Expert Witness Blog
In the recent appellate decision of Harding v. Lifetime Financial, Inc., 2025, the California Court of Appeal addressed the scope of duty owed by registered investment advisors in the context of an imposter fraud scheme, with pivotal analysis of testimony from a Financial Planning Expert Witness.
Background and Parties
Mark Frank Harding, the plaintiff, was defrauded of over $300,000 by an individual impersonating Daniel Corey Payne, an investment advisor associated with Lifetime Financial, Inc. Prior to the theft, Lifetime Financial had received multiple inquiries suggesting someone was impersonating Payne but failed to post any public warning or notify regulatory authorities. Harding, who was not a client of Lifetime Financial, sued the firm and its principals for negligence, asserting they had a duty to warn the public and report the imposter to the Financial Industry Regulatory Authority (FINRA).
Role and Methods of the Financial Planning Expert Witness
Central to Harding’s case was the testimony of a Financial Planning Expert Witness, who opined on industry standards for registered investment advisors regarding fraud prevention, client communication, and regulatory compliance. The expert reviewed Lifetime Financial’s internal communications, industry regulations (including FINRA Rules 2210 and 4530), and best practices for responding to reports of impersonation or fraud. The expert’s analysis focused on whether the defendants’ actions deviated from the standard of care expected of prudent financial planning professionals, particularly in the context of protecting both clients and nonclients from foreseeable harm.
The expert also addressed the practical steps that could have been taken by Lifetime Financial, such as posting website alerts or submitting regulatory filings, and evaluated whether such measures would have been effective in preventing Harding’s loss.
Court’s Reliability and Daubert Analysis
The trial court scrutinized the admissibility and weight of the expert’s testimony under California’s standards for expert evidence, which parallel the federal Daubert framework. The court found the expert qualified by virtue of extensive experience in financial planning and regulatory compliance. However, the court determined that the expert’s opinions regarding a duty to warn nonclients were not supported by statutory or case law. The court emphasized that expert testimony cannot create a legal duty where none exists under established law.
The appellate court affirmed this analysis, holding that while the expert’s testimony was relevant to industry practices, it could not override the absence of a legal duty. The court specifically found that FINRA Rule 4530, which requires reporting of certain customer complaints, did not apply because Harding was not a customer and there was no written complaint involving the defendants. Similarly, FINRA Rule 2210, governing communications with the public, did not impose an affirmative duty to warn nonclients about third-party impersonators.
Impact of the Expert Testimony on the Outcome
The Financial Planning Expert Witness’s testimony provided the court with a comprehensive understanding of industry standards and regulatory expectations. However, the court ultimately concluded that Lifetime Financial and its principals owed no duty to Harding, as he was not their client and no fiduciary relationship existed. The expert’s analysis, while informative, did not alter the legal framework governing the defendants’ obligations.
The court’s decision underscores the limits of expert testimony in establishing liability, particularly where the existence of a legal duty is a threshold issue. The expert’s insights into best practices and regulatory norms were acknowledged but deemed insufficient to impose liability absent a statutory or common law duty.
The judgment in Harding v. Lifetime Financial, Inc., 2025 thus stands as a significant precedent on the intersection of financial planning standards, expert witness testimony, and the legal boundaries of duty in fraud prevention cases.