Speaking of Daubert challenges (see previous item), a new court ruling serves as a warning to valuation analysts who testify outside their range of expertise. A federal trial court recently severely limited a financial expert’s testimony because of his lack of qualifications. Often, an expert is deemed qualified and then the expert’s methodology is challenged, but that’s not what happened here.
Don’t go there: In the SEC’s current trial against a former Goldman Sachs trader, Fabrice (aka Fabulous Fab) Tourre, Tourre brought in an expert to testify about collateralized debt obligations (CDOs). The trouble was the expert had no experience with CDOs. While he was an expert at structured finance, he was more of an economic generalist and also a “professional testifying expert,” as the court put it. In pretrial Daubert proceedings, the court ruled the expert is “not qualified to present this opinion” about CDOs. “Being a professional testifying expert in the financial area does not give an individual the qualifications to opine in every financial area as to every type of analysis,” the court said.
The opinion caught the attention of Bill Kennedy of the Berkeley Research Group LLC and chair of the AICPA’s ABV Credentials Committee. “It’s more common to accept the expert’s qualifications and attack his or her methodology as not being accepted practice in the field,” he said. “I have seen enough cases where experts (economists in particular, it seems) extend their reach into areas in which they are not qualified to testify. To ensure credibility, it’s really important that experts work in the practice area for which they are providing opinions, and stay on top of developments through continuing professional education and research and publishing in the field,” he added.
Find a comprehensive discussion of Securities and Exchange Commission v. Tourre, 2013 U.S. Dist. LEXIS 87211 (June 18, 2013) and the court’s opinion in the September Business Valuation Update and at BVLaw.