ACFE Course Materials - Fraud Conference · 2012-06-14 · The ACFE would like to welcome you to...

Creating an Effective Work Product for the Courtroom

Welcome!The ACFE would like to welcome you to Creating an Effective Work Product for the Courtroom. We hope you will find this course informative and immediately useful. The materials in this book will not only supplement your learning experience during the class, but will also serve as a reference and reminder for you when you are back on the job.

There are a few important administrative items to keep in mind:

• Timing and Structure — Class will start promptly at 1:00 p.m. and end at 5:00 p.m. each day. Beverages, continental breakfast, and one group lunch will be provided.

• Sign-In Sheet — Please initial next to your name on the Sign-In Sheet. It is critical that you do so each morning to be eligible for CPE credit.

• Certificate of Attendance — Please complete the CPE Reporting Form found inside your registration packet. This form is due on the last day of the seminar and will serve as your Certificate of Attendance. Return the top white copy to the Registration Desk and keep the bottom yellow copy for your records. The yellow copy will serve as your Certificate of Attendance.

• Evaluations — Course evaluations will be distributed by email. Please take time to provide feedback about the course, venue, and instructor. Your evaluation will help the ACFE make improvements to future training courses. At the conclusion of the evaluation you will receive a link to all the PowerPoint slides used throughout the class.

Thank you for attending. Please let us know if there is anything we can do to make your experience in this class more comfortable, productive, and valuable.

ACFE Course Materials

©2012 by the Association of Certified Fraud Examiners, Inc.

Revised 5/21/12

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Fraud Examiners, Inc.

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and the ACFE Logo are trademarks owned by the Association of Certified Fraud

Examiners, Inc.

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http://www.acfe.com/

Association of Certified Fraud Examiners

23RD ANNUAL ACFE FRAUD

PRE-CONFERENCE

CREATING AN EFFECTIVE WORK

PRODUCT FOR THE COURTROOM

JUNE 17, 2012

ORLANDO, FL

11:00 a.m. – 1:00 p.m. Registration: City Hall Lobby

Room Name: Sun Ballroom B

1:00 p.m. – 2:10 p.m. How It All Started: Frye, Daubert, and Federal Rules of

Evidence 2:10 p.m. – 2:25 p.m. Break

2:25 p.m. – 3:35 p.m. Evidentiary Issues: Cutting-Edge Legal Principals and Trends

3:35 p.m. – 3:50 p.m. Break

3:50 p.m. – 5:00 p.m. Practice Pointers: What Went Right, What Went Wrong

DOUG SQUIRES

Adjunct Professor of Law

Ohio State University Moritz College of Law

Capital University School of Law

Columbus, OH

Doug Squires is an adjunct professor at the Ohio State University Moritz College of Law and

the Capital University Law School in Columbus, OH. At Moritz, Squires teaches white-collar

crime. At Capital, Squires developed and, for eight years, taught a class in forensic evidence, an

advanced evidence course.

Doug has authored several published materials on white-collar crime and fraud, including a

chapter entitled “Forensic Accounting” in Scientific Evidence in Civil and Criminal Cases, the

leading legal text on scientific and technical evidence.

Since 2000, Doug has worked as a federal prosecutor in Columbus, OH. In 2009, Doug

received the U.S. Department of Justice Distinguished Service Award. Prior to that, Doug

worked for seven years as a state prosecutor in California. Doug received a B.A. from Miami

University, Oxford, OH, his law degree from the University of San Francisco School of Law,

and is licensed to practice law in Ohio and California.

FRANK WISEHART, CFE, CPA, ABV, CVA

Director of Business Advisory Services

Schneider Downs, Inc.

Columbus, OH

Mr. Wisehart has more than 15 years of experience in management consulting, litigation

support, strategic planning, and financial transaction due diligence. He has testified as a qualified

expert in matters of forensic accounting, fraud examination, business valuations, economic

damages, lost wages, family law, dissipation of marital assets, bankruptcy, breach-of-contract,

and general commercial litigation. Frank is a faculty member of the National Association of

Certified Valuation Analysts and the ACFE. He has written and taught in the areas of business

valuation, personal and business damage calculations, fraud examination, and expert testimony

technique. Mr. Wisehart received his B.S. from Miami University, Oxford, OH, and his M.B.A.

from the Samuel Curtis Johnson Graduate School of Management at Cornell University, Ithaca,

NY.

TABLE OF CONTENTS

Creating an Effective Work Product for the Courtroom

©2012 i

HOW IT ALL STARTED: FRYE, DAUBERT, AND FEDERAL RULES OF EVIDENCE

Foreword ......................................................................................................................................1

Frye, Daubert, and Federal Rules of Evidence ............................................................................2

“Gatekeeping Obligations” in Federal Courts .............................................................................8

Role of the Expert Witness in Fraud Cases .................................................................................9

An Overview of Selected Federal Rules ......................................................................................11

General Electric Co. v. Joiner ......................................................................................................14

The Four Pillars of Expert Opinions ............................................................................................15

EVIDENTIARY ISSUES: CUTTING EDGE LEGAL PRINCIPLES AND TRENDS

The “New” Rules of Evidence .....................................................................................................25

The Attorney-Client Privilege ......................................................................................................36

The Accountant-Client Privilege .................................................................................................38

PRACTICE POINTERS; WHAT WENT RIGHT, WHAT WENT WRONG

Know the Facts ............................................................................................................................41


Creating an Effective Work Product for the Courtroom ©2012 1

NOTES Foreword

In civil and criminal litigation, attorneys and judges follow

two basic charges: procedure and the merits of a case.

Procedure is the process by which evidence, including an

expert’s work product, is entered into a trial for

consideration. This includes the order and flow of

testimony, the admissibility of experts and evidence, and

the timeframe in which the case will occur. Knowing and

understanding the procedures, standards, and the court’s

role as a gatekeeper is an important aspect of expert

witness work.

Merits relate to the actual arguments for and against legal

positions taken by the opponents. These are the facts and

analysis that set forth the cause-and-effect arguments. Is the

plaintiff able to prove its case based on the facts, or do the

facts get in the way of a good story?

As advocates for their client, attorneys focus their attack

initially on disallowing damaging work product from

entering the courtroom. For example, failing to adhere to

federal rules might cause an expert’s work product to be

rejected despite its credibility. Therefore, counsel will

focus on not allowing this work product in by denying its

admittance through procedural hurdles. Attorneys study

how to attack and alternatively defend four principal areas

of expert testimony and work product: evidence,

assumptions, methodology, and the expert himself.

Defending your work product relative to these four areas is

critical to establishing you as a credible expert with an

opinion worthy of the court’s consideration. As an expert, it

is important to understand not only how to produce the

substance of a report, but also the hall of mirrors in the

submission of your work product to the court. If you or

your work product fails to meet the hurdle threshold, it

does not make it into the courtroom. Only after passing



NOTES through the maze of procedure and standards is the merit of

the work product considered.

Finally, there is no substitute for good preparation. Know

your report. Opposing counsel will have spent considerable

time dissecting its content. Know the case timeline. When

did you first become involved? When did you meet with

the client and attorney? What information was provided to

you? When did you form your opinion? These answers are

important to displaying the logical approach taken in the

assignment and orderly steps that lead to your opinion.

Frye, Daubert, and Federal Rules of Evidence

Consultation with an expert is often critical to case

development. Nothing spoils a case faster than the lack of

evidence, and so expert opinions are a valuable asset during

litigation. The way that courts have handled evidence from

expert witnesses has evolved over the years. Below is a

brief history of these developments.

In the Beginning, There Was Frye v. United States

In Frye v. United States, 293 F. 1013 (DC Cir. 1923),

the court was faced with a murder trial involving James

Alfonzo Frye. Frye claimed he was innocent of the

charges and offered new, scientific evidence to support

his claim in the form of a blood systolic pressure test.

The court rejected this scientific evidence because the

test had not been generally accepted by the scientific

community. This standard was adopted by courts as the

basis for including or excluding scientific evidence.

Interestingly, this proof of innocence test was relabeled

as a lie-detector test, and subsequently, gained general

acceptance among the scientific community.

After Frye, the proponent of novel scientific evidence

had to show that the evidence was reliable. The



NOTES reliability prong testing scientific and technical

evidence still survives today, as discussed below.

Reliability was shown by the “general acceptance test”

by offering scientific publications, judicial decisions,

evidence of practical use, or testimony by scientists on

their peers’ position regarding the evidence in question.

Many courts, faced with determining the admissibility

of a wide array of scientific evidence, favored the Frye

standard for decades. Often, new scientific evidence

failed to survive this demanding standard.

The general acceptance test under Frye is still used as

the standard for admissibility in some state courts.

However, the federal government and most states

adopted a new standard after the U.S. Supreme Court

case Daubert v. Merrell Dow Pharmaceuticals, 509

U.S. 579 (1993).

Daubert v. Merrell Dow Pharmaceuticals

The Daubert case involved petitioners Jason Daubert

and Eric Schuller, minor children who had been born

with serious birth defects. They and their parents sued,

alleging that the birth defects were the result of the

mothers’ ingestion of Benedectin, an anti-nausea drug

marketed by Merrell Dow Pharmaceuticals, Inc.1

Plaintiffs offered the testimony of eight experts who

concluded that Benedectin could cause birth defects.

These experts cited epidemiological evidence, including

animal-cell studies, live animal studies, and chemical

structure analysis to support their causation argument.

Some of this analysis was based on a reinterpretation of

previously conducted studies that concluded Benedectin

was not a cause of birth defects.

1 Daubert et ux., individually and as guardians ad litem for Daubert, et

al. v. Merrell Dow Pharmaceuticals, Inc., No. 92-102, U.S. Supreme

Court.



NOTES Respondents employed Dr. Steven H. Lamm, a medical

expert, to refute the plaintiffs’ claims. Dr. Lamm

offered testimony that there had been no published

reports linking Benedectin to malformations in fetuses.

Dr. Lamm concluded that, therefore, maternal use of

Benedectin during the first trimester of pregnancy had

not been shown to be a human birth defect risk factor.

Based on Dr. Lamm’s affidavit, the respondents moved

for summary judgment, which was granted by the

district court.

The court relied upon the Frye standard that scientific

evidence is admissible only if the principle upon which

it is based is sufficiently established to have “general

acceptance in the field to which it belongs.”2 Since the

petitioners’ studies were not published and had not been

subjected to peer review, the court ruled that the

evidence was inadmissible under the general acceptance

doctrine.

The plaintiffs appealed to the U.S. Court of Appeals,

Ninth Circuit. The appeals court confirmed the district

court’s ruling. The plaintiffs then appealed this decision

to the Supreme Court, which reversed the lower courts’

rulings.

The Supreme Court decided that Frye’s general

acceptance requirement was not necessarily a

precondition to the admissibility of scientific evidence

under the Federal Rules of Evidence. The Court

recognized that many well-founded theories are too

new or of too limited interest to meet the general

acceptance requirement. Additionally, the Supreme

Court affirmed a judge’s role as the gatekeeper of

2 727 F. Supp. 570, 572 (SD Cal. 1989), quoting United States v.

Kilgus, 571 F. 2d508, 510 (CA9 1978).



NOTES scientific expert testimony under Federal Rule of

Evidence (FRE) 702. Scientific testimony must be

relevant and reliable and be the product of sound

scientific methodology. The Daubert decision

formulated four relevant factors to be considered to

determine the validity of the scientific process,

methodology, and conclusion. These are not, however,

rigid requirements and are to be flexibly applied:

1. Proof of testing of the basic underlying hypothesis

upon which the technique rests

2. Whether the method has been subjected to peer

review and publications

3. What the known or potential error rate is

4. The general acceptance of the technique used in the

scientific community

METHOD V. CONCLUSION

In Daubert, the court had written that the “focus, of

course, must be solely on principles and

methodology, not on the conclusions they

generate.”3 In General Electric Co. v. Joiner, 522

U.S. 136 (1997), the plaintiff charged the district

court of disagreeing with the conclusions of the

testimony rather than the methods from which the

experts had drawn. The court responded in its first

post-Daubert decree, “[C]onclusions and

methodology are not entirely distinct from one

another…A court may conclude that there is simply

too great an analytical gap between the data and the

opinion proffered.”4 Upholding a judge’s right to

exclude given expert testimony on the basis of

perceived analytical gaps in the science is an

unprecedented broadening of the gatekeeper role.5

3 509 U.S. at 595. 4 118 S. Ct. at 519. 5 Daniel S. Fridman and J. Scott Janoe, “An Overview of Differing



NOTES Joiner upheld a judge’s right to exclude in the

presence of perceived analytical gaps between

method and outcome.

PEER REVIEW

While peer review and publication is a factor under

Daubert, this process is subject to flaws and

limitations. A former editor of The Journal of the

American Medical Association has observed: “Peer

review is far from being a ‘perfect sausage machine

for grinding out the truth.’ Just because peer review

is about a review of scientific data doesn’t mean

that it is itself a scientific process.”6

RELIABILITY REQUIREMENT

In Kumho, the Supreme Court held that the trial

judge’s gatekeeping obligation applies to

“technical” and “other specialized” knowledge. In

addition, the Court recognized that “there is no clear

line that divides the one from the others.”7

Once it was clear that the reliability requirement

applied to all expert testimony, the courts had to

determine whether “the factors cited in Daubert

also applied in this context.”8 While questioning

how to assess reliability within various forms of

expertise, the Court decided the test of reliability

should be “flexible,” and Daubert’s list of criteria

must be used accordingly. However, since

Approaches to Judicial Gatekeeping in the United States,” Harvard

Law School (1999); presented January 19, 1999, at State Supreme

Court Justices Conference in Washington, DC. 6 Giannelli and Imwinkleried from Los Angeles Times, May 22, 1989,

pt. 11 at 3 (quoting Elizabeth Knoll). 7 119 S. Ct. at 1174. 8 Paul C. Giannelli and Edward J. Imwinkleried, “Application of

Daubert to ‘Technical’ Expert Evidence,” Scientific Evidence, Volume

1 (Charlottesville, VA: Lexis Law Publishing, 1999), page 47.



NOTES “technical knowledge” involves the application of

well-established scientific principles and

procedures, it is unnecessary to subject it to the

same “full-scale reliability determination required

for scientific knowledge…Thus, its reliability may

be presumed.”9 In this way, the Court effectively

shifted the burden of proof on the reliability

requirement to the opposing party.10

RULES OF THUMB

Several federal case decisions provide clarity on the

Daubert test. An individual can qualify to render

testimony in any one of these five ways:

knowledge, skill, experience, training, or

education.11 An expert need not be an “outstanding

practitioner” in the field.12 Qualification should be

based on the nature and extent of the witness’s

knowledge, not on the witness’s “title.”13

BEYOND QUALIFICATIONS

Expert testimony must relate to subject matter in

which the expert has been qualified in no other area.

Offers to stipulate opposing counsel’s expert

qualifications are often rejected. Stipulations can

deprive juries of material that causes the testimony

to be more persuasive. In State v. Colwell, 246 Kan.

382, 790 P.2d 430 (1990), when the defense was

forced to accept the prosecution’s stipulations of

their counsel’s qualifications, the court found that

9 State v. Fukusaku, 85 Haw. 462, 473, 946 P. 2d 32, 43 (1997).

10 Paul C. Giannelli and Edward J. Imwinkleried, “Application of

Daubert to ‘Technical’ Expert Evidence,” Scientific Evidence, Volume

1 (Charlottesville, VA: Lexis Law Publishing, 1999), page 47. 11 Kopf v. Skyrm, 993 F.2d 374, 377 (4

th Cir. 1993).

12 United States v. Barker, 553 F.2d 1013, 1024 (6th

Cir. 1977). 13 Jenkins v. United States, 307 F.2d 637, 643-44 (DC Cir. 1962).



NOTES the jury did not learn the credentials of the expert

who had a “national reputation” in the field.14

“Gatekeeping Obligations” in Federal Courts15

Prior to the adoption of the Federal Rules of Evidence in

1975, the federal court system relied on case law and the

discretion of the court to decide matters of evidence

relating to expert witnesses. Common law evidence rules

were not uniform. Evidence laws varied from state to state

and district to district. The common law rules were harsh in

some instances and made little sense in others. A single,

comprehensive set of rules was necessary to eliminate this

rather complicated variance.

In 1965, U.S. Supreme Court Chief Justice Earl Warren

appointed an advisory committee of 15 to draft the new

rules. The committee was chaired by trial lawyer Albert E.

Jenner of Chicago, Illinois. Other trial lawyers included

David Berger of Philadelphia, Pennsylvania; Hicks Epton

of Wewoka, Oklahoma; Egbert Haywood of Durham,

North Carolina; Frank Raichle of Buffalo, New York;

Herman Selvin of Los Angeles, California; Craig

Spangenberg of Cleveland, Ohio; and Edward Bennett

Williams of Washington, DC. Members from legal

academia included Thomas F. Green, Jr. of the University

of Georgia Law School; Charles W. Joiner of the

University of Michigan Law School; Jack Weinstein of

Columbia Law School; and Edward W. Cleary of the

University of Illinois College of Law. Representing the

judiciary were U.S. Circuit Judge Simon E. Sobeloff of

14 Paul C. Giannelli and Edward J. Imwinkleried, “Qualifications of

Experts,” Scientific Evidence, Volume 1 (Charlottesville, VA: Lexis

Law Publishing, 1999), page 269. 15 Frank Wisehart, “How to Get Evidence and Expert Testimony

Admitted into Court,” National Business Institute, author/lecturer,

Columbus, Ohio, February 2007.

http://en.wikipedia.org/wiki/Earl_Warren

http://en.wikipedia.org/w/index.php?title=Albert_E._Jenner&action=edit

http://en.wikipedia.org/w/index.php?title=Albert_E._Jenner&action=edit

http://en.wikipedia.org/wiki/Chicago%2C_Illinois

http://en.wikipedia.org/w/index.php?title=David_Berger_%28lawyer%29&action=edit

http://en.wikipedia.org/wiki/Philadelphia%2C_Pennsylvania

http://en.wikipedia.org/w/index.php?title=Hicks_Epton&action=edit

http://en.wikipedia.org/wiki/Wewoka%2C_Oklahoma

http://en.wikipedia.org/w/index.php?title=Egbert_Haywood&action=edit

http://en.wikipedia.org/wiki/Durham%2C_North_Carolina

http://en.wikipedia.org/wiki/Durham%2C_North_Carolina

http://en.wikipedia.org/w/index.php?title=Frank_Raichle&action=edit

http://en.wikipedia.org/wiki/Buffalo%2C_New_York

http://en.wikipedia.org/w/index.php?title=Herman_Selvin&action=edit

http://en.wikipedia.org/wiki/Los_Angeles%2C_California

http://en.wikipedia.org/w/index.php?title=Craig_Spangenberg&action=edit

http://en.wikipedia.org/w/index.php?title=Craig_Spangenberg&action=edit

http://en.wikipedia.org/wiki/Cleveland%2C_Ohio

http://en.wikipedia.org/wiki/Edward_Bennett_Williams

http://en.wikipedia.org/wiki/Edward_Bennett_Williams

http://en.wikipedia.org/wiki/Washington%2C_D.C.

http://en.wikipedia.org/w/index.php?title=Thomas_F._Green%2C_Jr.&action=edit

http://en.wikipedia.org/wiki/University_of_Georgia_Law_School

http://en.wikipedia.org/wiki/University_of_Georgia_Law_School

http://en.wikipedia.org/w/index.php?title=Charles_W._Joiner&action=edit

http://en.wikipedia.org/wiki/University_of_Michigan_Law_School

http://en.wikipedia.org/wiki/Jack_Weinstein

http://en.wikipedia.org/wiki/Columbia_Law_School

http://en.wikipedia.org/w/index.php?title=Edward_W._Cleary&action=edit

http://en.wikipedia.org/w/index.php?title=University_of_Illinois_College_of_Law&action=edit

http://en.wikipedia.org/w/index.php?title=Simon_E._Sobeloff&action=edit



NOTES Maryland; U.S. District Judge Joe E. Estes of Texas; and

U.S. District Judge Robert Van Pelt of Nebraska.16

The U.S. Supreme Court promulgated drafts of the FRE in

1969, 1971, and 1972, but Congress then exercised its right

under the Rules Enabling Act to suspend implementation of

the FRE until it could study them further. After a long

delay blamed on the Watergate scandal, Congress allowed

the FRE to become federal law in 1975, but only after

enacting a series of modifications to the rules proposed by

the Supreme Court, particularly in the area of privilege.17

As defined in FRE 102 Purpose and Construction, the

thrust of the FRE is to “secure fairness in administration,

elimination of unjustifiable expense and delay, and

promotion of growth and development of the law of

evidence to the end that the truth may be ascertained and

proceedings justly determined.”

Trial courts are not required to conduct Daubert hearings

before considering expert testimony at a motion to suppress

hearing, or at a bench trial.18, 19 “The purpose of Daubert

was to require courts to serve as gatekeepers so that

unreliable expert testimony does not carry too much weight

with the jury.”20

Role of the Expert Witness in Fraud Cases

It is important for fraud examiners to understand their role

in a case. Experts should neither comment on the facts nor

interpret the law. When any party seeks to have the expert

state opinions concerning the facts of the case and/or

16 en.wikipedia.org/wiki/Federal_Rules_of_Evidence 17 en.wikipedia.org/wiki/Federal_Rules_of_Evidence 18 United States v. Ozuna, 2009 WL 902293 (7

th Cir. April 6, 2009).

19 Gannon v. United States, 571 F.Supp.2d 615 (E.D. Pa. 2007). 20 Ozuna, Id. (emphasis added)

http://en.wikipedia.org/wiki/Maryland

http://en.wikipedia.org/w/index.php?title=Joe_E._Estes&action=edit

http://en.wikipedia.org/wiki/Texas

http://en.wikipedia.org/wiki/Robert_Van_Pelt

http://en.wikipedia.org/wiki/Nebraska

http://en.wikipedia.org/wiki/United_States_Supreme_Court

http://en.wikipedia.org/wiki/United_States_Congress

http://en.wikipedia.org/wiki/Rules_Enabling_Act

http://en.wikipedia.org/wiki/Watergate_scandal

http://en.wikipedia.org/wiki/Federal_law

http://en.wikipedia.org/wiki/Privilege_%28law%29



NOTES interpret statutes and regulations, there are often problems.

There are some exceptional circumstances for this general

rule. (See the discussion of FRE 704 on the ultimate issue

below.)

However, these rules do exclude legal conclusions, or, as

the Advisory Committee put it in the notes to FRE 704,

“opinions phrased in terms of inadequately explored legal

criteria.” In Molecular Tech. Corp. v. Behbehani, 925 F.2d

910, 919 (6th

Cir. 1991), an expert’s testimony concerning

“the requirements of federal securities disclosure laws” was

held improper and not harmless error. The court’s role is to

determine what the law is, and it may not delegate this

authority to an expert.

Stay away from using statutory terminology because it

might be viewed as usurping the role of the court.

Similarly, testimony regarding the credibility of witnesses

tends to be considered usurping the province of the jury.

For example, the courts have been much more receptive to

the testimony of securities experts if they avoid using key

statutory terms or voicing their opinions on the credibility

of witnesses.

Balance the above concepts with the fact that limiting

defenses and the testimony of defense experts, in criminal

cases, is not preferred. In United States v. Barile, 286 F.3d

749 (4th

Cir. 2002), the court held that the defense expert

should have been permitted to testify that the defendant’s

statements in a pre-market notification to the Food and

Drug Administration concerning a product enhancement for

cardiac monitors were reasonable, but did not hold that no

materially misleading comments were stated.

When experts testify about background information,

descriptions of standard industry practice, and analyses of



NOTES the facts concerning the conduct in question, linked to solid

opinions, those subjects are likely to be permitted. But

opinions on whether the conduct was consistent with

normal practice will likely be excluded as too close to

simply telling the jury what result to reach. This balancing

act must be kept in mind during the preparation of the

witness for his or her testimony.

An Overview of Selected Federal Rules21

Federal Rule of Criminal Procedure 16 (Criminal

Case Discovery)

In criminal cases, in advance of trial, at the defendant’s

request, the government must give the defendant a

written summary of expert testimony.22 (See the

discussion of United States v. White below.) Excluded

from discovery and inspection are reports and internal

government documents made by a government attorney

or agent.23 Once the expert testifies on direct-

examination, on cross-examination the expert may be

required to disclose the underlying facts and data which

form a basis of the opinion.24 (See the opinion above.)

Prosecutors are charged with keeping track of

documents provided in discovery, especially in

voluminous document cases.25 (See also the hybrid fact

and expert witness testimony issues discussed below.)

21 These summaries include text taken verbatim from the Federal Rules

of Evidence.

Matthew C. Hurley, “Changes to Federal Rules Regarding Expert

Witness Discovery,” Litigation Advisory, December 21, 2010,

www.mintz.com. 22 Fed.R.Crim.P. 16(a)(1)(G). 23 Fed.R.Crim.P. 16(a)(2). 24 FRE 705. 25 United States v. Chapman, 524 F.3d 1073 (9

th Cir. 2007).



NOTES Federal Rule of Civil Procedure 26 (Civil Case

Discovery)

OVERVIEW OF RULE 26 AMENDMENTS

Rule 26 of the Federal Rules of Civil Procedure is

now more in-line with the Federal Criminal Rules

of Discovery discussed above. The civil rules have

been revised as to the governing of expert witness

discovery. The new rule went into effect on

December 1, 2010.

As a result of these changes, Rule 26 no longer

allows full discovery of draft expert reports or broad

disclosure of communications between attorneys

and expert witnesses, as had been the case since

1993. Rule 26(b)(4)(B) now provides that draft

expert reports are protected from discovery, and

Rule 26(b)(4)(C) confers work-product protection

on communications between attorneys and retained

experts except to the extent that the

communications: relate to compensation for the

expert’s study or testimony; identify facts or data

that the party’s attorney provided to the expert and

that the expert considered in forming the opinions to

be expressed; or identify assumptions that the

party’s attorney provided to the expert and that the

expert relied on in forming the opinions to be

expressed.

While prohibiting discovery of draft expert reports

and significantly limiting discovery of attorney-

expert communications, Rule 26 continues to

require full disclosure of the expert’s opinions and

the facts or data used to support them.

Under the old rules, drafts of expert reports and all

communications between counsel and experts



NOTES relating to the subject matter of the litigation were

fair game in discovery (absent an agreement

between the parties that such information was off

limits). Ultimately, lawyers and experts often took

elaborate steps to avoid creating drafts of the

expert’s report and to minimize communications

between attorneys and experts. For instance,

attorneys in federal court would often hire

“consulting” experts, along with additional

“testifying” experts.

DEPOSITIONS AND HEARINGS

The protections afforded by the new rules to draft

reports and attorney-expert communications apply

not only to document production, but extend to “all

forms of discovery,” including depositions.

CONSULTING AND TREATING EXPERTS

Prior to the 2010 amendments, the requirement that

an expert must file a report was confined to any

expert witness “retained or specially employed to

provide expert testimony in the case or one whose

duties as the party’s employee regularly involve

giving expert testimony.” For anyone else expected

to provide expert testimony in a case—for example,

a treating physician, an employee whose duties did

not regularly involve giving expert testimony, or a

third party witness—no report was required. The

2010 amendment to Rule 26(a)(2)(C) mandates

counsel-prepared disclosures for non-reporting

experts that must include: “(i) the subject matter on

which the witness is expected to present evidence

under Federal Rule of Evidence (FRE) 702, 703, or

705; and (ii) a summary of the facts and opinions to

which the witness is expected to testify.”



NOTES General Electric Co. v. Joiner

In addition to the explanation of method versus conclusion

in General Electric Co. v. Joiner (discussed earlier), the

court’s gatekeeping role was challenged as an “abuse of

discretion” in this case.

After respondent Joiner was diagnosed with small-cell lung

cancer, in 1991 he sued in Georgia state court alleging his

disease was promoted by exposure to chemical toxins at his

place of work, General Electric Co. Petitioners removed the

case to federal court and moved for summary judgment.

Joiner responded with the depositions of expert witnesses,

who testified that exposure to the chemicals PCBs, furans,

and dioxins was likely responsible for his cancer. The

district court granted summary judgment based on the

testimony’s failure to link exposure to PCBs and small-cell

lung cancer. The testimony was therefore inadmissible

because it did not rise above “subjective belief or

unsupported speculation.”

The Court of Appeals for the Eleventh Circuit reversed the

district court ruling. The Eleventh Circuit stated that the

Federal Rules of Evidence display a preference for

admissibility of expert testimony: “We apply a particularly

stringent standard of review to the trial judge’s exclusion of

expert testimony.” In its ruling, the Eleventh Circuit cited

two district court errors. First, it excluded the experts’

testimony because it “drew different conclusions from the

research than did each of the experts.” The Court of

Appeals opined that a district court should limit its role to

determining the “legal reliability of proffered expert

testimony, leaving the jury to decide the correctness of

competing expert opinions.”26 Second, the district court had

held that there was no genuine issue of material fact as to

26 Joiner at 533.



NOTES whether Joiner had been exposed to furans and dioxins.

This was also incorrect, the Court of Appeals ruled,

because testimony in the record supported the proposition

that there had been such exposure.

The Eleventh Circuit decision was appealed. The Supreme

Court affirmed that on appellate review of a district court’s

decision to admit or to exclude expert testimony that it

would not initiate its own review of the basis for the court’s

decision. Instead, appellate courts should leave in place the

trial judge’s gatekeeper role to ensure that evidence is

relevant and reliable. Appellate courts were adjured to give

great deference to a trial court’s admissibility decisions

unless it was an abuse of discretion. Court decisions that

are reviewed by an abuse of discretion standard require the

reviewing court to find that the lower court’s decision was

unreasonable in the circumstances to be overturned. In

other words, trial judges may be quite arbitrary in ruling on

expert testimony.27 The Supreme Court affirmed that:

“Abuse of discretion” (standard ordinarily applied to

evidence review) is an appropriate standard to review a

district court’s decision.

The trial judge is granted the “gatekeeper” role in

screening expert testimony.

The Four Pillars of Expert Opinions28

Experts rely on four primary legs to support their opinions:

evidence, assumptions, methodology, and the expert

himself. Each leg should be fundamentally solid. The

ability of the expert to defend and support each area lends

credibility to their testimony.

27 Ralph Slovenko, “Daubert in Collapse,” International Journal of

Offender Therapy and Comparative Criminology, Volume 2, Number

47 (2003), pages 240–243. 28 Frank Wisehart, “Four Pillars of Expert Testimony,” Auditor of State

of Ohio, Emerging Trends in Fraud Investigation and Prevention

Conference, author/lecturer, Columbus, Ohio, May 2011.



NOTES Evidence

Experts must consider many factors relating to

evidence. Who provided the evidence? Is the evidence

reliable? Is the evidence relevant? What did the expert

fail to consider? What was considered and ignored?

Attacking evidence can undermine an opinion’s

foundation.

Proving the expert used the wrong information or failed

to consider new evidence can potentially have a

damaging effect on the expert’s conclusion. Many

attorneys attempt to turn experts to their side based on

the consideration of altered facts or evidence. Experts

should be aware of all available data, whether it

ultimately is used to support their conclusion. Experts

who fail to arm themselves with all of the facts can be

harmed under cross-examination.

Reliable evidence can be expressed on a continuum.

Unsupported facts and speculation are less reliable than

independent third-party facts.

Uncorroborated

Statements Client Prepared

Financials/Tax

Returns

Audited

Financials/Bank

Statements

More Reliable Less Reliable



NOTES The following cases involved expert testimony that was

excluded based on inaccurate facts:29

In re Scrap Metal Antitrust Litig., 527 F.3d 517 (6th

Cir. 2008)

Avery Dennison Corp. v. Four Pillars Enterprise

Co., 45 Fed. Appx. 479 (6th Cir. 2002)

Pirolozzi v. Stanbro, 2009 U.S. Dist. LEXIS 42575

(N.D. Ohio 2009)

Honeysett v. Williams, 2003 U.S. Dist. LEXIS

27595 (N.D. Ohio 2003)

Assumptions

Experts make important assumptions about key facts,

data, and interpretations of the same. The client and/or

client’s attorneys advocate their version of the events

and facts. As an expert, filtering this bias helps

establish independence in thought processes. This

independence helps establish the credibility of the

expert in the eyes of the fact finder. Changing these

assumptions might produce different conclusion

outcomes. For example, an expert may make key

assumptions concerning recurring benefit streams,

company viability, appreciation rates, growth rates, etc.

The expert should be able to articulate the key

assumptions in their opinion and defend the same as

reasonable under the circumstances.

Some cases result in the court excluding an expert’s

testimony due to the expert’s improper assumptions.

Blue Dane Simmental Corp. v. American Simmental

Assn. (ASA), 178 F.3d 1035 (8th

Cir. 1999), involved

the registration of “percentage” and “purebred”

Simmental cattle. The purebred designation, as defined

by the ASA, is cattle with slightly less than 100 percent

29 Case selections in this section were provided by Gerry Kowalski,

attorney, Cooper & Wolinski, LPA, Toledo, Ohio.



NOTES Simmental blood. Initially, the ASA did not recognize a

difference between purebred domestic animals and

purebred Simmental from the original herds of Austria,

France, Germany, or Switzerland. Some breeders

sought official acknowledgment that some animals

were original or from European herds. In response, the

ASA passed a foreign ancestry rule in 1988. As a result,

between 75,000 and 80,000 purebred animals were

given a foreign ancestry designation. Certain animals

that the ASA registered from defendant Risinger were

classified as full-blooded and purebred. The plaintiffs

later discovered that some of the Risinger cattle’s

pedigree was 3 percent Angus, and the remaining 97

percent Simmental. Plaintiffs sued to revoke the

classification of the Risinger animals as purebreds

based on their layperson definition that purebred cattle

should be 100 percent Simmental-blooded.

The plaintiffs hired Dr. Alan Baquet, an agricultural

economist, who testified that following the inclusion of

the Risinger cattle as purebreds, both the Canadian and

American Simmental markets dropped by 26 percent

and 53 percent, respectfully. Using a common damage

method, the before and after model, Dr. Baquet

attributed 27 percent of this market drop to the

inclusion of the Risinger cattle as purebreds.

The district court determined that Dr. Baquet’s

testimony was not reliable. His assumption that the

market drop was attributable to the inclusion of the

Risinger cattle was not supported by the evidence. The

Risinger cattle made up only a tiny fraction of the

market, 19 out of 138,169, or 0.0138 percent of the total

Simmental head. Further, Dr. Baquet admitted that

various factors contribute to cattle breeds losing market

value and that generally, an economist would attempt to



NOTES identify and evaluate the various independent variables

affecting this change.

Accordingly, the district court ruled in favor of

defendants ASA and Risinger. The plaintiffs appealed.

The U.S. Court of Appeals for the Eighth Circuit

affirmed the lower court’s ruling.

The following are cases that excluded testimony based

on improper assumptions:

Concord Boat Corp. v. Brunswick Corp., 207 F.3d

1039 (8th Cir. 2000)

In re Brand Name Prescription Drugs Anti-Trust

Litig., 1999 U.S. Dist. LEXIS 550 (N.D. Ill. 1999)

Other cases of interest on the issue of assumptions

include:

Pirolozzi v. Stanbro, 2009 U.S. Dist. LEXIS 42575

(N.D. Ohio 2009)

Bouchard v. Am. Home Prods. Corp., 2002 U.S.

Dist. LEXIS 27517 (N.D. Ohio 2002)

Experts make assumptions in two key areas: core issues

and expert assumptions. Core issues involve legal

assumptions. Did the defendant’s actions cause the loss

in income? For example, assume in the above example

that the prized cattle were allegedly poisoned by the

defendant’s negligence. Experts might reasonably

assume these facts will be proven in the court

proceeding. Obviously, if this core issue is lost, the

underlying analysis that follows is irrelevant (because

defendants are not responsible for the loss).

Predicated upon the core assumptions are the expert’s

assumptions about the value of the lost income

opportunity. Would those lost cattle have been able to



NOTES produce valuable offspring? If so, how do you calculate

the same? What are the costs involved in replacing

these cattle? Expert assumptions should be reasonable

and should apply to the facts of the case.

Methodology

There is typically more than one way to reach a

conclusion based on the facts of the case. The

important consideration for an expert is why they chose

the particular method(s) to arrive at his/her conclusion.

Were there other methods available that the expert did

not use? Did the expert consider the other methods? If

not, why not? Although you need to know what you

did do, what you did not do may also be relevant.

Is the method used standard practice? Recall the four

factors in the Daubert case that the court takes into

account when making the gatekeeping assessment:

whether a theory has been tested; whether an idea has

been subjected to scientific peer review or published in

scientific journals; the rate of error involved in the

technique; and even general acceptance. If the expert

used a new theory in determining their conclusion, this

new science may be challenged under a Daubert

examination.

The Blue Dan Simmental Corp. case also serves as an

example of an expert’s improper methodology.

Additionally, in Virginia Vermiculite Ltd. v. W.R.

Grace & Co.–Conn., 98 F. Supp. 2d 729 (W.D. Va.

2000), the expert testimony of Seth Schwartz was not

allowed. The court found Schwartz’s methodology to

be unreliable. This case involved the calculation of the

vermiculate market in an antitrust matter. Schwartz

chose not to rely on United States Geological Society

(USGS) guideline vermiculite calculations because he



NOTES viewed these statistics as “badly flawed” in the area of

consumption and production. Instead, Schwartz

collected his own data and opined that the other experts

who relied on the USGS were relying on improper data

in forming their definitions of a relevant market.

Relying upon his independently calculated vermiculite

analysis in an antitrust matter left substantial bias for

error. Unlike Schwartz’s analysis, the USGS analysis

provided detailed surveys of the vermiculate industry.

Further, the USGS had substantial resources it

employed to calculate and observe the vermiculate

industry. Schwartz did not have, nor could he have

employed, similar resources to calculate the same. As

such, the court found Schwartz’s methodology to be

unreliable. This fact, combined with Schwartz’s overall

lack of understanding of antitrust matters, caused his

testimony and report to be excluded by the district

court.

Other cases of interest on the issue of methodology

include:

Bouchard v. Am. Home Prods. Corp., 2002 U.S.

Dist. LEXIS 27517 (N.D. Ohio 2002)

McGarry v. Horlacher, 149 Ohio App.3d 33, (2nd

Dist. 2002)

Lewis v. Alfa Laval Separation, Inc., 128 Ohio

App.3d 200 (4th Dist. 1998)

Making an Expert an Expert

The final leg of expert testimony is the expert himself.

Is the expert qualified to form a meaningful, credible

opinion? Issues involved with the expert himself

include:

What educational background does the expert have?

Is it enough? Should additional training

opportunities have been taken?



NOTES What credentials does the expert maintain? Has the

expert ever been disciplined by any of their

credentialing bodies?

Should the expert be certified in another more

suitable credential in order to better render their

opinion?

Has the expert embellished accomplishments? How

many times have they testified about a particular

topic?

Is the expert consistent in rendering an opinion? Do

they flip sides on issues depending upon who hires

them?

Experts may be qualified by “knowledge, skill,

experience, training, or education.”30 The operative

word in this list is or; it is not necessary to possess all

five requisites. By possessing one, the expert may be

deemed qualified.

In Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358 (5th

Cir. 2000), plaintiff Seatrax proffered the expert

testimony of Douglas Campbell, who testified about

lost profits Seatrax incurred pursuant to Sonbeck’s

infringement on Seatrax’s trademark. Campbell

possessed 15 years of experience in the marine crane

industry. Sonbeck moved to have Campbell’s testimony

excluded. The district court granted Sonbeck’s request,

citing Campbell’s lack of formal or professional

training in accounting. Further, Campbell did not

conduct any independent examination of Sonbeck’s

gross sales figures, which were provided by Seatrax’s

attorneys. Campbell’s lack of formal training or

education in accounting and his failure to conduct an

independent analysis of Sonbeck’s sales figures were

30 Federal Rule of Evidence 702.



NOTES insurmountable obstacles for Seatrax in its attempt to

qualify him as an expert.

The U.S. Court of Appeals for the Fifth Circuit upheld

the district court’s ruling to exclude Campbell’s

testimony.

Other cases that excluded testimony based on

qualifications include:

In re Independent Serv. Orgs. Antitrust Litig., 114

F. Supp. 2d 1070 (D. Kan. 2000)

Virginia Vermiculite Ltd. v. W.R. Grace & Co.–

Conn., 98 F. Supp. 2d 729 (W.D. Va. 2000)

EVIDENTIARY ISSUES: CUTTING EDGE LEGAL PRINCIPALS AND TRENDS


NOTES The “New” Rules of Evidence

Many of the following Federal Rules of Evidence were

amended effective December 1, 2011, and such

amendments are incorporated into the summaries below.

These rules do change from time to time, and the expert

should be vigilant to check for amendments.

FRE Rule 104 (Preliminary Questions)

A judge must preliminarily determine whether a

witness is qualified to testify (e.g., as an expert

witness), a privilege exists, or evidence is admissible.

FRE Rule 401 (Definition of Relevant Evidence)

Relevant evidence means the evidence having any

tendency to make the existence of any fact that is of

consequence to the determination of the action more

probable or less probable than it would be without the

evidence.31

FRE Rule 402 (Relevant Evidence Generally

Admissible; Irrelevant Evidence Inadmissible)

All relevant evidence is admissible, except as otherwise

provided by the Constitution of the United States, by

Act of Congress, by these rules, or by other rules

prescribed by the Supreme Court pursuant to statutory

authority. Evidence that is not relevant is not

admissible.32

FRE Rule 403 (Exclusion of Relevant Evidence on

Growth of Prejudice, Confusion, or Waste of Time)

A judge may exclude evidence if it is prejudicial, will

likely confuse or mislead a jury, or wastes time.

31 www.law.cornell.edu/rules/fre/rules.htm 32 www.law.cornell.edu/rules/fre/rules.htm



NOTES FRE Rule 701 (Opinion Testimony By Lay Witnesses

A/K/A Fact Witness Testimony)

Opinion testimony is admissible by non-experts in the

form of opinions or inferences. Witnesses’ rational

conclusions must prove useful in resolving issues and

must not be based in knowledge as defined in FRE Rule

702.

All testifying experts and the attorneys who prepare

them must be aware that a sophisticated fact witness

may be deemed an expert if the witness has

characteristics of both a fact and expert witness.33 This

is particularly difficult to forecast and will throw a

monkey-wrench into trial preparation if not considered

ahead of time. Often, a judge will ask the proponent of

the evidence through a sophisticated fact witness to

fashion an order requiring the proponent to follow

“expert-like” disclosure rules. Examples of

sophisticated fact witnesses include securities investors,

industry analysts, and regulators.

If a witness is not testifying as an expert, he or she may

testify to opinions or inferences which are rationally

based on his or her perception of the facts if it is helpful

to a clear understanding of a fact in issue and not based

on scientific, technical, or specialized knowledge.34 A

medical examiner who examines the victim of an

accident may not be an expert witness.35 Challenge to

the testimony as an expert failed since the testimony

related to factual observations of an otherwise

sophisticated witness. Witnesses with personal

knowledge of the facts relevant to the case typically

make them fact witnesses under FRE 701.

33 United States v. White, 492 F.3d 380 (6

th Cir. 2007).

34 FRE 701. 35 Binakonsky v. Ford Motor Co., 133 F.3d 281 (4

th Cir. 1998).



NOTES FRE Rule 702 (Testimony by Experts)

Opinion testimony by expert witnesses is admissible in

most courts if the witness qualifies as an expert. As

revised, FRE 702 also states that a witness qualified as

an expert by knowledge, skill, experience, training, or

education may testify in the form of an opinion or

otherwise if:

Expert’s scientific, technical, or other specialized

knowledge will help the trier of fact to understand

the evidence or to determine a fact in issue

Testimony is based on sufficient facts or data

Testimony is the product of reliable principles and

methods

Expert has reliably applied the principles and

methods to the facts of the case

Testimony must be based on scientific, technical, or

other specialized knowledge and reliable methods:

Rule focuses on “scientific” and “knowledge,”

meaning “only inferences that are derived by the

scientific method can be offered as expert opinion

testimony.”36

Hypothesis testing is process of deriving some

proposition (or hypothesis) about an observable

group of events from accepted scientific principles,

and then investigating whether, upon observation of

data regarding the group of events, the hypothesis

seems true.37

Error rate is the likelihood of being wrong. Type I

error (level of confidence) is the test’s propensity

for false positives, while Type II error regards false

negatives.

36 Stephen Mahle, “Daubert and the Law and Science of Expert

Testimony in Business Litigation: An Introduction to Daubert v.

Merrell Dow,” The Florida Bar Journal (April 1999). 37 Jan Kmenta, Elements of Econometrics (1971), page 112.



NOTES Testimony must assist in understanding evidence or

determining a fact in issue.

Witness must be qualified by knowledge, skill,

experience, training, or education beyond

understanding of laypersons.

Advisory Committee Notes on FRE 702

“The rule [FRE 702] is broadly phrased. The fields of

knowledge which may be drawn upon are not limited

merely to the ‘scientific’ and ‘technical,’ but extend to

all ‘specialized’ knowledge. Similarly, the expert is

viewed, not in a narrow sense, but as a person qualified

by ‘knowledge, skill, experience, training, or

education.’ Thus, within the scope of the rule are not

only experts in the strictest sense of the word (e.g.,

physicians, physicists and architects), but also the large

group sometimes called ‘skilled’ witnesses, such as

bankers or landowners testifying to land values.

The common-law standard for expert qualifications is

typically even more general than the statement in FRE

Rule 702. The courts state that no exact standards are

possible for fixing the qualifications of an expert

witness. An expert is generally considered qualified if

he or she possesses special skill or knowledge

respecting the subject matter, superior to the average

person, to make the expert’s opinion of probative

value.”38

“The multifaceted test for expert qualifications stated

by FRE Rule 702 has significant practical benefits for

litigants. …The ratification of experience as the basis

for qualification in the cases permits a qualified party or

an employee of a corporate party to be the expert in

38 Dunn, Expert Witnesses –Law and Practice § 2.2 (Lawpress, 1997).



NOTES many circumstances. The search for an expert witness

is limited only by the trial lawyer’s ingenuity.”39

The Expert Opinion

The expert opinion may be based on one or more of

three possible sources of information:

Personal observation, FRE 703

Facts made known to the expert at trial, usually in

the form of a hypothetical question, FRE 705

Facts made known to the expert outside court, not

known personally by the expert, but supplied

outside the courtroom (e.g., reports of computer

technicians, accountants, or consultants), FRE 703

FRE Rule 703 (Bases of Opinion Testimony by

Experts)

FRE 703 states that “an expert may base an opinion on

facts or data in the case that the expert has been made

aware of or personally observed. If experts in the

particular field would reasonably rely on those kinds of

facts or data in forming an opinion on the subject, they

need not be admissible for the opinion to be admitted.

But if the facts or data would otherwise be

inadmissible, the proponent of the opinion may disclose

them to the jury only if their probative value in helping

the jury evaluate the opinion substantially outweighs

their prejudicial effect.”

Facts or data forming the basis of testimony may

include:

Firsthand observation

Information presented at trial

39 Robert L. Dunn, “Standards for Qualifications of Experts,” Recovery

of Damages for Lost Profits, Volume 2 (Westport, CT: Lawpress,

1998), page 533.



NOTES Information received by the expert outside of court

and from outside sources

Facts themselves need not be admitted if they are “of a

type reasonably relied upon by experts of a particular

field.”

FRE Rule 704 (Opinion on an Ultimate Issue)

FRE Rule 704(a) provides that “an opinion is not

objectionable just because it embraces an ultimate

issue.” What constitutes an “ultimate issue” is not

readily defined, but it generally means a primary issue

at hand—one that may determine the outcome of a case.

The expert opinion may embrace the ultimate issue

unless it is “too conclusory.” In other words, the

statement must be made to assist the trier of fact, rather

than decide the issue for the trier of fact. An example of

an inadmissible opinion is “X had testamentary

capacity,” while “X has sufficient mental capacity to

understand his situation” may be allowed.40 The

exception to this rule is that an opinion on an ultimate

issue is inadmissible if it relates to the defendant’s

mental state which constitutes an element of a crime or

defense. So, an expert may not state an opinion as to

whether the accused did or did not have the mental state

in issue.41

However, as the advisory committee’s notes point out,

Rule 702’s requirement that the testimony be “helpful”

to the jury, and Rule 403’s proscription against

evidence that “wastes time” preclude expert testimony

that “would merely tell the jury what result to reach,

40 FRE 704(a). 41 FRE 704(b).



NOTES somewhat in the manner of the oath-helpers of an

earlier day.”

See also United States v. Duncan, 42 F.3d 97, 101 (2nd

Cir. 1994), a tax evasion case noting, “[w]hen an expert

undertakes to tell the jury what result to reach, this does

not aid the jury in making a decision, but rather

attempts to substitute the expert’s judgment for that of

the jury’s”; Hygh v. Jacobs, 961 F.2d 359, 364 (2nd

Cir.

1992), regarding the exclusion of testimony that the use

of force by police was “not justified” and “totally

improper”; and United States v. Wood, 207 F.3d 1222,

1236 (10th

Cir. 2000), regarding a medical expert’s

testimony—that treatment was “reckless”—improperly

described requisite mental state for manslaughter.

FRE Rule 705 (Disclosure of Facts or Data

Underlying Expert Opinion)

The expert may give his or her opinion before

disclosing the facts and data upon which the opinion is

based. The court may require the expert to reveal the

underlying facts or data during cross-examination.

An expert may give opinion testimony on direct

examination without disclosing the basis of the opinion,

unless the court orders otherwise. However, the expert

may be required to disclose such information on cross-

examination.42 (See “Spoliation and Document

Retention” below.)

FRE Rules 1006 and 611 (Fact Summary Witnesses

and Fact Summaries)

The contents of voluminous writings, recordings, or

photographs that cannot conveniently be examined in

42 FRE 705.



NOTES court may be presented in the form of a chart, summary,

or calculation. The originals, or duplicates, shall be

made available for examination or copying, or both, by

other parties at a reasonable time and place. The court

may order that they be produced in court.

Moreover, “summary witnesses” can testify to explain

such voluminous or complex evidence that has already

been properly admitted. This is a particularly hot topic

in litigation today, since fact summary witnesses may

often substitute for expert witnesses in fraud cases.

Juries often have a hard time accepting the opinions of

experts, especially when a “battle of the experts” gets

nasty during a trial or contested hearing. A fact

summary witness has the added benefits of not being

subject to expert disclosure rules, and the “opinion” is

left to the determination of the fact finder/jury.

Contents of voluminous writings or recording which

cannot conveniently be examined in court may be

presented in the form of a chart summary or

calculation.43 An expert witness is required when

special expertise is needed to present the summary in

court.44 The underlying documents should be made

available to the other side.45 Since summaries

introduced under Rule 1006 are themselves evidence,

underlying documents should be admissible (although

not moved into evidence), and the summary moved into

evidence under FRE 1006. Summaries used for

demonstrative or “pedagogical” purposes to aid the jury

and to avoid needless consumption of time may be

shown but not moved into evidence.46 Organizational

43 FRE 1006. 44 United States v. Jennings, 724 F.2d 436, 443 (5

th Cir. 1984).

45 FRE 1006. 46 FRE 611(a).



NOTES charts are a good example of demonstrative exhibits,

and the jury is a given a limiting instruction as to their

purpose.

WHEN CAN AN EXPERT BE CALLED AN EXPERT?

Recently, limits have been placed on whether an

expert may be called an “expert” in front of the

jury. References should only be made to the term

“opinion” rather than the “expert” in front of the

jury so as to avoid any undue weight to any

proffered expertise.47

SPOLIATION AND DOCUMENT RETENTION

Spoliation is the intentional alteration or destruction

of a document or evidence. In civil cases, in

advance of trial, expert reports must be provided to

the parties as part of “discovery” and must disclose

a complete statement of all opinions and the data or

other information considered by the expert witness

in forming the opinions.48 Matters considered by

experts are discoverable, including documents

provided by counsel to the expert and the expert’s

draft reports and notes. Ordering experts to destroy

drafts and notes may be sanctionable. While

privileges protect some work product and

communications, expert materials and

communications between counsel and experts may

be discoverable in some situations. (See “The

Attorney-Client Privilege” below.)

BUSINESS RECORDS

Companies should have document retention policies

and protocols, including the regular destruction of

documents (including electronic documents).

47 United States v. Johnson, 488 F.3d 690 (6

th Cir. 2007).

48 Fed.R.Civ.P. 26(a)(2).



NOTES Companies should not destroy documents when

they become aware of government investigations.49

Companies working in the fields of health care,

banking, and auditing have trade-specific rules for

documenting and retaining records.

EVIDENCE INTEGRITY AND THE CHAIN OF

CUSTODY

In order for evidence to be admitted at trial, it must

be authenticated—a process by which a party shows

that the item is what it is claimed to be.

Authentication is not a particularly high hurdle, and

proponents need not rule out contrary possibilities.

Once the standard is met, lack of proof of

connection to the issues at trial and reliability go to

the weight of the evidence, not the admissibility.50

Other authentication issues include:

A witness who participated in an email may

authenticate it. United States v. Gagliardi, 506

F.3d 389 392-93 (2nd Cir. 2007)

A case agent can testify about the process used

to obtain computer records. United States v.

Whitaker, 127 F.3d 595, 601 (7th Cir. 1997)

Hash values are a means of authenticating

electronic evidence. Lorraine v. Markel

American Ins. Co., 241 F.R.D. 534, 546-47

(D.Md. 2007)

Practice Guidance: Chain of custody is normally

required when the exhibit is not readily identifiable,

unique characteristics of the exhibit are not noted,

and/or condition is critical to an issue in dispute.

49 18 U.S.C. § 1512 and § 1519 (criminal sanctions for knowingly

destroying relevant evidence). 50 United States v. Long, 857 F.2d 436, 441-42 (8

th Cir. 1988), cert.

denied, 502 U.S. 828 (1991); Fed R. Evid. 901.



NOTES For example, chain of custody may be important in

a dispute involving the business records of a

subsidiary and whether the parent corporation could

have electronically altered such records. This rule

applies to documentary and physical evidence.

Authentication pursuant to chain of custody can be

tricky in cases involving documents or business

ledgers. For example, in a criminal case, the

defendant may not be available to authenticate his

or her own records (since defendants cannot be

compelled to testify). In such cases, a document can

be authenticated through circumstantial evidence,

including the document’s own distinctive

characteristics and the circumstances surrounding

the discovery of the document.

Certain items of physical and electronic evidence

(e.g., contraband in a crime or a copy of digital

data) that are tendered at trial need to be shown to

have gone through the proper chain of custody, a

process designed to ensure that evidence has not

been tampered with. Chain of custody requires that

when evidence is obtained during the course of an

investigation, it should be marked, identified,

inventoried, and preserved to maintain its original

condition and to establish a clear chain of custody

until it is introduced at trial.

The chain of custody required in authenticating or

identifying an item depends on whether the item is

unique, has been made unique, or is neither of the

above.51 Evidence that “is not readily identifiable

and is susceptible to alteration by tampering or

contamination” requires chain of custody “to render

51 United States v. Cardenas, 864 F.2d 1528 (10

th Cir. 1989), cert.

denied, 491 U.S. 909 (1989).

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NOTES it improbable that the original item” is not what it is

claimed to be.52 Documents are generally not items

that require chain of custody.53 Generally, defects in

the chain of custody go to the weight of the

evidence and not to its admissibility.54

Another issue relating to authentication is “the best

evidence rule,” which applies only to documentary

evidence. The theory behind this rule is that the best

proof of the contents of documents is the documents

themselves.55 However, if an original has been

destroyed or is in the hands of another party and it

is not subject to legal process by search warrant or

subpoena, an authenticated copy of that original

may be substituted as evidence.56 Duplicates are

generally admissible as originals in all cases except

where there is a genuine issue regarding the

authenticity of the original, or where admission of

the duplicate instead of the original would be

unfair.57

The Attorney-Client Privilege

The attorney-client privilege is designed to promote and

facilitate a person’s ability to seek legal advice, knowing

that all matters can be discussed candidly and completely

with counsel. This is perfected by protecting disclosure

under most circumstances.58 Although the privilege is

designed to provide confidentiality, its purposes are

52 Id., at 1531; United States v. Washington, 15 F.3d 1510 (10

th Cir.

1993). 53 United States v. Humphrey, 208 F.3d 1190-1204 (10

th Cir. 2000).

54 United States v. Cardenas, 864 F.2d 1528 (10th

Cir.), cert. denied,

491 U.S. 909 (1989); United States v. Kubiak, 704 F.2d 1545 (11th

Cir.), cert. denied, 464 U.S. 852 (1983); United States v. Wood, 695

F.2d 459 (10th

Cir. 1982). 55 FRE 1001 and 1002. 56 Fed. R. Evid. 1004. 57 Fed. R. Evid. 1003. 58 Upjohn v. United States, 449 U.S. 383 (1985).

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NOTES subverted where the assertion of the privilege is designed to

provide a cloak of secrecy around the illicit business affairs

of an individual or corporation.

Lawyers have an ethical duty to maintain the privilege that

is shared by the agents of either the lawyer or client who

come into possession of such information. The courts have

long recognized that modern legal practice requires lawyers

to rely upon the services of non-lawyers. This may include

secretarial personnel, interpreters, investigators, law clerks,

and accountants.59

Practice Guidance: Communications made by a client to

an accountant assisting the client’s attorney, for the purpose

of obtaining legal advice from the attorney, may be

privileged. In such a situation, the accountant may be the

attorney’s agent, and communications with that accountant

may be covered under the umbrella of the attorney-client

privilege. (See United States v. Kovel, 296 F.2d 918, 921-

22.)

Practice Guidance: Investigative reports submitted by a

forensic accountant, prior to commencement of a

government investigation, may not be considered

privileged merely by their transmission to counsel.

However, if the investigation was conducted at the

direction of counsel either to obtain legal advice or to assist

in the preparation for potential litigation, the attorney-client

privilege may apply to the investigative report.

The December 2006 “McNulty Memo” drew criticism for

inadequately protecting the attorney-client privilege in

federal prosecutions since the memo specified that

corporate voluntary production of such information would

be considered in a calculation of “cooperation” to be

59 United States v. Cote, 456 F.2d 142 (8

th Cir. 1982).



NOTES ultimately considered in charging decisions. Since August

of 2008, cooperation will no longer be measured on

whether a corporation under criminal investigation chooses

to waive the attorney-client privilege, nor will attorney-

client or work-product materials be demanded.60

The Accountant-Client Privilege

Federal courts have refused to recognize a pure accountant-

client privilege.61 A limited federal privilege exists

extending to tax advice under the Federally Authorized Tax

Practitioner Privilege, which does not apply to criminal

matters or state tax proceedings. If a crime involves

specific-intent, a defense of good faith reliance on the

advice of an accountant is available if the defendant (1)

fully disclosed all facts to the accountant, and (2) relied on

the account advice in good faith.62 The defense can negate

a crimes element requiring specific intent where the

defendant shows she relied on the advice of her attorney,

accountant, or state official in taking certain actions.63

Ohio Senate Bill 371(2008), now dead, would have created

an accountant-client privilege, which is the trend in about

one-half the states. The measure would have little impact

on federal cases.

Cross-Examination of Experts

Experts typically review authoritative texts and treatises

to prepare their statements. These materials may be

used and subject to cross-examination as long as the

60 Deputy Attorney General Mark R. Filip, Principals of Federal

Prosecution of Business Organizations (the “Filip Memo”), August 28,

2008. 61 United States v. Arthur Young & Co., 465 U.S. 805, 836 (1984);

United States v. Mihalich, 2006 WL 2946947. 62 United States v. Duncan, 850 F.2d 1104 (6

th Cir. 1988).

63 United States v. Swafford, 2005 U.S. Dist. LEXIS 26890 (E.D. Tenn

Nov. 3, 2005).



NOTES publication is established as a reliable authority.64 A

publication may be established as reliable by:

Testimony of the expert

Testimony of another expert

Judicial notice

64 FRE 803(18).

PRACTICE POINTERS: WHAT WENT RIGHT, WHAT WENT WRONG


NOTES Know the Facts

Relevant application of reliable facts to the instant case is

an important factor in expert testimony. An expert that

either does not consider or apply the relevant facts while

testifying at trial can unravel a valid case.

Concord Boat Corp. v. Brunswick Corp., 207 F.3d

1039 (8th

Cir. 2000)

In Concord Boat Corp. v. Brunswick Corp., 207 F.3d

1039 (8th

Cir. 2000), litigation was commenced over the

alleged behavior of Brunswick through acquisitions and

discount programs, which led to monopolization of the

stern drive engine market in Brunswick’s favor.

Brunswick owned about 75 percent of the stern drive

engine market. The boat builders (Concord Boat Corp.)

took exception to Brunswick’s acquisition of U.S.

Marine (Bayliner) and Ray Industries (Sea Ray).

Further, Brunswick offered discounts to boat builders

that purchased 60 percent or more of their stern engines

from Brunswick. The boat builders contended that these

practices constituted an antitrust violation, which

allowed Brunswick to charge supracompetitive prices

for its engines and led to an unfair barrier of entry to

other market participants.

The boat builders hired Dr. Robert Hall as their expert.

Dr. Hall relied on the Cournot model of economic

theory that posits that a firm “maximizes its profits by

assuming the observed output of other firms as a given,

and then equating its own marginal cost and marginal

revenue on that assumption.”65 Dr. Hall concluded that

any market share over 50 percent was evidence of

anticompetitive conduct. Further, he opined that the

discount program offered by Brunswick imposed a

65 Phillip E. Areeda et al., Antitrust Law: An Analysis of Antitrust

Principles and Their Application, P925a (revised edition 1998).



NOTES “tax” on boat builders and dealers that chose to

purchase their stern engines from any firm other than

Brunswick.

Jury deliberations resulted in an award of $133,115,283

in favor of the boat builders. Brunswick appealed the

decision to the U.S. Court of Appeals for the Eighth

Circuit. The appeals court reversed and vacated the

$133 million judgment. The appeals court reversed the

jury’s decision because it found that Dr. Hall’s expert

opinion should not have been admitted. Dr. Hall’s

analysis did not incorporate all aspects of the economic

reality of the stern drive engine market, and did not

separate lawful from unlawful conduct. These

deficiencies led the court to conclude that the expert’s

resulting conclusions were “mere speculation.”66 Expert

testimony that is speculative is not competent proof and

contributes “nothing to a ‘legally sufficient evidentiary

basis.’”67

Although Brunswick did own more than 75 percent of

the stern engine market, this fact by itself did not lead

to an anticompetitive practices conclusion. Brunswick’s

discount program was voluntary and could be

terminated by any boat builder at any time. Further,

when other stern engine manufactures offered

competitive discounts for their engines, boat makers

switched from Brunswick engines despite the existence

of the discount offering. Since the jury award was based

66 Virgin Atlantic Airways Ltd. v. British Airways PLC, 69 F. Supp. 2d

571, 580 (S. D.N.Y. (1999); summary judgment appropriate on Section

1 and 2 claims because “an expert’s opinion is not a substitute for a

plaintiff’s obligation to provide evidence of facts that support the

applicability of the expert’s opinion to the case.” 67 Weisgram v. Marley Co., 528 U.S.440 (2000); citing Brooke Group

Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 242 (1993).



NOTES on unsupported expert’s facts, the Court of Appeals

reversed the jury award.

Brand Name Prescription Drugs Anti-Trust Litig.,

1999 U.S. Dist. LEXIS 550

The following case is an example of how an expert’s

failure to adequately review evidence can result in

substantially harming a party’s case.

In the nationwide class action suit, the class plaintiffs

alleged a price-fixing conspiracy to keep name brand

prescription drugs artificially high to retail pharmacies,

in violation of Section 1 of the Sherman Act. The

plaintiffs alleged that defendants stratified their pricing

policies by favoring hospitals, health maintenance

organizations, managed care facilities, and mail-order

pharmacies with lower rates for brand name

prescription drugs while imposing upon retail

pharmacies an inflated pricing structure for the same

drugs.

The defendants argued that they gave discounts to the

plaintiffs in certain instances and that market conditions

were the primary consideration in whether or not they

offered discounts to any particular purchasing group.

The defendants further asserted that they gave

preferential pricing to buyers whom they felt were able

to “move market share.” Additionally, the defendants

asserted that customers such as managed care

organizations and hospitals created formularies, in

which a restrictive list of drugs is created. The ability of

managed care organizations and hospitals to exclude an

individual manufacturer’s products from its requisite

formularies induced defendants to offer the favored

buying groups rebates and discounts on brand name

drugs. Pharmacies, generally speaking, must carry a



NOTES wide variety of competing drugs. As a result, the

defendants argued, it would be unethical for pharmacies

to engage in steering customers to one product over

another by failing to stock competing brands. Unlike

managed care organizations and hospitals, pharmacies

do not possess the same market power or ability to

include or exclude drugs based on prescribed

formularies. The defendants argued that they treat

customers differently, as any competitive market would

expect.

The plaintiffs offered the expert testimony of Dr.

Robert Lucas. In fact, the court noted his “eminent and

distinguished credentials. He is affiliated with the

University of Chicago, past recipient of the Nobel Prize

in Economics, an award without equal in recognition of

scholarship and contributions in his chosen discipline.”

Dr. Lucas testified:

Retail pharmacies repeatedly applied to the

defendant drug manufacturers for discounted

formulary pricing of brand name prescription drugs.

Retail pharmacies had the same power to announce

and enforce formularies than any hospital, nursing

home, or mail-order pharmacy.

Retail pharmacies had the same ability as hospitals

to refuse to stock brand name prescription drugs.

No discounting of generic drugs to retail

pharmacies occurred.

Manufacturers refused to grant contract pricing

options to retail pharmacies.

This refusal was tantamount to collusion.

The formularies maintained by hospitals and HMOs

were not the reason manufacturers gave discounts to

those entities.



NOTES The court found that, “sad to say, Dr. Lucas’ testimony

did not measure up to his unique qualifications.”

Among other things, the court found:

Dr. Lucas was ignorant of the material testimony

and other evidence.

His opinions were not only not based on the

evidence, they were inconsistent with the evidence.

His opinions had no scientific basis.

In short, the court found that Dr. Lucas was “wrong in

his beliefs about every one of [his assertions]. Perhaps

even more disturbing than the fact that the evidence so

overwhelmingly established the opposite of what Dr.

Lucas thought was characteristic of the industry, was

his ignorance of that very evidence.” Dr. Lucas failed to

make any effort to investigate the plaintiff’s claims as

to whether any manufacturers had offered contract

pricing plans to retail pharmacies. If he had done so, he

would have found that thousands of discounts had been

offered to retail pharmacies. Further, Dr. Lucas did not

study why manufacturers gave discounts to HMOs and

hospitals. He gave a conclusion, but nothing more.

The plaintiffs were able to offer only an opportunity to

conspire, but failed to present actual evidence of a

conspiracy. Unsurprisingly, judgment was entered for

the defendants.

When Does an Expert Go Too Far?

One example of improper testimony of a government

expert in a criminal securities case is United States v.

Scop, 846 F.2d 135 (2nd

Cir. 1988), in which the

witness repeatedly testified that the defendants were

“active participants and material participants . . . in a

manipulative and fraudulent scheme,” and admitted on

cross-examination that his opinions were, in part, based



NOTES on his personal views of the credibility of fact

witnesses. When this testimony was tested, the court

pointed out that had the expert “merely testified that

controlled buying and selling of the kind alleged here

can create artificial price levels to lure outside

investors, no sustainable objection could have been

made.”

What Can Happen When You Cross a Line and

Express a Legal Conclusion?

In United States vs. Bilzerian, 926 F.2d 1285 (1991),

the court excluded, as an impermissible legal

conclusion, testimony by a defense expert that certain

loans obtained by the defendant to purchase securities

were “personal funds” within the meaning of Section 13

D of the Securities Exchange Act. (A Schedule 13 D

report to the SEC was necessary for the large block of

stock purchased by the defendant.) This was viewed as

tantamount to saying that the defendant’s disclosures on

his 13 D form were not misleading. By contrast, the

court permitted the government expert to explain

ambiguities in a blank Schedule 13 D. The Second

Circuit, in part, seems to have distinguished the

government expert’s testimony based on a limiting

instruction given by the district court that the expert

was furnishing “background concerning the meaning of

terms, the procedures which are followed, and his

opinion as to the reason for these procedures. He is not

here to give his opinion as to what the law requires.

That is a matter which must be presented to you by the

court.” It is not clear how the government expert’s

testimony on the meaning of terms in a blank Schedule

13 D, even if not coupled with testimony applying the

facts of the case to that interpretation, was not a legal

opinion, albeit one that did not seek to tell the jury

whether the funds in issue were “personal funds.”



NOTES When Case Fact Summaries Go Bad?

In a case called Russo, the government expert

summarized and described a small brokerage firm’s

trading patterns, including how the stock of two small

companies was kept off the market through

unauthorized trading and parking, and concluded that

the price of these stocks would have declined

significantly in the absence of these measures. The

expert’s testimony that certain securities transactions

constituted “parking,” without offering any opinion

regarding the defendants’ state of mind or whether they

had violated the securities laws, was held to be proper.

The court rejected the defense argument that the

expert’s testimony implicitly involved the legal

conclusion that the defendants intended to park stock.

ACFE Litigation Engagement Professional Standards

Opposing counsel frequently question experts as to the

applicable standards for conducting litigation services.

This is a procedural issue. If you do not know your

professional standards, how can you properly prepare a

professional report? Expect this line of questioning if

you do not know your standards.

Standards of Professional Conduct

Integrity and Objectivity

Members shall conduct themselves with integrity,

knowing that public trust is founded on integrity.

Members shall not sacrifice integrity to serve the client,

their employer, or the public interest.

Prior to accepting the fraud examination, members shall

investigate for potential conflicts of interest. Members

shall disclose any potential conflicts of interest to

prospective clients who retain them or their employer.



NOTES Members shall maintain objectivity in discharging their

professional responsibilities within the scope of the

engagement.

Members shall not commit discreditable acts, and shall

always conduct themselves in the best interests of the

reputation of the profession.

Members shall not knowingly make a false statement

when testifying in a court of law or other dispute

resolution forum. Members shall comply with lawful

orders of the courts or other dispute resolution bodies.

Members shall not commit criminal acts or knowingly

induce others to do so.

Professional Competence

Members shall be competent and shall not accept

assignments where this competence is lacking. In some

circumstances, it may be possible to meet the

requirement for professional competence by use of

consultation or referral.

Due Professional Care

Members shall exercise due professional care in the

performance of their services. Due professional care

requires diligence, critical analysis, and professional

skepticism in discharging professional responsibilities.

Conclusions shall be supported with evidence that is

relevant, competent, and sufficient.

Members’ professional services shall be adequately

planned. Planning controls the performance of a fraud

examination from inception through completion and

involves developing strategies and objectives for

performing the services.



NOTES Work performed by assistants on a fraud examination

shall be adequately supervised. The extent of

supervision required varies depending on the

complexities of the work and the qualifications of the

assistants.

Confidentiality

Members shall not disclose confidential or privileged

information obtained during the course of the fraud

examination without the express permission of proper

authority or order of a court. This requirement does not

preclude professional practice or investigative body

reviews as long as the reviewing organization agrees to

abide by the confidentiality restrictions.

Standards of Reporting

GENERAL

Members’ reports may be oral or written, including

fact witness and/or expert witness testimony, and

may take many different forms. There is no single

structure or format that is prescribed for a member’s

report; however, the report should not be

misleading.

REPORT CONTENT

Members’ reports shall contain only information

based on data that are sufficient and relevant to

support the facts, conclusions, opinions and/or

recommendations related to the fraud examination.

The report shall be confined to subject matter,

principles, and methodologies within the member’s

area of knowledge, skill, experience, training or

education.

No opinion shall be expressed regarding the legal

guilt or innocence of any person or party.



NOTES AICPA Litigation Engagement Standards

The AICPA provides an excellent resource, specifically

for litigation service engagements. Experts who are

CPAs should be familiar with these rules.

The Litigation Services and Applicable Professional

Standards publication 03-1 by the AICPA outlines its

expectations of professionals performing litigation

services. Specifically, AICPA Publication 03-1

identifies the following sections of the Code of

Professional Conduct applicable to members engaged in

providing litigation services:

Rule 101, Independence. The member should be

independent with respect to the parties.

Rule 102, Integrity and Objectivity (AICPA,

Professional Standards, vol. 2, ET sec. 102.01)

Rule 201, General Standards (AICPA, Professional

Standards, vol. 2, ET sec. 201.01)

Rule 202, Compliance with Standards (AICPA,


Rule 301, Confidential Client Information (AICPA,


Rule 302, Contingent Fees (AICPA, Professional


Rule 501, Acts Discreditable (AICPA, Professional


Of these aforementioned AICPA Codes of Conduct

Rules, 102, 201, and 501 are particularly relevant.

AICPA Code of Professional Conduct Rule 102-6

provides guidance on professional services involving

client advocacy. Specifically, 102-6 “requires

(members to) maintain(ing) objectivity and integrity

and prohibits subordination of judgment to others.”68

68 AICPA Code of Professional Conduct Rule 102-6, discussed in §

102.7, page 4444.



NOTES This is further discussed in the Litigation Services and

Applicable Professional Standards publication 03-1 by

the AICPA: “The expert does not serve as an advocate

for the client’s position and, therefore should not

subordinate his or her judgment to the client.”69 “The

expert’s function is to assist the trier of fact in

understanding complex or unfamiliar concepts after

having applied reliable principles and methods to

sufficient relevant data.”70

Rule 201, General Standards, of the AICPA Code of

Professional Conduct requires that engagements be

conducted with due professional care using sufficient

relevant data. According to AICPA Publication 03-1,

“Due care requires diligence and critical analysis of all

work performed.”71 Furthermore, the AICPA requires

that the practitioner “obtain relevant data that is

sufficient to provide a reasonable basis for conclusions

or recommendations for any professional services

performed.”72 “The practitioner should consider

analyzing key assumptions to determine whether they

are reasonable. In several recent cases, experts had their

testimony excluded because their opinions were based

on assumptions that were deemed not reasonable.”73

69 Litigation Services and Applicable Professional Standards, American

Institute of Certified Public Accountants, Inc., Rule 102, Integrity and

Objectivity, page 3, paragraph 13. 70 Litigation Services and Applicable Professional Standards, American


Objectivity, page 3, paragraph 13. 71 Litigation Services and Applicable Professional Standards, American


Objectivity, page 4, paragraph 18. 72 AICPA Code of Professional Conduct, 2005 Rule 102, discussed in

§ 201.06 D, page 4561. 73 Litigation Services and Applicable Professional Standards, American


Objectivity, page 5, paragraph 24b.



NOTES When considering whether data are sufficient and

relevant, accountants should consider whether by

including or excluding the data a risk of material

financial misstatement is likely. “The evidential matter

obtained should be sufficient for the auditor to form

conclusions concerning the validity of the individual

assertions embodied in the components of financial

statements.”74

Rule 501-01, Acts Discreditable of the AICPA Code of

Professional Conduct states that a “member shall not

commit an act discreditable to the profession.”75 Rule

501-04 states that a member shall be considered to have

committed an act discreditable to the profession when,

by virtue of his or her negligence, the member “signs,

or permits or directs another to sign, a document

containing materially false and misleading

information.”76

74 AICPA Professional Standards Volume 1, U.S. Auditing Standards,

American Institute of Certified Public Accountants, Inc., 2002,

discussed in § 326.13, page 447. 75 AICPA Code of Professional Conduct, 2005, Rule 501, discussed in

§ 501.01, page 4831. 76 AICPA Code of Professional Conduct, 2005, Rule 501, discussed in

§ 501.04, page 4832.

ABOUT THE ASSOCIATION OF CERTIFIED FRAUD EXAMINERS

©2012

About the ACFE The Association of Certified Fraud Examiners (ACFE) is the world’s largest anti-fraud organization and premier provider of anti-fraud training and education. Together with more than 60,000 members, the ACFE is reducing business fraud worldwide and inspiring public confidence in the integrity and objectivity within the profession. Founded in 1988 by Dr. Joseph T. Wells, CFE, CPA, and former Federal Bureau of Investigation (FBI) Special Agent, the ACFE has become the largest anti-fraud organization in the world. ACFE members in more than 160 countries have investigated more than two million cases of suspected criminal and civil fraud. Members of the ACFE include CPAs; auditors; lawyers; investigators; law enforcement officers; security professionals; executives; managers; and anyone whose job involves preventing, detecting, or deterring fraud. The ACFE supports members and the anti-fraud profession by providing conferences, seminars, and other training events year-round, while also offering self-study and online learning opportunities, manuals, software, and other resources for fighting fraud. By becoming an ACFE member, you will receive many valuable benefits that help to promote your professional and career development. These benefits include access to members-only services and resources, as well as discounts on many of the ACFE’s valuable products. To learn more about becoming a member of the ACFE, visit our website at www.ACFE.com/Membership or call (800) 245-3321 (USA & Canada only) or +1 (512) 478-9000. A Leader in Research The ACFE supports the future of fraud examination by providing funding and resources through its Anti-Fraud Education Partnership and Law Enforcement Partnership. ACFE research, including the Report to the Nations on Occupational Fraud & Abuse, provides benchmarking statistics on fraud, and the ACFE is one of the founding members of the nonprofit Institute for Fraud Prevention (IFP). The IFP is a consortium of domestic and international universities dedicated to cutting-edge research into the causational factors of a wide variety of white-collar crimes. Certified Fraud Examiners (CFEs) The ACFE established and administers the Certified Fraud Examiner (CFE) credential. Globally preferred by employers, the Certified Fraud Examiner credential denotes proven expertise in fraud

ABOUT THE ASSOCIATION OF CERTIFIED FRAUD EXAMINERS

©2012

prevention, detection, deterrence, and investigation. Members with the CFE credential gain a professional advantage and quickly position themselves as leaders in the global anti-fraud community. CFEs are knowledgeable in four major areas critical to the fight against fraud: • Fraudulent Financial Transactions • Fraud Prevention and Deterrence • Legal Elements of Fraud • Fraud Investigation To become a CFE, one must: • Pass a rigorous examination administered by the Association of Certified Fraud Examiners (ACFE). • Meet specific education and professional requirements. • Be approved by the ACFE certification committee. • Exemplify the highest moral and ethical standards and agree to abide by the bylaws of the ACFE

and the CFE Code of Professional Ethics. • Maintain annual CPE requirements and remain an ACFE member in good standing.

To learn more about becoming a Certified Fraud Examiner, visit our website at: www.ACFE.com/CFE.

As experts in the four major areas of fraud, CFEs are trained to see the warning signs and red flags that indicate not just actual fraud, but fraud risk―potentially saving organizations thousands of dollars in losses through prevention and detection before it’s too late. CFEs have the ability to: • Identify an organization’s vulnerability to fraud. • Examine data and records to detect and trace fraudulent transactions. • Interview personnel to obtain information. • Write fraud examination reports, advise clients about findings, and testify at trial. • Advise on improving fraud prevention and deterrence measures. Learn more For more information about the ACFE, visit our website at: www.ACFE.com.

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