Finance Expert Witness Allowed in Securities Case.

Plaintiffs filed a class action lawsuit against defendant arguing that they wrongly inflated their stock and concealed the truth about the condition of the company.  The plaintiffs hired a finance expert witness and the defendant’s filed a motion to exclude.  The court denied the motion.

Facts:  This case (Willis v. Big Lots, Inc. et al – United States District Court – Southern District of Ohio – March 17th, 2017) involves securities fraud.  The plaintiffs claim that the defendants (Big Lots) and some of their officers wrongly inflated their stock by concealing the true condition of the company.  In order to prove their case, the plaintiffs hired finance expert witness Bjorn I Steinholt.  Steinholt would offer an opinion as to whether the market in which Big Lots traded was efficient during the class period and whether it is possible to calculate damages consistently with the Plaintiffs’ theory of liability.  Big Lots subsequently filed a motion to exclude Steinholt’s expert witness testimony.

Discussion: Big Lots first argues that Steinholt is not qualified to offer an opinion in this case because he is not a qualified expert on financial economics.  First, they argue that he is not affiliated with an academic or research institution, has not authored any scientific studies, and does not hold a degree in economics.  The court disagreed, stating that the plaintiff’s focus on his academic credentials.  Mr. Steinholt does qualify as an expert due to his experience in market efficiency and damages.  In addition, Mr. Steinholt is a Chartered Financial Analyst and has provided expert testimony in this area in over twenty cases.

In addition, Big Lots argues that Steinholt’s opinion on market efficiency is a legal one (rather than economic) as it was prepared solely for litigation.  Also, they maintain that his event study was not reliable.   The court did state that it will disregard any portion of Steinholt’s opinion that shows his understanding or explanation of case law or other legal issues.   However, the court opined that it will not exclude Steinholt’s analysis on market efficiency because he performed his market analysis using pertinent legal factors cited in case law.

The defendants also argue that Steinholt’s event study is unreliable for two reasons:  1) Steinholt’s selections for the inclusion dates introduced bias into the results; and 2) he failed to perform ex-ante hypotheses for the tested events.  The court disagreed and ruled against the plaintiff’s in his part of their argument.

Last, the plaintiffs argue that Steinholt’s damages opinion is not relevant because it is not grounded in actual facts of the case, does not “fit”, and does not assist the trier of fact.  Big Lots states that Steinholt’s damages opinion  is based on generalities about what types of methodologies work when calculating damages.  The court again disagreed, opining that Steinholt’s opinion was that he would calculate damages on a class-wide basis, working with Plaintiffs’ theory of liability.  This methodology has been used in other securities cases.

Conclusion:  The motion to exclude the expert witness testimony of Bjorn I Steinholt is denied.