Irving H. Picard v. Saul B. Katz et al

Filing 83

MEMORANDUM OF LAW in Support re: 82 MOTION to Strike the Expert Report and Testimony of John Maine.. Document filed by Irving H. Picard. (Sheehan, David)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
In re:

Adv. Pro. No. 08-01789 (BRL)

BERNARD L. MADOFF,

SIPA LIQUIDATION

Debtor.
IRVING H. PICARD, Trustee for the Liquidation

(Substantively Consolidated)
Adv. Pro. No. 10-5287 (BRL)

of Bernard L. Madoff Investment Securities LLC,
Plaintiff,
Case No. 11-Civ-03605 (JSR)
v.
SAUL B. KATZ, et al.,
Defendants.

TRUSTEE’S MEMORANDUM OF LAW IN SUPPORT OF MOTION TO STRIKE THE
EXPERT REPORTS AND TESTIMONY OF JOHN MAINE

TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ................................................................................................... 1
APPLICABLE LEGAL STANDARDS ........................................................................................ 3
I.

THIS COURT’S ROLE AS GATEKEEPER OF EXPERT TESTIMONY ...................... 3

II.

FEDERAL RULE OF EVIDENCE 702: ARE MAINE’S NON-SCIENTIFIC
OPINIONS BOTH RELIABLE AND HELPFUL? ........................................................... 3

III.

FEDERAL RULES OF EVIDENCE 401, 402 AND 403: ARE MAINE’S
OPINIONS RELEVANT AND/OR PREJUDICIAL? ...................................................... 5

ARGUMENT ................................................................................................................................. 6
I.

MAINE’S QUALIFICATIONS AND EXPERIENCE ARE INADEQUATE ................. 6

II.

MAINE’S OPINIONS ARE UNRELIABLE ................................................................... 8
A.

All of Maine’s Opinions Lack Reliable Principles or Methods ............................. 9

B.

Maine’s Testimony Will Offer No Assistance to the Jury .................................... 9
1.
2.

Maine’s Generalizations About the Securities Industry Are Not
Admissible Expert Opinions ................................................................... 12

3.

The Opinions in Maine’s Rebuttal about Red Flags Are
Conclusory, Without Foundation and Unprincipled ................................ 13

4.
III.

Maine’s Opinions About Wealthy People Generally Are
Inadmissible ............................................................................................... 9

Maine’s “Because I Say So” Opinion About the Defendants’ Level
of Business Sophistication is Inadmissible .............................................. 15

MAINE OFFERS A SERIES OF IRRELEVANT OPINIONS ...................................... 17
A.
B.

IV.

Maine’s Narrative About Retail Broker-Dealers Is Irrelevant ............................ 17
Maine’s Opinion that Investment Professionals Are More Likely to
Achieve Better Returns than an Investor is Irrelevant ........................................ 18

MAINE OFFERS IMPERMISSIBLE OPINIONS ABOUT THE
DEFENDANTS’ STATE OF MIND ............................................................................... 19

CONCLUSION ............................................................................................................................ 20

-i-

TABLE OF AUTHORITIES
Page(s)
CASES
Algarin v. N.Y.C. Dep’t of Correction,
460 F. Supp. 2d 469 (S.D.N.Y. 2006)......................................................................9, 10, 15, 16
Amorgianos v. Nat’l R.R. Passenger Corp.,
303 F.3d 256 (2d Cir. 2002).....................................................................................4, 11, 17, 18
Andrews v. Metro N. Commuter R.R.,
882 F.2d 705 (2d Cir. 1989).......................................................................................................3
Berry v. City of Detroit,
25 F.3d 1342 (6th Cir. 1994) .....................................................................................................6
Borsack v. Ford Motor Co.,
04 Civ. 3255 (PAC), 2009 WL 5604383 (S.D.N.Y. Feb. 3, 2009)..........................................17
Bourjaily v. U.S.,
483 U.S. 171 (1987) ...................................................................................................................4
Bragdon v. Abbott,
524 U.S. 624 (1998) .................................................................................................................10
Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp.,
509 U.S. 209 (1993) .................................................................................................................12
Compania Embotelladora Del Pacifico v. Pepsi Cola Co.,
650 F. Supp. 2d 314 (S.D.N.Y. 2009)........................................................................8, 9, 11, 14
Cook v. Sheriff of Monroe Cnty.,
402 F.3d 1092 (11th Cir. 2005) .........................................................................................13, 14
Daubert v. Merrell Dow Pharms., Inc.,
509 U.S. 579 (1993) ......................................................................................................... passim
Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc.,
314 F.3d 48 (2d Cir. 2002).......................................................................................................17
Gen. Elec. Co. v. Joiner,
522 U.S. 136 (1997) .............................................................................................................8, 16
Highland Cap. Mgmt., L.P. v. Schneider,
551 F. Supp. 2d 173 (S.D.N.Y. 2008)..................................................................................5, 19

-ii-

TABLE OF AUTHORITIES
(Continued)
Page(s)
Hygh v. Jacobs,
961 F.2d 359 (2d Cir. 1992)...........................................................................................5, 13, 14
In re Apollo Grp. Inc. Secs. Litig.,
527 F. Supp. 2d 957 (D. Ariz. 2007) .........................................................................................9
In re Blech Secs. Litig.,
94 Civ. 7696 (RWS), 2003 WL 1610775 (S.D.N.Y. Mar. 26, 2003) ........................................7
In re Rezulin Prods. Liab. Litig.,
309 F. Supp. 2d 531 (S.D.N.Y. 2004)..................................................................................4, 19
Kidder, Peabody & Co., Inc. v. IAG Int’l Acceptance Grp.,
14 F. Supp. 2d 391 (S.D.N.Y. 1998)..............................................................................5, 13, 14
Kumho Tire Co., Ltd. v. Carmichael,
526 U.S. 137 (1999) ...............................................................................................................3, 4
Lewis v. Parish of Terrebonne,
894 F.2d 142 (5th Cir. 1990) ...................................................................................................14
Li v. Aponte,
05 Civ. 6237 (NRB), 2009 WL 1285928 (S.D.N.Y. May 5, 2009) ...........................................9
Loyd v. U.S.,
08 Civ. 9016 (KNF), 2011 WL 1327043 (S.D.N.Y. Mar. 31, 2011).......................................15
Major League Baseball Props., Inc. v. Salvino, Inc.,
542 F.3d 290 (2d Cir. 2008).....................................................................................................14
Marvel Worldwide, Inc. v. Kirby,
777 F. Supp. 2d 720 (S.D.N.Y. 2011)..................................................................................4, 19
Marx & Co., Inc. v. The Diners’ Club Inc.,
550 F.2d 505 (2d Cir. 1977).......................................................................................................5
Mid-State Fertilizer Co. v. Exch. Nat’l Bank,
877 F.2d 1333 (7th Cir. 1989) .................................................................................................10
Minasian v. Standard Chartered Bank, PLC,
109 F.3d 1212 (7th Cir. 1997) ...........................................................................................11, 12
Nimely v. City of New York,
414 F.3d 381 (2d Cir. 2005)............................................................................................. passim

-iii-

TABLE OF AUTHORITIES
(Continued)
Page(s)
Petrogradsky Mejdunarodny Kommerchesky Bank v. Nat’l City Bank,
253 N.Y. 23, 170 N.E. 479 (1930) (Cardozo, J.) .......................................................................9
Picard v. Katz,
--- B.R. ---- Civ. 03605, 2011 WL 4448638 (S.D.N.Y. Sept. 27, 2011) .........................1, 6, 18
Point Prods. A.G. v. Sony Music Entm’t,
2004 WL 345551 (S.D.N.Y. Feb. 23, 2004) ............................................................................11
Primavera Familienstifung v. Askin,
130 F. Supp. 2d 450 (S.D.N.Y. 2001), modified, 137 F. Supp. 2d 438 (S.D.N.Y.
2001) ..............................................................................................................................8, 10, 13
Rosco, Inc. v. Mirror Lite Co.,
506 F. Supp. 2d 137 (E.D.N.Y. 2007) .......................................................................................6
S.E.C. v. Badian,
--- F. Supp. 2d ----, 2011 WL 4526104 (S.D.N.Y. Sept. 29, 2011) .................................4, 8, 15
S.E.C. v. Badian,
06 Civ. 2621 (LTS), 2010 WL 4840063 (S.D.N.Y. Nov. 19, 2010) .......................................18
Scott v. Sears, Roebuck & Co.,
789 F.2d 1052 (4th Cir. 1986) .................................................................................................12
Taylor v. Evans,
94 Civ. 8425, 1997 U.S. Dist. LEXIS 3907 (S.D.N.Y. Apr. 1, 1997) .....................................19
The Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Amer. Secs., LLC,
691 F. Supp. 2d 448 (S.D.N.Y. 2010)..............................................................................6, 7, 19
Thomas J. Kline, Inc. v. Lorillard, Inc.,
878 F.2d 791 (4th Cir. 1989) .................................................................................................3, 7
U.S. v. Chang,
207 F.3d 1169 (9th Cir. 2000) ...................................................................................................3
U.S. v. Mejia,
545 F.3d 179 (2d Cir. 2008).....................................................................................................12
U.S. v. Roldan–Zapata,
916 F.2d 795 (2d Cir.1990)........................................................................................................6
STATUTES
15 U.S.C. §§ 78aaa et seq. ...............................................................................................................1
-iv-

TABLE OF AUTHORITIES
(Continued)
Page(s)
OTHER AUTHORITIES
Fed. R. Evid. 401 .......................................................................................................................5, 11
Fed. R. Evid. 402 .............................................................................................................................5
Fed. R. Evid. 403 .......................................................................................................................5, 18
Federal Rule of Evidence 702 ................................................................................................ passim
Federal Rules of Evidence 401, 402 ..........................................................................................5, 17
Rule 702 .....................................................................................................................................3, 14
Rule 2004 .................................................................................................................................11, 12

-v-

Irving H. Picard, as trustee (“Trustee”) for the substantively consolidated liquidation
proceedings of Bernard L. Madoff Investment Securities LLC (“BLMIS”) under the Securities
Investor Protection Act (“SIPA”), 15 U.S.C. §§ 78aaa et seq., and the estate of Bernard L.
Madoff (“Madoff”), by and through his undersigned counsel, hereby submits this memorandum
of law in support of the Trustee’s Motion to Strike the Expert Reports and Testimony of Mr.
John Maine (“Maine”).
PRELIMINARY STATEMENT
The Defendants proffer Maine – a professional witness-for-hire for the last twenty-two
years – as their lone “expert” witness in the case at bar. In connection with his retention, Maine
prepared and signed an initial 15-page Expert Report dated November 22, 2011 (“Maine
Report”),1 and a December 13, 2011 Rebuttal Report (“Maine Rebuttal”)2 (collectively, the
“Reports”).
Neither Maine’s qualifications and experience, the Reports nor his testimony speak
directly or even indirectly to the facts at issue in this litigation. His testimony does not contain
reliable testimony about red flags at BLMIS and in the Defendants’ accounts, the Defendants’
due diligence, or lack thereof, on their Madoff investments, or any other relevant topics that go
directly to whether the Defendants willfully blinded themselves to the high probability of fraud
at BLMIS. See Picard v. Katz, --- B.R. ----, 11 Civ. 03605, 2011 WL 4448638, at *5 (S.D.N.Y.
Sept. 27, 2011).

1

Declaration of David J. Sheehan in Support of the Trustee’s Motion to Strike the Expert
Reports and Testimony of John Maine, dated January 26, 2012, Exhibit 1 (hereinafter “Sheehan
Decl. Ex. ___”).
2

Sheehan Decl. Ex. 2.

The Reports are instead sprinkled with random, generalized conclusions which have no
application to the evidence. The opinions presented are of the “because I say so” variety
routinely excluded by courts in this Circuit. As set forth more fully below, Maine and the
Reports are rightly excluded from this litigation for many independent and cumulative reasons,
including the following:


Maine has not worked in the securities or investment management industry for
over 20 years;



Maine’s experience from the 1970’s - 1980’s as a retail stockbroker, salesperson,
and administrative/office manager, as well as his brief stint trying to raise trout,
are outside the scope of the issues to be tried to the jury in this litigation;



Maine has no experience in connection with red flags or due diligence practices as
Maine has never conducted any form of operational, transactional, quantitative,
qualitative or ongoing/monitoring due diligence;



The opinions in the Reports are mostly conclusory;3



The opinions in the Reports lack any reliable principles, methods, sources or
foundation, and Maine confirms having performed no analyses in connection with
the Reports;



The opinions in the Reports will not aid the jury on any relevant issues at trial;



The opinions in the Reports are often divorced from a sufficient review of the
record evidence;



The opinions in the Reports include facially irrelevant information; and



The opinions in the Reports include impermissible speculation and conjecture
about, among other things, the state of mind of wealthy people generally, and the
Defendants in particular.

At bottom, the opinions in the Reports and Maine’s would-be-testimony are nothing more
than Maine’s ipse dixit. They are unreliable. Accordingly, pursuant to the applicable laws in
this Circuit governing the admissibility of expert witnesses, as well as the Federal Rules of
Evidence, Maine, the Reports and his testimony should all be excluded by this Court.
3

The specific opinions Maine offers are unclear. Maine purports to render opinions on the
following topics: (i) the private wealth management industry; (ii) the operations of broker
dealers; and (iii) the nature of the securities industry. See Ex. 1 at 1. But, the Maine Report
itself does not connect any of Maine’s opinions to the Defendants or the record evidence. There
is, in fact, no substantive reference to the Defendants at all in the Maine Report.
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APPLICABLE LEGAL STANDARDS
I.

THIS COURT’S ROLE AS GATEKEEPER OF EXPERT TESTIMONY
It is well-established that this Court serves the key role of “gatekeeper” in connection

with the admissibility of expert testimony. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579,
589-92 (1993). In Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147-53 (1999) the
Supreme Court made clear that the Daubert gatekeeping obligation applies not only to
“scientific” testimony, but to all expert testimony. It is the trial court’s duty under the Federal
Rules of Evidence to ensure that an expert’s opinions are consistent with this mandate. See
Nimely v. City of New York, 414 F.3d 381, 396 (2d Cir. 2005) (quoting Kumho, 526 U.S. at 152).
II.

FEDERAL RULE OF EVIDENCE 702: ARE MAINE’S NON-SCIENTIFIC
OPINIONS BOTH RELIABLE AND HELPFUL?
To be admitted, expert testimony must be both helpful and reliable. Federal Rule of

Evidence 702 (“Rule 702”) requires that expert testimony “assist the trier of fact to understand
the evidence or to determine a fact in issue.” Fed. R. Evid. 702 (2000). The threshold question
in a Rule 702 assessment is whether the proposed expert is qualified to offer his opinions on the
relevant issues. See, e.g., Andrews v. Metro N. Commuter R.R., 882 F.2d 705, 709 (2d Cir. 1989)
(excluding expert where “his qualifications as an expert in [the relevant] area were questionable
at best”); U.S. v. Chang, 207 F.3d 1169, 1173 (9th Cir. 2000) (finding proposed expert witness’s
expertise in one sub-set of the financial industry insufficient to qualify witness to testify in
another sub-set of the financial industry); Thomas J. Kline, Inc. v. Lorillard, Inc., 878 F.2d 791,
800 (4th Cir. 1989) (expert lacking experience in the relevant area did not satisfy Rule 702’s
“specialized knowledge” requirement). For a non-scientific expert such as Maine, this Court will
determine if the expert, “whether basing testimony upon professional studies or personal
experience, employs in the courtroom the same level of intellectual rigor that characterizes the

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practice of an expert in the relevant field.” Kumho, 526 U.S. at 152; Nimely, 414 F.3d at 396
(same).
The Defendants, as proponents of this testimony, also bear the burden under Rule 702 of
establishing by a preponderance of the evidence that Maine’s expert testimony: (i) consists of
specialized knowledge that will help the trier of fact to understand the evidence or to determine a
fact at issue; (ii) relies on sufficient facts or data; (iii) utilizes reliable principles and methods;
and (iv) applies these reliable principles and methods to the facts of the case by way of relevant
testimony. See, e.g., Bourjaily v. U.S., 483 U.S. 171, 175–76 (1987); S.E.C. v. Badian, --- F.
Supp. 2d ----, 2011 WL 4526104, at *2 (S.D.N.Y. Sept. 29, 2011) (same); see also Amorgianos
v. Nat’l R.R. Passenger Corp., 303 F.3d 256, 267 (2d Cir. 2002) (“[A]ny step that renders the
analysis unreliable under the Daubert factors renders the expert’s testimony inadmissible.”)
(internal citation omitted) (emphasis in original).
The admissibility of expert testimony is case-specific and fact-specific. See Kumho, 526
U.S. at 150-51. But some categories of expert testimony can never be reliable under Rule 702
and are per se inadmissible. Expert testimony on someone else’s state of mind, for example, will
never assist the trier of fact. See, e.g., Marvel Worldwide, Inc. v. Kirby, 777 F. Supp. 2d 720,
729-30 (S.D.N.Y. 2011) (excluding expert testimony about what others thought or understood);
In re Rezulin Prods. Liab. Litig., 309 F. Supp. 2d 531, 547 (S.D.N.Y. 2004) (“Inferences about
the intent or motive of parties or others lie outside the bounds of expert testimony.”). Likewise,
experts are never qualified to offer legal conclusions.4 See, e.g., Highland Cap. Mgmt., L.P. v.
Schneider, 551 F. Supp. 2d 173, 182-83 (S.D.N.Y. 2008) (excluding legal conclusions offered by
expert); Kidder, Peabody & Co., Inc. v. IAG Int’l Acceptance Grp., 14 F. Supp. 2d 391, 404
4

The only exception, inapplicable here, is when the issue concerns foreign law. See Marx
& Co., Inc. v. The Diners’ Club Inc., 550 F.2d 505, 511 (2d Cir. 1977).
-4-

(S.D.N.Y. 1998) (excluding expert testimony tracking legal test for ultimate legal conclusion).
The trial judge is the only legal expert. Hygh v. Jacobs, 961 F.2d 359, 364 (2d Cir. 1992) (expert
“is not qualified to compete with the judge in the function of instructing the jury [on issues of
law]”).
III.

FEDERAL RULES OF EVIDENCE 401, 402 AND 403: ARE MAINE’S
OPINIONS RELEVANT AND/OR PREJUDICIAL?
As with all evidence, expert testimony must be relevant to the issues at bar. Evidence is

relevant if it has the “tendency to make a fact more or less probable than it would be without the
evidence.” Fed. R. Evid. 401 (2011). It is axiomatic that “[e]vidence that is not relevant is not
admissible.” Fed. R. Evid. 402 (2011); Daubert, 509 U.S. at 599 (relevance is one of the
“touchstones of the admissibility of expert testimony”). Even if relevant, evidence may be
excluded if its probative value is substantially outweighed by the danger of unfair prejudice,
confusion of the issues, or misleading the jury. Fed. R. Evid. 403 (2011).
As further set out below: (i) Maine is not qualified to serve as an expert witness here; (ii)
the opinions in his Reports are wholly unprincipled, unreliable, and lack any discernible
methodology; (iii) the Reports include impermissible opinions about the Defendants’ state of
mind; and (iv) the opinions in his Reports are irrelevant, containing rank speculation and
conjecture. For all of these reasons, this Court should exclude Maine, his Reports and his
testimony in toto.
ARGUMENT
I.

MAINE’S QUALIFICATIONS AND EXPERIENCE ARE INADEQUATE
On this motion, the threshold question is whether Maine is qualified to offer expert

testimony that is probative of whether Defendants willfully blinded themselves to warning signs
tied to their BLMIS accounts (e.g., whether there were red flags associated with these investment

-5-

accounts and/or what a reasonable level of due diligence would have uncovered). See Katz, 2011
WL 4448638, at *5. Proposed experts are qualified to offer testimony only if they have the
requisite “knowledge, skills, experience, training, or education” relevant to the issues at trial.
Daubert, 509 U.S. at 587, 592-93. Courts look to the totality of the expert’s qualifications when
making this determination. The Pension Comm. of the Univ. of Montreal Pension Plan v. Banc
of Amer. Secs., LLC, 691 F. Supp. 2d 448, 460 (S.D.N.Y. 2010); Rosco, Inc. v. Mirror Lite Co.,
506 F. Supp. 2d 137, 144-45 (E.D.N.Y. 2007). Ultimately, the focus is whether an expert such
as Maine possesses the practical experience and background necessary to offer opinions
concerning the subject matters to be tried to the jury. See, e.g., U.S. v. Roldan–Zapata, 916 F.2d
795, 805-06 (2d Cir. 1990) (qualification analysis should focus on area of expertise relevant to
issues of fact at bar); Berry v. City of Detroit, 25 F.3d 1342, 1351 (6th Cir. 1994) (“The issue
with regard to expert testimony is not the qualifications of a witness in the abstract, but whether
those qualifications provide a foundation for a witness to answer a specific question.”).
Maine’s expertise and qualifications fall well outside the scope of the issues to be tried to
the jury here. Maine describes his relevant experience as his time in the 1970’s - 1980’s when he
worked as a retail stockbroker and salesperson, held several positions as an administrative
manager, and had brief tenure as a director and executive at a broker-dealer. (Maine Report at 1,
Ex. 1).5 As a preliminary matter, these functions, in and of themselves, do not qualify Maine to
serve as an expert here. See Nimely, 414 F.3d at 399 n. 13 (“[B]ecause a witness qualifies as an
expert with respect to certain matters or areas of knowledge, it by no means follows that he or
she is qualified to express expert opinions as to other fields.”) (internal citation omitted). Among

5

Exhibit A to the Maine Report is his curriculum vitae.

-6-

other things, Maine has no due diligence or “red flag” experience,6 has never performed
qualitative or quantitative analyses,7 and does not have significant experience managing client
accounts, or dealing with customers.8 The fact that Maine’s career for the last 20 plus years has
been as a paid litigation consultant also does not qualify him as an expert on matters germane to
this litigation.9 Indeed, “it would be absurd to conclude that one can become an expert simply by
accumulating experience in testifying.” Lorillard, 878 F.2d at 800; see also Pension Comm., 691
F. Supp. 2d at 460 (“[I]t would be troubling if [an expert’s] only relevant experience arose from
his duties as a litigation consultant.”).
Maine’s purported expertise in the securities industry is also extremely dated. Maine
testified that he retired from the securities industry in 1990 and has had no practical experience
in any industry since.10 A current understanding of the securities and financial industries is a
prerequisite to being able to meaningfully opine as an expert with “specialized knowledge” about
the facts and circumstances specific to this case. See, e.g., In re Blech Secs. Litig., 94 Civ. 7696
(RWS), 2003 WL 1610775, at *22 (S.D.N.Y. Mar. 26, 2003) (proposed expert that lacked
specialized knowledge about relevant securities issues in the case was not qualified to offer
expert testimony).

Maine’s historical experience as a regional stockbroker cannot reliably

inform the jury about issues relevant to whether the Defendants turned a blind eye to a high

6

See Picard v. Katz, et al., Expert Deposition of John Maine, 11 Civ. 03605, dated Jan. 5,
2012, 9:1-2; 13:22-25; 14:1-3; 30:15-25; 31:19-25; 32:18-22) (hereafter the “Maine
Deposition”). The Maine Deposition is Ex. 3 to the Sheehan Decl.

7

Maine Deposition at 67:2-17.

8

Maine Deposition at 14:1-25 – 15:1.

9

Maine has provided expert testimony in an adversarial proceeding around 40 times during
his twenty-plus year “consulting career.” (Maine Deposition at 38:10-15).
10

Maine Deposition at 32:18 – 41:19.
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probability of fraud at BLMIS and what a reasonable investigation by the Defendants would
have uncovered. Maine is not properly qualified to offer any expert testimony here.
II.

MAINE’S OPINIONS ARE UNRELIABLE
Maine’s opinions are replete with all the classic characteristics of expert testimony

routinely excluded by courts under Rule 702. The Reports do not demonstrate any semblance of
a methodology, much less a reliable one. See, e.g., Compania Embotelladora Del Pacifico v.
Pepsi Cola Co., 650 F. Supp. 2d 314, 319-20 (S.D.N.Y. 2009) (excluding expert testimony for
lack of a methodology); Primavera Familienstifung v. Askin, 130 F. Supp. 2d 450, 529
(S.D.N.Y. 2001), modified, 137 F. Supp. 2d 438 (S.D.N.Y. 2001) (securities experts cannot
opine on customs and practices of broker-dealers when they do not reveal in their testimony how
they have made use of their expertise by way of a methodology).

Maine’s opinions are

conclusory and only connect to the facts of this case through nothing more than his “ipse dixit.”
Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997) (“Nothing in either Daubert or the Federal
Rules of Evidence requires a district court to admit opinion evidence that is connected to existing
data only by the ipse dixit of the experts.”); Nimely, 414 F.3d at 399 (district court has a duty to
exclude ipse dixit expert conclusions).

The Reports also frequently rely upon incomplete,

insufficient, and/or incorrect facts and data.

See Pepsi Cola, 650 F. Supp. 2d at 319-20

(excluding expert testimony that relied on inaccurate factual premises); Badian, 2011 WL
4526104, at *4 (excluding expert testimony that was incomplete). Finally, Maine does not, as he
must, apply his opinions to the facts of this case. For each and all of these reasons, Maine’s
opinions are rightly excluded.
A.

All of Maine’s Opinions Lack Reliable Principles or Methods

The Reports authored by Maine lack any principle or methodology. They literally cite to
nothing – no surveys, sources, books, treatises, industry guides, periodicals, studies, or any other
-8-

objective third-party analysis that might corroborate any of his would-be testimony. See Pepsi
Cola Co., 650 F. Supp. 2d at 319-20 (excluding expert testimony because proffered expert did
not point to any analysis, studies, or facts in his expert report to confirm the reliability of his
methods and failed to do so during his deposition); Li v. Aponte, 05 Civ. 6237 (NRB), 2009 WL
1285928, at *6 (S.D.N.Y. May 5, 2009) (excluding expert opinion presented without
documented support); In re Apollo Grp. Inc. Secs. Litig., 527 F. Supp. 2d 957, 961 (D. Ariz.
2007) (“Offering the expert’s qualifications, conclusions, and an assurance of reliability [without
more] is insufficient.”); see also Petrogradsky Mejdunarodny Kommerchesky Bank v. Nat’l City
Bank, 253 N.Y. 23, 35, 170 N.E. 479, 483 (1930) (Cardozo, J.) (a witness’s opinion “has a
significance proportioned to the sources that sustain it”). The lack of any methodology is
dispositive. See, e.g., Algarin v. N.Y.C. Dep’t of Correction, 460 F. Supp. 2d 469, 477 (S.D.N.Y.
2006) (“An anecdotal account of one expert’s experience, however extensive or impressive the
numbers it encompasses, does not by itself equate to a methodology.”).

All of Maine’s

unsupported opinions are inadmissible.
B.

Maine’s Testimony Will Offer No Assistance to the Jury

Many of Maine’s opinions are too general to aid the jury in understanding the evidence in
this case or determining any fact in issue. As such they are properly excluded.
1.

Maine’s Opinions About Wealthy People Generally Are
Inadmissible11

Maine’s generalized opinions about private wealth management practices in the financial
industry offer absolutely no assistance to the jury. For example, Maine’s Report contains
numerous generalizations about what he characterizes as wealthy, successful investors:
11

Maine seems to vacillate between saying that Madoff is a private wealth manager (Maine
Report at 2-4, 13), and a retail broker dealer. (Maine Report at 13; Maine Rebuttal at 6). The
“labels” to Maine’s opinions are of no moment to this Motion.

-9-



“[S]uccessful people are generally busy doing whatever has made them
successful.” (Maine Report at 3);



“Most wealthy individuals hire professionals to manage their investment
securities, whether they invest through a broker or in a fund.” (Id.);



“Monitoring the markets requires an enormous investment of time, time that a
successful person normally does not have.” (Id. at 4); and



Most wealthy “retail investors” need only rely on the “bottom line” of their
investments. (Id. at 10-11).

None of these generic “opinions” about wealthy people will aid the jury. Maine offers no
explanations as to how he reaches any of his opinions. Maine fails to disclose even a single
source upon which he purportedly relies when formulating his opinions. See Bragdon v. Abbott,
524 U.S. 624, 653 (1998) (when assessing reliability of expert testimony the district court must
determine whether the expert has “a traceable, analytical basis in objective fact”). Again,
without a discernible methodology, Maine’s proposed testimony is neither reliable nor helpful to
the jury. See Askin, 130 F. Supp. 2d at 529 (excluding proposed expert on broker-dealers
because his testimony lacked a reliable methodology); Mid-State Fertilizer Co. v. Exch. Nat’l
Bank, 877 F.2d 1333, 1339 (7th Cir. 1989) (“[N]othing but a bottom line supplies nothing of
value to the judicial process.”). This Court should not admit Maine’s opinions based solely on
his say-so.
Maine’s opinions here are offered in the abstract, without any application to the facts of
this case. An expert witness must apply specialized knowledge to the facts of the case at bar.
Rule 702. Generalizations about wealthy investors, without more, are simply not probative of
the Defendants’ investment relationship with Madoff or anything else having to do with this
litigation.12 See Fed. R. Evid. 401 (2011) (evidence must have a “tendency to make a fact more

12

The Maine Rebuttal (Maine Rebuttal at 4) cannot (and does not) cure the deficiencies in
the Maine Report. See Point Prods. A.G. v. Sony Music Entm’t, 2004 WL 345551, at *7, *11
(S.D.N.Y. Feb. 23, 2004) (rejecting expert’s “eleventh hour effort to rescue [his] deficient expert
-10-

or less probable than it would be without the evidence”).
Maine also disregards evidence at odds with his generalized opinions about how wealthy
people do not monitor their investments, or only look at the bottom line. Amorgianos, 303 F.3d
at 269 (expert testimony based on faulty assumptions is not admissible); Minasian v. Standard
Chartered Bank, PLC, 109 F.3d 1212, 1216 (7th Cir. 1997) (excluding expert testimony, in part,
because the expert ignored critical facts in the record that cut against the expert’s opinions).
Maine does not, for example, consider record evidence demonstrating (among other things) that
certain Defendants:


Oversaw, facilitated and monitored hundreds of direct investment accounts with
BLMIS (Defendants’ Answer and Defenses to the Trustee’s Amended Complaint
(“Answer”),13 dated Oct. 11, 2011, at ¶¶ 4, 681, 755, 756, 757, and 758);



Closely monitored their monthly returns (Answer at ¶ 1053);



Were present when investment returns were discussed and reported at partner
meetings (Answer at ¶ 1053);



Attempted to recreate Madoff’s split-strike conversion strategy (Answer at ¶ 764)
and (Arthur Friedman Rule 2004 Transcript (“Friedman Transcript”),14 dated June
22, 2010, 144:14 – 146:8);



Created and reviewed “hell sheets” to track their Madoff balances on a monthly
basis (Answer at ¶ 761) and (Friedman Transcript, dated June 23, 2010, 336:3 –
337:10);



Employed a leverage strategy by borrowing against their Madoff returns (Answer
at ¶ 820) and (David Katz Rule 2004 Transcript (“Katz Transcript”),15 dated Sept.
1, 2010, 264:3 – 265:5); and



Were Fiduciaries and Plan Sponsors to a 401K plan featuring Madoff as the plan
option of choice (Answer at ¶ 752).

Expert testimony that ignores material facts contained in the record is not admissible.
Report.”); Pepsi Cola, 650 F. Supp. 2d at 320 (expert analysis conducted after submission of his
expert report will not cure the report’s deficiency).
13

The Answer is Ex. 4 to the Sheehan Decl.

14

The Friedman Transcript is Ex. 5 to the Sheehan Decl.

15

The Katz Transcript is Ex. 6 to the Sheehan Decl.
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Minasian, 109 F.3d at 1216 (excluding expert testimony, in part, because the expert ignored
critical facts in the record that cut against the expert’s opinions); see also Brooke Grp. Ltd. v.
Brown & Williamson Tobacco Corp., 509 U.S. 209, 242 (1993) (“[W]hen indisputable record
facts contradict or otherwise render the opinion unreasonable, it cannot support a jury’s
verdict.”).
Finally, if an expert’s opinions are not necessary for the resolution of a factual dispute,
their testimony is not helpful. See, e.g., U.S. v. Mejia, 545 F.3d 179, 196 (2d Cir. 2008)
(excluding expert testimony “about matters outside the scope of any conceivable expertise”);
Scott v. Sears, Roebuck & Co., 789 F.2d 1052, 1055 (4th Cir. 1986) (“Rule 702 makes
inadmissible expert testimony as to a matter which obviously is within the common knowledge
of jurors because such testimony, almost by definition, can be of no assistance.”). Such is the
case here concerning Maine’s subjective view of wealthy people.
2.

Maine’s Generalizations About the Securities Industry Are Not
Admissible Expert Opinions

The Maine Report posits that because BLMIS was a regulated broker-dealer and a
member of certain regulatory agencies, investors in general were justified in relying upon
customer statements and trade confirmations. (Maine Report at 9, 12-13). Maine also suggests
that Madoff’s alleged stature as a market-maker allows customers to rely on their customer
statements. (Id. at 13-14). Maine’s opinions here, once again, amount to nothing more than his
subjective beliefs. “[Maine] does not reveal how (in rendering his opinions) he has made use of
his . . . qualifications.” Askin, 130 F. Supp. 2d at 529 (expert testimony that “[b]roker-dealers are
expected to act with the highest integrity[,]” without more, is not admissible testimony).
Maine’s further opinion that investors “are not required to be concerned” about the

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reliability of broker-dealers is equally deficient as a legal conclusion.16 (Maine Report at 11).
Maine cannot opine as to the Defendants’ legal duties.

Jacobs, 961 F.2d at 363 (expert

testimony that offers a legal conclusion will be excluded); Kidder, 14 F. Supp. 2d at 404
(excluding expert that impermissibly offered commentary on defendant’s legal duties). Expert
testimony that offers “nothing more than what lawyers for the parties can argue in closing
arguments” is not admissible under Rule 702. Cook v. Sheriff of Monroe Cnty., 402 F.3d 1092,
1111 (11th Cir. 2005) (internal citation omitted).
3.

The Opinions in Maine’s Rebuttal about Red Flags Are Conclusory,
Without Foundation and Unprincipled

The Maine Rebuttal seems to offer three “rebuttal opinions” with respect to red flags: (i)
The Defendants could not have identified red flags pertaining to their direct BLMIS accounts;
(ii) red flags cannot be attributed to the Defendants as a whole; and (iii) BLMIS’s trading volume
was not a red flag. Specifically, Maine offers that “none of the items listed” in the Expert Report
of Dr. Steve Pomerantz (the “Pomerantz Report”) would be suspicious to a retail investor”
(Maine Rebuttal at 3) and that “it is highly unlikely that a single investor would know” some of
the red flags in the Pomerantz Report. (Id. at p. 6) Maine also speculates that it would have
taken an “expert” to determine that BLMIS’s trading volumes were, at times, impossible. (Id. at
p. 6). Finally, he offers that it was “impossible” to impute knowledge of red flags to the

16

Maine offers no record or other support for his apparent assumption that the
Defendants—over their twenty plus years and more than $1 billion in investments—invested
through Madoff’s proprietary trading or market making business units, as opposed to his
Investment Advisory business (where they did invest). Nor does Maine offer any basis, factual
support or methodology for his apparent assumption that Madoff held himself out as a “retail
broker” when soliciting, implementing or executing his purported global investment strategy.
The Defendants themselves have admitted unequivocally that they invested money with
Madoff’s Investor Advisory Business. (Answer at ¶ 30).
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Defendants. (Id. at p. 6).17
These opinions fail to meet several of Rule 702’s requirements for admissibility. As with
all of Maine’s opinions, the Maine Rebuttal opinions on red flags suffer from a complete lack of
methodology. He offers no analysis, let alone a high-level one expected of a proffered expert
with “specialized knowledge.” See generally Pepsi Cola, 650 F. Supp. 2d at 319-21. Further,
Maine cannot reasonably render any opinions on this critical subject area based upon his
professional experience. By his own account, Maine never monitored investments for red flags
and has no due diligence experience. (Maine Deposition at 67:13-20.)18 Because his opinions
are lacking in any expert foundation, and fall well outside his professed experience, they amount
to the type of conjecture and rank speculation violative of Rule 702. See Major League Baseball
Props., Inc. v. Salvino, Inc., 542 F.3d 290, 311 (2d Cir. 2008) (expert testimony that was neither
accompanied by any evidentiary citation nor corroborated by objective analyses was entirely
conclusory and, thus, inadmissible); Lewis v. Parish of Terrebonne, 894 F.2d 142, 146 (5th Cir.
1990) (“An expert’s opinion must be preceded by facts in evidence and cannot be the basis of
speculation or conjecture.”).
Further, the Maine Rebuttal opinions are conclusory and not based on a meaningful
review of the record evidence. Maine reviewed only a handful of account documents and the
Defendants’ deposition testimony when formulating his opinions. (Maine Deposition at 46-47.)
Where, as here, an expert’s conclusory opinions rest on an insufficient amount of facts and data,
17

This too represents an impermissible legal conclusion and is, therefore, inadmissible. See
Hygh v. Jacobs, 961 F.2d 359, 363 (2d Cir. 1992) (excluding expert testimony on ultimate legal
conclusion); Kidder, Peabody & Co., Inc. v. IAG Int’l Acceptance Grp., 14 F. Supp. 2d 391, 399401, 404 (S.D.N.Y. 1998) (same).
18

While Maine’s curriculum vitae identifies him as a purported expert in many things, he
does not represent or identify due diligence or red flags as one of his qualifications or areas of
expertise. (Maine Report at 1, Ex. A.)
-14-

the testimony is not reliable. Badian, 2011 WL 4526104, at *4 (excluding expert testimony that
was incomplete). Finally, Maine does not specifically apply his red flag opinions to any facts in
the case. Loyd v. U.S., 08 Civ. 9016 (KNF), 2011 WL 1327043, at *5 (S.D.N.Y. Mar. 31, 2011)
(excluding expert for failure to review and consider relevant records). He simply offers a
conclusion. This is not admissible expert testimony.
4.

Maine’s “Because I Say So” Opinion About the Defendants’ Level of
Business Sophistication is Inadmissible

Maine’s Rebuttal opinions on the Defendants’ level of sophistication is not admissible
expert testimony.19 Maine opines that the Defendants are not “sophisticated investors”:
From the information I have been provided, Defendants appear to
be high net-worth customers, not sophisticated investors . . . [They]
do not have the knowledge, skills and sophistication of
professional investors, and generally lack the time or interest to
manage their own securities investments.
(Maine Rebuttal at 3.)
Maine’s Rebuttal opinion on sophistication fails because it has no foundation. Badian,
2011 WL 4526104, at *4-7 (excluding expert testimony that was incomplete); Algarin, 460 F.
Supp. 2d at 477 (excluding expert testimony that had insufficient reliance on facts and data). By
his own admission, Maine relies solely on the Defendants’ own testimony when rendering this
particular opinion. (Maine Deposition at 57:24-25, 58:1-10, 119-20) Maine again ignores or
disregards many facts in the record that squarely contradict his opinion about the Defendants’
knowledge and skills, as well as their supposed lack of interest in managing their investments.
(Maine Rebuttal at 2-5).
For example, in due diligence questionnaires and other investment solicitation materials,

19

The Maine Report offers generic commentary as to the sophistication of wealthy
investors. (Maine Report at 2-4.)

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Sterling Stamos Capital Management LP – a funds of funds in which certain Defendants are
General Partners – describes and touts the high level of professional investment experience and
sophistication of Sterling Equities, and Defendants such as Saul Katz and Fred Wilpon:


In response to a due diligence questionnaire from Merrill Lynch, Wilpon and Katz
are described as “active hedge fund investors for 20 years,” that have “developed
deep expertise in hedge funds [and] private equity...,” and whose networks offer
“unique proprietary sourcing and due diligence capabilities.”20



In soliciting investments from a third party, Saul and David Katz are identified as
“investment professionals” and part of the Senior Investment Team, and Fred
Wilpon as an investment professional, identifying his relevant experience as a
member of Sterling Equities and his service on the Bear Stearns Board of
Directors.21

As such, Maine’s opinion is not reliable. Algarin, 460 F. Supp. 2d at 477 (excluding
expert report that “cannot be read to express any more than simply his personal disagreement”).
Because there “is simply too great of an analytical gap between the data and the opinion
proffered,” Joiner, 522 U.S. at 146 (affirming district court’s exclusion of expert’s ipse dixit
opinions), Maine’s subjective opinion based solely on the Defendants’ testimony is rightly
excluded.

20

See Trustee Exhibit 257, which is Ex. 7 to the Sheehan Decl. (SSMSAA1855447 at
SSMSAA1855451).
21

See Trustee Exhibit 258, which is Ex. 8 to the Sheehan Decl. (SSMSAA1238214 at
SSMSAA1238242-44). See generally Trustee Exhibits 187 and 110, which are Exs. 9 and 10,
respectively, to the Sheehan Decl.
-16-

III.

MAINE OFFERS A SERIES OF IRRELEVANT OPINIONS
Maine’s testimony offers several opinions that have no bearing on whether the

Defendants willfully blinded themselves to red flags suggesting the high probability of fraud at
BLMIS. Testimony that does not make an issue of fact more or less probable is not relevant and,
thus, inadmissible under Rules 401 and 402. Daubert, 509 U.S. at 587, 591, and 599; Fashion
Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.3d 48, 60 (2d Cir. 2002) (expert evidence
that was not probative of key issue in case was not relevant and, thus, inadmissible); Borsack v.
Ford Motor Co., 04 Civ. 3255 (PAC), 2009 WL 5604383, at *2 (S.D.N.Y. Feb. 3, 2009)
(excluding irrelevant expert testimony and noting that district court’s “duty under Daubert is to
examine the fit between the expert’s proposed testimony and the relevance to the jury in deciding
the issue”) (internal citation omitted).
A.

Maine’s Narrative About Retail Broker-Dealers Is Irrelevant

Maine’s broad opinions about broker-dealers are emblematic of the disconnect between
his opinions and the ultimate issues to be addressed to the jury. The bulk of Maine’s Report
offers a general commentary on broker-dealers and their customers, as well as a broad
description on the nature of securities brokerage accounts. (Maine Report at 2-11).
This narrative is also properly excluded. This case turns on whether the Defendants were
willfully blind to a high probability of Madoff’s fraud, and in particular, issues concerning red
flags and what due diligence would have revealed. Conclusory opinions and commentary about
run-of-the-mill broker-dealers and their dealings with hypothetical customers with no connection
to the actual facts of this case are wholly irrelevant. Daubert, 509 U.S. at 591 (expert evidence

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that does not relate to any issue in the case is irrelevant and, thus, not helpful); Amorgianos, 303
F.3d at 265-68 (same).22 As such, his testimony is not reliable and cannot assist the jury here.
B.

Maine’s Opinion that Investment Professionals Are More Likely to Achieve
Better Returns than an Investor is Irrelevant

Maine’s testimony about the financial benefits of employing a broker-dealer will not help
the jury’s resolution of this case. The Maine Report offers that “it is unlikely that customers who
are not financial market experts will achieve as good a return as will a professional.” (Maine
Report at 4). Likewise, the opinion in the Maine Report that “a non-professional investor would
likely be unable to achieve results that could compete with those attainable by such specialists”
is a red herring and irrelevant to the issues in this litigation. The questions at trial are not about
whether the Defendants were or could have been better than Madoff in maximizing their
investment returns; rather, the issue is whether the Defendants willfully turned a blind eye to the
probability of fraud in the face of potential red flags. Katz, 2011 WL 4448638, at *5. Because
these opinions do not inform the jury on any triable issue, they are rightly excluded.
Amorgianos, 303 F.3d at 265 (Evidence which is not relevant is not admissible).23

22

Cf. S.E.C. v. Badian, 06 Civ. 2621 (LTS), 2010 WL 4840063, at *3 (S.D.N.Y. Nov. 19,
2010) (“The types of factual situations that constitute red flags probative of possible misconduct
are outside of the lay jury’s experience and observation.”).

23

To the extent such testimony is potentially relevant, it is still inadmissible under Federal
Rule of Evidence 403. Maine’s opinions about the advantages of hiring a broker-dealer and the
practices and customs of the broker-dealer industry will cause jury confusion because such
testimony applies only to hypothetical investors and broker-dealers. See Nimely, 414 F.3d at 397
(relevant evidence that causes undue confusion of the issues is excludable under Rule 403); see
also Daubert, 509 U.S. at 595 (instructing that Rule 403 “exercises more control over experts
than over lay witnesses” because expert testimony “can be both powerful and quite misleading”)
(internal citation omitted).
-18-

IV.

MAINE OFFERS IMPERMISSIBLE OPINIONS ABOUT THE DEFENDANTS’
STATE OF MIND
In further contravention to Rule 702, Maine also offers a few opinions about what he

believes some of the Defendants “understood” or “intended.” Such “state of mind” opinions are
also rightly excluded. See, e.g., Kirby, 777 F. Supp. 2d at 729-30 (excluding expert testimony
about what party thought or understood); Highland Cap., 551 F. Supp. 2d at 182-83, 187-88
(same); Rezulin, 309 F. Supp. 2d at 547 (“Inferences about the intent or motive of parties or
others lie outside the bounds of expert testimony.”).
In the Maine Rebuttal, Maine opines that Defendants Fred Wilpon, Saul Katz and Arthur
Friedman did not have a “deep understanding of hedge funds.” (Maine Rebuttal at 4). Maine
bases this opinion solely on their deposition testimonies. (Id.). It is wholly improper for Maine
to use portions of the Defendants’ deposition in order to “opine” on the Defendants subjective
understanding of the investment industry.24 See, e.g., Pension Comm., 691 F. Supp. 2d at 467
(expert can opine as to what investors would customarily assume but cannot opine as to what
defendant investors did assume); Highland Cap., 551 F. Supp. 2d at 182-83 (excluding expert
testimony about what he thought defendants understood and explaining that such testimony
could not be saved by couching the opinion as industry custom and practice).
For example, Maine speculates during his deposition about certain statements and
admissions against interest contained in documents obtained by the Trustee during discovery.
Maine “opines” without foundation that these statements were mere “puffery.”

(Maine

Deposition at 87:13-19). Maine broadly surmises that the Defendants took “poetic license” when
24

In Maine’s Rebuttal, he agrees “that a person with a deep understanding of hedge funds
would likely be a sophisticated hedge fund investor …” (Maine Rebuttal at 4), but then rejects
the documents describing certain of the Defendants as “having a deep understanding of hedge
funds.” See Sheehan Decl. Exs. 7, 8, 9 and 10.

-19-

they described in documents certain Defendants as “investment professionals” with a “deep
expertise in hedge funds.” (Maine Deposition at 79:14-20). Opinions like these invade the
jury’s province as the finder of fact and are rightly excluded. See Taylor v. Evans, 94 Civ. 8425,
1997 U.S. Dist. LEXIS 3907, at *5 (S.D.N.Y. Apr. 1, 1997) (“[M]usings as to defendants’
motivations would not be admissible if given by any witness – lay or expert.”).
CONCLUSION
For the foregoing reasons, the Trustee respectfully requests that the Court strike the
Reports, all expert opinions, and Maine’s appearance as a witness at trial in this matter.
Dated: New York, New York
January 26, 2012

BAKER & HOSTETLER LLP
/s/ David J. Sheehan
Baker & Hostetler LLP
David J. Sheehan
Fernando A. Bohorquez
Mark A. Kornfeld
Marco Molina
45 Rockefeller Plaza
New York, New York 10111
Telephone: [phone]
Facsimile: [phone]
Attorneys for Irving H. Picard, Trustee for
the Substantively Consolidated SIPA
Liquidation of Bernard L. Madoff Investment
Securities LLC and Bernard L. Madoff

-20-