Ponzi scheme word cloudThe differences between an expert’s methodology and an expert’s opinion were discussed in a case stemming from the conviction of a money manager whose “Ponzi scheme” bilked investors out of $162 million. The money manager ran hedge funds in Florida that collapsed in January 2009 after some investors tried to retrieve their money.


Plaintiff alleged that the Defendant bank failed to comply with federal banking regulations and the bank’s own internal procedures allowed the money manager to conduct the scheme.

District Judge for the Middle District of Florida heard arguments on the Plaintiff’s motions to exclude the testimony of Defendants’ experts, who was a financial banking expert witness. Likewise, the Defendants filed motions to exclude the testimony of the Plaintiff’s experts including an expert formerly with the Office of the Controller of the Currency (OCC).

The judge wrote that the expert’s conclusions must be sufficiently related to the methodology in order to be admissible. Further, he explained that conclusions and methodology are not entirely distinct from one another. “Experts,” the judge opined, “commonly extrapolate from existing data.” But a court may determine that the analytical gap between the data and the opinion is too wide and disallow the expert’s testimony.

The judge clarified that to properly determine the admissibility of the expert’s testimony; it should be considered in the context in which it’s offered. In her report, the defendant’s expert explained that she was hired to offer expert opinion in rebuttal to the plaintiff’s financial expert’s opinion. Her qualifications to provide that testimony were demonstrated by her extensive experience in banking regulation, banking practices relating to the Bank Secrecy Act, and suspicious activity reporting policies and procedures. However, the judge noted that she wasn’t hired to speak to the applicable standard of care or whether suspicious activity occurred in the accounts at the bank. As a rebuttal expert, she was limited to criticizing the methodology of the opposing expert’s analysis.

The judge wrote that, while a rebuttal expert may criticize the methodology of an opposing expert, the expert shouldn’t be called only to bolster the arguments lawyers can draw from the cross examination of the opposing expert.

The defendant’s financial banking expert opined that the “BSA imposed obligations on banks to report to the government certain suspicious activity” but “did not create any obligation on a bank to, or expectation that a bank would, protect its depositors or borrowers, or the customers, investors, or clients of any of them, from crimes committed against them.” In her report, the expert concluded that, with regard to Defendants’ obligations under the Bank Secrecy Act:

The BSA imposed obligations on banks to report to the government suspicious activity. It did not expect any obligations that a bank would protect its depositors, borrowers, customers, investors, or any related clients from being committed against them. Instead, the obligations and expectations of banks to comply with the BSA and related regulations ran solely to the U.S. Government and the banks’ regulators.

The Plaintiff argued that this was a legal conclusion addressing the legal duties owed by Defendants. The judge agreed and held that as the financial banking expert was not engaged to render an opinion on standard of care. Her opinion was in effect a legal conclusion and inadmissible.

The defendant’s expert witness characterized the plaintiff’s methodology as flawed in discovering suspicious activity in accounts. That said, the judge stressed that the expert didn’t state the preferred methodology and didn’t review the relevant account activities to determine if suspicious activities occurred. Even so, the judge held she was qualified to criticize the flaws she found in the plaintiff’s expert methodology.

Defendant’s banking expert opined that the FFIEC manual “is not intended to be a statement of regulations for banks” and that “[r]egulators did not provide banks with examples of red flags for Ponzi schemes until approximately 2010,” apparently offered to rebut the opposing expert’s findings of “red-flagged activity for transactions dating back to 2001.” Based on her extensive experience, the judge said that this testimony was sufficiently reliable to be admissible.

Based on this, the Judge held that the rebuttal expert offered an opinion disputing the findings referenced by the plaintiff’s financial expert in her report, but offered no factual support for her opinion—that part of her proffered testimony was held inadmissible.