y. 2001). "[A] trial judge should exclude expert testimony if it is speculative or conjectural or based on assumptions that are `so unrealistic and contradictory as to suggest bad faith' or to be in essence `an apples and oranges comparison.'" Zerega Ave. Realty Corp. v. Hornbeck Offshore Transp., LLC, 571 F.3d 206, 213-14 (2d Cir. 2009) (quoting Boucher v. U.S. Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir. 1996)). But "`[o]ther contentions that the assumptions are unfounded go to the weight, not the admissibility, of the testimony.'" Id. at 214
The Court finds that Erb's testimony has the indicia of reliability required by Rule 702. First, Erb's Report is factually grounded. The Report cited a number of sources to support Erb's view of the characteristics of "best efforts" and "firm commitment" offerings. Erb explained the difference between the two types of offerings. In a "best efforts" offering, an issuer and a broker-dealer, which acts as a selling agent, enter into a placement agreement. Erb Report ¶ 30. The selling agent is obligated to make its best effort to sell the shares but does not guarantee the full proceeds of the offer to the issuer. Id. (quoting Guiliano Iannotta, Investment Banking: A Guide to Underwriting and Advisory Services, Springer-Verlag, 2010, p. 52). In such an offering, the selling agent bears no responsibility for unsold shares. Id. In contrast, in a firm commitment offering, the underwriter guarantees the full proceeds to the issuer, regardless of the actual demand. Id. (quoting Guiliano Iannotta, Investment Banking: A Guide to Underwriting and Advisory Services, Springer-Verlag, 2010, p. 52). In such an offering, the underwriter bears the risk that it is unable to sell all of the shares at the offering price; at the end of such an offering, the underwriter owns (and must pay for) any unsold shares. Id. ¶ 32 (citing Barron's Dictionary of Finance and Investment Terms, Seventh Edition, dated June 2006, p. 255).
Regarding the concept of underwriter risk, Erb discussed a 1987 underwriting for British Petroleum, in which the stock markets crashed before the offering, resulting in substantial losses to the underwriters, which were stuck with unsold shares priced before the market crashed. Erb Report ¶¶ 41-42. Erb explained that this experience was the impetus for the current practice of underwriters to "build[] a book of orders for offered shares by soliciting investor indications of their interest in purchasing the shares within an indicative price range." Id. ¶ 43. He opined that book building is now a
Id. ¶ 44. As discussed, Erb relied on more than just his experience and credentials and cited to secondary sources for his definition of firm commitment and best effort offerings and his explanation of how and why book building developed. Id. ¶¶ 30-32, 41-42.
Moreover, Erb's Expert Report and testimony are the product of reliable principles and methods. His Report is broken into sections, including a background section on the specific markets that are relevant; a section comparing industry practice relative to "best efforts" and "firm commitment" deals; a section describing his understanding of the Offering at issue in this case; and finally an analytical section in which he applies his understanding of industry practice to the Offering at issue to opine that it was on a "firm commitment" basis. Erb's preparation and presentation are certainly "of a kind that others in the field would recognize as acceptable." Kumho Tire, 526 U.S. at 151, 119 S.Ct. 1167.
Finally, Erb applied his understanding of industry definitions for firm commitment versus best effort offerings reliably to the facts of the case. Erb analyzed the Offering at issue in light of his understanding of industry practice and relied on the plain language of the Offering documents and his review and interpretation of produced documents and deposition testimony. As set forth in his Report, based on his "investment banking experience with securities underwriting, [his] training in and knowledge of the standards and practices of the industry, [his] understanding of the regulatory framework for the Offering, the plain language of the Offering documents, and [his] review of the material produced in this matter," he reached the conclusion that the Offering was on a firm commitment basis. Erb Report ¶ 82.
The basis of Erb's opinion is clear and reasonable to the Court. In Erb's opinion, the risk of the Offering passed to the underwriter lock, stock and barrel; the fact that CIBC mitigated that risk in its overnight work does not alter the fact that, if some of the prospective buyers who expressed interest ultimately did fall through, the underwriter, not the issuer, would own those shares. "If an expert's testimony lies within `the range where experts might reasonably differ,' the jury, and not the trial court, should `decide among the conflicting views of different experts.'" Forte, 2015 WL 5820976, at *6 (quoting Kumho Tire, 526 U.S. at 153, 119 S.Ct. 1167).
Defendants' concerns about Erb's Report and testimony all go to the weight, not the admissibility, of his opinion and can be addressed on cross-examination. Defendants' first concern is that "Erb equates a firm commitment offering with the term `underwritten,' or the point at which shares are purchased, but fails to explain how his experience leads him to that understanding." Defs. Erb Mem. at 14 (citing Erb Dep. 44:19-22). According to Defendants, "[i]nstead of providing objective evidence to support his opinion, Erb provides only his subjective opinion, which he claims is based on his purported experience,
Erb's opinion equating the terms "underwriting" and "firm commitment" is not so speculative, conjectural, or based on assumptions so unrealistic and contradictory as to suggest bad faith or to render his opinion inadmissible. Although Defendants are correct that Erb must provide an explanation for his conclusions that is more than ipse dixit or a simple reference to his credentials and experience, Erb does not rely simply on ipse dixit or his credentials. He cites a number of secondary sources to support his understanding of industry practice. See, e.g., Erb Report ¶¶ 30 (quoting Guiliano Iannotta, Investment Banking: A Guide to Underwriting and Advisory Services, Springer-Verlag, 2010, p. 52), 32 (citing Barron's, Dictionary of Finance and Investment Terms, Seventh Edition, dated June 2006, p. 255). Regardless, Defendants will be able to test the strength and accuracy of his opinion on cross-examination or by offering rebuttal testimony.
Second, Defendants argue that Erb, in relying on the Offering documents, failed to acknowledge that the documents did not accurately reflect the events that actually occurred in the Offering. Specifically, Defendants contend that the prospectus for the Offering contained a clause regarding the underwriter's ability to reduce the price at which shares were offered, and that CIBC witness Scott Smith testified that such a clause would be more appropriate in a "bought deal," which was not the case here. Defs. Erb Mem. at 16. Those concerns go to the weight of his testimony but do not render Erb's testimony and report inadmissible.
Third, Defendants argue that Erb's testimony is unreliable because he "fails to adequately explain how he extrapolated that there were no firm bids prior to pricing from the facts at issue." Id. at 17. This argument simply reflects a disagreement over the interpretation of the documents and testimony and is not grounds for exclusion. Although not entirely clear, Defendants appear to take the position that, prior to the underwriting in this Offering, "all of the shares had already been sold." Id. (citing Yoskowitz Decl., Ex. 7, 100:3-23 (Dkt. 44-2) (hereinafter, "Kuchanny Dep."); Yoskowitz Decl., Ex. 10, 60:14-23, 128:8-16, 133:7-11, 146:5-16 (Dkt. 44-2) (hereinafter, "Smith Dep."); Yoskowitz Decl., Ex. 13, 75:18-76:9 (Dkt. 44-3) (hereinafter, "Scott Dep.")). They argue that "Erb failed to take into account that Kuchanny, as well as [other witnesses], had all testified that there were firm bids for the securities before the pricing call." Id. From that argument, the Court understands Defendants to be equating "firm bids" with "sale" of the shares. Accordingly, Defendants appear to argue that Erb's opinion — that in a firm commitment offering, "the underwriters, not the issuer, bear the principal risk of selling the shares at the offering price" — is inapplicable because the shares had already been sold. Id. (citing Erb Report ¶ 32).
Erb, on the other hand, appears to disagree that a "firm bid" removes the principal risk of the transaction from the underwriter or constitutes a sale. In his Report, Erb writes:
Erb Report ¶ 65 (internal citations to Smith Dep. and Scott Dep. omitted). In
The deposition testimony that Defendants cite to support their argument that "all of the shares had already been sold" may well persuade a jury that Erb is wrong, but it is not a basis to exclude his testimony in the first instance.
Fourth, Defendants argue that Erb failed to account for differences between offerings that are filed under the MJDS, such as this Offering, and those that are purely United States offerings. Defs. Erb Mem. at 18-19. They argue that his reliance on only United States regulations was inappropriate because the underwriters of this Offering were Canadian and the offering documents provided that Canadian disclosure rules should apply. Id. Defendants specifically take issue with Erb's reference to "rules promulgated under Regulation C," which they argue do "not apply to documents filed under Form F-10, the form under which the November 2009 offering prospectus was filed." Id. at 18. Plaintiff responds that such arguments are a "red herring" because the MJDS disclosure requirements "have little if any bearing on the merits of the SEC's claims in this case" and are "irrelevant to Mr. Erb's principal conclusion that the Offering was a firm commitment offering." Pl. Erb Opp. at 12 n.6.
Erb's citation to Regulation C and lack of analysis of the MJDS disclosure rules are not reasons to exclude his testimony. Even assuming that Defendants are correct that Regulation C is inapplicable to this Offering, Erb testified that he relied on that regulation only to convey the idea that "shelf takedowns were often on an expedited or rapid basis and so the exercise of the underwriting often occurs very quickly." Erb Dep. 56:20-57:3. Defendants fail to explain, and the Court does not see, how Erb's citation to Regulation C or his failure to cite the MJDS disclosure rules are such significant flaws that the Court should exclude his report and testimony. Amorgianos, 303 F.3d at 267 ("The judge should only exclude the evidence if the flaw is large enough that the expert lacks good grounds for his or her conclusions." (internal quotation marks and citations omitted)).
Finally, Defendants argue that Erb cites materials that do not support his opinions. Defs. Erb Mem. at 19-23. Defendants argue that none of the definitions Erb cited from secondary sources contains a discussion of pre-marketed offerings and that the Offering documents did not expressly use the term "firm commitment." Id. at 19-21. These concerns also do not warrant exclusion of Erb's testimony and can be dealt with on cross-examination. During his deposition, Erb was himself quick to admit that there was no discussion of pre-marketed offerings in the secondary sources he cited and to explain how and why he used the definitions he did to arrive at his conclusions.
Defendants further argue that Erb "misuse[d]" the fact testimony from CIBC underwriters, Scott and Smith, and "twist[ed] the facts to fit his own hypothesis." Defs. Erb Mem. at 21-23. Defendants are correct that neither Scott nor Smith definitively stated that a premarketed offering is a type of firm commitment underwriting; to the contrary, both Smith and Scott suggest that the opposite is true — they equate a firm commitment offering with a "bought" deal and indicate definitively that the Offering was not a "bought" deal but an "overnight marketing arrangement." See Smith Dep. 108:16-109:18, 139:4-140:5; see also Scott Dep. 24:6-29:8, 30:2-31:9. In his deposition, Erb explained that the citations in his Report to Smith's and Scott's depositions arise from his interpretation that "firm commitment" equates to "underwritten." Erb Dep. 52:21-55:4. As Erb testified, he cited to portions of Scott's and Smith's depositions in the context of the deal being underwritten and for the statements that the underwriters were purchasing the shares. Erb Dep. 52:21-55:4, 87:6-89:20 (testifying that Scott never used the term "firm commitment" but used the word "underwritten" and that Erb equates "firm commitment" with "underwritten" and with "purchase.").
In short, there is no indication that Erb's citations were intentionally manipulative or misleading, a bad faith twisting of the facts, or so speculative or conjectural as to render his testimony inadmissible.
In sum, Erb's testimony meets the indicia of reliability required by 702. Defendants'
Defendants also urge exclusion of Erb's testimony under Rule 403 of the Federal Rules of Evidence. According to Defendants, Erb's "selectively researched and unsubstantiated opinions distill down to little more than his own `beliefs,'" which "will serve only to confuse the issue with regards to the type of offering in which Revelation was participating and thus, the applicability of Rule 105 of Regulation M." Defs. Erb Mem. at 24. They further argue that Erb strayed from his scope of expertise and intruded into subject matters beyond which he was qualified resulting in "an undue degree of confusion." Id.
Erb's testimony is highly relevant and probative to a central issue in the case. Erb is qualified and his Expert Report and testimony meet the indicia of reliability required to be admissible under Rule 702 of the Federal Rules of Evidence. In short, the probative value of his testimony is not outweighed by any danger of unfair prejudice, confusion of the issues, or misleading the jury.
Plaintiff moves to strike Dennis Dumas' expert report and to preclude him from testifying. According to Plaintiff, Dumas's report and testimony are irrelevant and constitute an impermissible legal opinion: "Dumas offers no opinions relevant to the substance of Defendants' trading activity, the nature of the offering, or any other pertinent factual issue" but instead devotes the entire report "to the legal question of whether the Court has jurisdiction over the Defendants or their alleged misconduct." Pl. Dumas Mem. at 3, 6-7. Plaintiff further argues Dumas's Report is unreliable, identifies no conflict of law, and, under Rule 403, is unfairly prejudicial, confusing, and a waste of time. Id. at 7-10
Dumas purports "to analyze and critique certain factors relating to the exercise of extraterritorial jurisdiction over the Defendants in the Litigation." Dumas Report ¶ 3. Dumas opines that "the exercise of jurisdiction over Defendants' participation in the Central Fund offering is not consistent with the factors considered by market participants in evaluating jurisdictional reach and choice of law." Id. ¶ 31. In his testimony, Dumas focused on how market participants look at the question of jurisdiction and choice of law. See, e.g., Pl. Dumas Mem., Ex. 2, 55:15-24 (Dkt. 40-2) (hereinafter "Dumas Dep.") ("Q.... I'm trying to understand the analytic framework against which you are applying the factors that you've just identified in determining — in reaching the conclusion that you offer in this report. A. I think I'm — I'm really looking at how — how the — you know, the industry and the — the relevant states, you know, historically have looked at the question of — of structuring and — and jurisdiction and choice of law.").
In their opposition to Plaintiff's Motion, Defendants assert that "Dumas has opined regarding the factors considered by market
The Court fails to see how Dumas's opinion regarding what a market participant would have thought about the applicability of Rule 105 of Regulation M is at all relevant to any issue the jury will have to decide. Rule 105 of Regulation M imposes strict liability and prohibits conduct regardless of a short seller's intent. See Short Selling in Connection with a Pub. Offering; Final Rule, Exchange Act Release No. 34-56206, 91 S.E.C. Docket 781, 2007 WL 2254466 (Aug. 10, 2007); see also Exchange Act Release No. 34-54888, 89 S.E.C. Docket 1346, 2006 WL 3523646 (Dec. 6, 2006).
For the foregoing reasons, the Defendants' Motion to Exclude the Testimony of Plaintiff's Expert Witness Guy Erb (Dkt. 42) is DENIED and Plaintiff's Motion to Strike Defendants' Expert Report and Preclude the Expert from Testifying (Dkt. 39) is GRANTED. The Clerk of Court is respectfully directed to close Docket Entries 42 and 39.
Counsel for the parties must appear before the undersigned for a status conference to discuss the parties' anticipated summary judgment motions on
17 C.F.R. § 242.105(a), (c). The regulations define "short sale" as "any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller." 17 C.F.R. § 242.200.
Scott Dep. 25:12-26:8. Scott testified that, in an "underwritten transaction," "[o]nce [CIBC] sign[s] the underwriting agreement... [CIBC] own[s the shares] ..., and then it's [their] responsibility to collect the money from investors who have agreed to be part of the transaction. So we're essentially fronting the money on behalf of shareholders or investors in this case." Id. 28:12-19. If an investor who indicated interest in participating in the deal decided not to go forward, CIBC would still own the shares and "would obviously either try to find another investor to buy those shares or we would end up having to hold them." Id. 28:12-29:8.
