822 F. Supp. 2d 352
S.D.N.Y.2011Background
- SEC alleges Badian conspired to manipulate Sedona stock for Amro via a convertible debenture structure.
- Amro loaned Sedona $2.5 million, with conversion terms tied to Sedona’s five-day average price, incentivizing downward price moves for more shares.
- Badian and associates allegedly short sold Sedona stock to depress price before conversion and then executed trades to create a false demand spike.
- A 2003 SDNY criminal complaint mirrored the conduct; the complaint was dismissed as to Andreas in 2004 while Thomas remains criminally charged.
- Siegel, a former employee who testified before a grand jury, received a $170,000 subjective bonus from Thomas in 2006; no written record of obligation.
- The SEC seeks in limine rulings on expert testimony, authentication of Refco recordings, and exclusion of certain defenses and evidence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Thel’s expert should be excluded under Rule 702 | SEC argues Thel is unreliable and unqualified. | Badian contends Thel is qualified and should be admitted. | Thel testimony excluding in full; not admissible |
| Whether PB Report testimony on motive and impact is admissible | PB Report offers admissible expert methods | PB Report relies on unreliable methods and lacking data grounding | PB Report sections II and IV excluded; Section III allowed |
| Whether Glosten and Jones are qualified and relevant | Plaintiff contends they have necessary expertise | Badian challenges relevance of their manipulation meaning and data | Qualified; testimony generally admissible; not excluded |
| Whether Refco recordings should be authenticated | Authentication sufficient via IT declaration and witnesses | Authentication too weak | Authentication upheld; recordings and transcripts admitted |
| Whether evidence related to Badian’s affirmative defenses can be admitted | SEC may exclude defenses; statute of limitations on civil remedy | Affirmative defenses should be considered; some barred | Second and fifth defenses allowed (liability); third and fourth defenses excluded |
Key Cases Cited
- Kumho Tire Co. v. Carmichael, 526 U.S. 137 (Supreme Court 1999) (gatekeeping for expert testimony)
- Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (Supreme Court 1993) (edits on admissibility of expert testimony)
- General Electric Co. v. Joiner, 522 U.S. 136 (Supreme Court 1997) (gatekeeper focus on methodology, not conclusions)
- United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991) (limits on expert testimony; not usurping law)
- U.S. v. Scop, 846 F.2d 135 (2d Cir. 1988) (experts may not direct the jury on law)
- Teamsters Local 445 Freight Div. Pension Fund v. Bombardier, Inc., 546 F.3d 196 (2d Cir. 2008) (event study admissibility factors in fiscal contexts)