Scop and three other guys were arrested and charged with
mail fraud and securities fraud connected to a scheme to trade stocks in a
car dealership.
The classic 'pump and dump' scheme, where they
artificially inflated the stock price and then sold their shares at a
premium.
At trial, the prosecution attempted to use an expert
witness named Whitten.
Whitten just happened to have been an SEC investigator
who helped prepare the indictments for this case.
Whitten claimed that his testimony would be based solely
on the evidence presented at trial, and not based on opinions he came to
while preparing the indictments.
Scop objected, argued that the expert witness was
wrongly allowed to give opinions that embodied legal conclusions and were
based on the witness' assessment of the credibility of the other
witnesses' testimony.
The Trial Judge allowed Whitten to testify. He repeatedly
referred to the defendants as 'active participants', and what they were
doing was 'fraud' and 'manipulation'. Whitten also admitted that part of
his opinion was based on a positive assessment of the testimony of another
witness.
The Trial Court found Scop and the others guilty of
securities fraud. They appealed.
The Appellate Court reversed.
The Appellate Court found that Whitten's repeated
statements embodying legal conclusions exceeded the permissible scope of
opinion testimony under FRE 704.
"FRE 704 was not intended to allow experts
to offer opinions embodying legal conclusions."
Whitten could have testified that controlled buying and
selling of stocks can create artificial price levels to lure outside
investors. However, he could not explicitly say that those activities
rose to the level of 'fraud', which is a legal conclusion.
The Appellate Court found that an expert witness
may not offer opinions on relevant events based on their personal assessment
of the credibility of another witness' testimony.
Only the jury can decide the credibility of a witness.
FRE 703 allows an expert witness to base
their testimony on otherwise inadmissible evidence not presented in
court, but the Appellate Court found that was limited to evidence of a
type reasonably relied upon by experts in the particular field.
Basically, expert witnesses testifying under FRE
704 need to steer clear of statutory or regulatory language indicating
guilt. In addition, the expert witness needs to limit themselves
to opinions formed from the facts of the case, not formed from
inadmissible information or opinions on the credibility of other
witnesses.
