Category: Uncategorized

Business ValuationExpert WitnessLitigationUncategorized

SEC Charges Theranos CEO with Massive Fraud – Securities Expert Witnesses

Once considered “The Next Steve Jobs” or the “female Steve Jobs,” Elizabeth Holmes has fallen from grace and landed directly in the cross-hairs of the Securities and Exchange Commission (SEC). Today, the SEC filed a civil complaint against Elizabeth Holmes and her company Theranos, Inc. There was a separate action filed against the Chief Operating Officer, Ramesh “Sunny” Balwani.

The complaint alleges, in part:

“Holmes, Balwani, and Theranos raised more than $700 million from late 2013 to 2015 while deceiving investors by making it appear as if Theranos had successfully developed a commercially-ready portable blood analyzer that could perform a full range of laboratory tests from a small sample of blood. They deceived investors by, among other things, making false and misleading statements to the media, hosting misleading technology demonstrations, and overstating the extent of Theranos’ relationships with commercial partners and government entities, to whom they had also made misrepresentations.”

Oh the good old torts of negligent and intentional fraud and misrepresentation. Takes me right back to the first year of law school, when Nickelback was a hot new band, rather than the sad punchline of Internet memes. I digress.

The complaint goes on to allege that based on representations, investors believed Theranos had developed a proprietary medical device able to conduct comprehensive diagnostic tests from a small amount of blood taken from the patients’ finger. They also made representations that they would collect and transport these samples in order to complete the tests on their proprietary analyzer. All of this would be done more efficiently and economically than traditional blood testing labs.

According to the complaint, Theranos was only able to perform about 12 of the 200 tests they claimed they were capable of performing.

Let’s stop here and give a simple warning: If you are soliciting money from investors, make it very clear what you are able to achieve. Differentiate this from what you hope to achieve in the future. Do not mix the two. Otherwise you get into a bad area called misrepresentation, or in this case, securities fraud.

A wide variety of expert witnesses:

In complex civil litigation such as this, there is room for a wide variety of different experts. I can only imagine the SEC and Theranos are both using consulting experts at this time in preparation for a long drawn out litigation. The complaint has only been filed today, so expert disclosures are a way off. Here are a few types of expert witnesses or consulting experts I expect to see in this matter.

Corporate Governance:

Expert witnesses on corporate governance are highly likely to play a role in this case. Officers of a corporation are fiduciaries of the corporation. Holmes owed a duty of care to the company and to her investors. She is accused of misrepresentation which, if proven, would certainly violate the standard of care owed to shareholders and the company. I expect there will be significant dispute by the parties to prove she either did or did not violate her fiduciary duties.

Securities & Finance:

Several different types of experts who practice in the area of securities fraud may come into play. We are likely to see experienced Wall Street experts with a history in equity trading, proprietary trading, investment research, securities valuation, financial forecasting, venture capital and investment banking.

Some experts will probably have backgrounds in IPO’s, private equity financing, securities financing, and stock options financing.

In this area, I feel as though I can go on ad infinitum. That’s not true and it is probable one or two candidates will have the requisite expertise, described in this section, to address the finance and fraud related matters.

Economics:

Although the SEC is primarily suing for injunctive relief, they do mention the potential for civil monetary penalties. I would expect there will be some need for an economist (by both parties) to establish the value of Theranos and shares owned by Holmes and Balwani.

As I do not practice securities litigation and this is not a law review article, it is possible the civil penalties are predetermined by the Securities Act and there is no need to value the penalties other than by the trier of fact.

UPDATE:

Within hours of writing this blog post, I discovered that Elizabeth Holmes has settled with the SEC. According to Reuters, she will be stripped of her majority control of the company and will have to return millions of shares to Theranos. She will also pay a $500,000 fine and be barred from being an officer or director of a public company for 10 years. As of this update, Mr. Balwani has not settled with the SEC.

 

 

Expert WitnessLitigationPharmaceuticalUncategorized

Kentucky AG files lawsuit against opioid distributor McKesson

As I mentioned in our blog post on November 6, 2017, we would be covering the US “opioid crisis” as the lawsuits against manufacturers and distributors heated up. Today, we found out Kentucky Attorney General, Andy Beshear, filed a complaint against McKesson Corp. According to this story by Reuters, Mr. Beshear “accused drug distributor McKesson Corp of helping fuel the opioid epidemic by failing to halt shipments of suspiciously large or frequent orders by pharmacies of prescription painkillers.”

Mr. Beshear’s office filed suit in Kentucky state court. The complaint further alleges McKesson filled suspicious orders and shipped tremendous quantities of prescription opioid pharmaceuticals to Kentucky pharmacies, without reporting them to authorities or preventing the shipments. According to the AG’s own press release, “Federal and state law requires pharmaceutical distributors to monitor and report to law enforcement when it ships large or suspicious supplies of opioids to a state or region.

There’s a wide array of state and local governments pursuing lawsuits against pharmaceutical companies, including McKesson, for deceptive marketing and failures to report suspicious activity which are resulting in opioid addiction and deaths within their cities and towns.

Let’s take a look at causes of action and potential experts:

Based on the complaint, we see that the Kentucky AG is attacking McKesson on some interesting causes of action, including: Consumer Protection Act Violation; Public Nuisance; Negligence per se; Negligence; Unjust Enrichment; Fraud by Omission; and Medicaid Fraud. Mr. Beshear is seeking punitive damages for the State of Kentucky. The complaint further provides the Kentucky Consumer Protection Act protects citizens from “predatory or inappropriate acts by sellers of goods.” The Act states “unfair, false, misleading, or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.”

With this information it appears deceptive marketing practices will be an issue in this lawsuit. Both Kentucky and McKesson are likely to employ marketing expert witnesses to address which practices may or may not be false and misleading.

Within this cause of action, Mr. Beshear further alleges violations of the Kentucky Controlled Substances Act. This Act creates a “broad duty on the part of wholesalers to monitor, detect, investigate, refuse to fill, and report suspicious orders of prescription opioids.”

One can only imagine there will be an argument over what constitutes a “suspicious order of prescription opioids.” As such, we expect both parties will be retaining pharmaceutical and pharmacy industry experts. The parties are likely to argue about the existence of indicators used to alert a distributor when a suspect order is placed. I anticipate the parties will be looking to pharmaceutical supply chain or logistics expert witnesses to provide background about notification and indicator systems for identifying suspicious orders.

What relief is the Kentucky AG seeking?

By reviewing the complaint and articles mentioned above, Kentucky is arguing McKesson’s activity has resulted in overdoses which put a drain on emergency services and hospitals. I’m certain Mr. Beshear will argue the costs of medical services have increased significantly as the state has had to deal with opioid overdose.

I further envision an argument will be made about the increase in law enforcement and first responder costs associated with fighting the illegal sales of heroin and other opiates stemming from addiction.

The complaint makes it pretty clear Mr. Beshear is seeking punitive damages on behalf of Kentucky. That being said, both parties are going to employ damages experts. This may involve the use of economists and forensic accountants to determine the amount of financial damage inflicted on Kentucky by McKesson’s actions.

Final Thoughts:

As I’m sitting here in California, I do not understand the true ramifications of the opioid crisis on the State of Kentucky. I am interested to see what individual civil litigation options may be available to the citizens of Kentucky. As such, I invite my friend Daryl Dixon of Daryl T. Dixon Law, in Paducah, Kentucky, to provide us with his thoughts on this subject on his own blog! Ball is in your court, Daryl. Let’s see what the Wildcats have for me…

UPDATED 02/07/2018:

Here is the response from Daryl T. Dixon – Examining the Opioid Crisis: What are my options?

 

Uncategorized

Casino shuttle boat fire resulting in evacuation and one death

A casino shuttle boat caught fire Sunday in Florida, forcing the evacuation of dozens of passengers into the cold Gulf Coast waters. Officials initially stated that none of the evacuation injuries were life threatening. One passenger went home after the evacuation into frigid waters, where she later became ill. She arrived at the emergency room Sunday night about 10pm and died shortly thereafter. Cause of death has not been determined at the time of this writing.

The ferry was only about 100 yards from shore when the captain noticed smoke coming from the engine room. He turned the boat around and told the passengers and crew to abandon ship. About 15 passengers suffered injuries from smoke inhalation and the cold water.

According to this article, The Tropical Breeze Casino said they had never had an issue with the shuttle and have not yet determined the cause of the blaze. The boat is used to ferry passengers to and from the Tropical Breeze offshore casino. The casino is approximately 45 minutes offshore, in international waters.

This maritime accident could require investigation and inspection from a variety of experts in the lead up to probable litigation. Here are the types of experts I expect to be involved in the weeks and months ahead.

Fire Investigation:

The captain noticed smoke very early after leaving port and was able to turn the boat around and have the passengers evacuate while they were still in shallow waters. In this article from Yahoo News, “Coast Guard Petty Officer 1st Class Michael De Nyse said investigators will determine the cause of the fire and examine the history of the boat and Tropical Breeze Casino.” This is what will probably be the initial fire investigation.

From the article it also sounds as though the Pasco County Sheriff will be conducting their own accident/fire investigation. Further cause and origin investigations can be expected from the insurance company for the Tropical Breeze Casino.

With 15 passengers injured and one deceased, I am assuming at least some of the injured parties will be filing a lawsuit. The lawyers for the injured parties will probably request their own inspection of the ferry, which was evidently burned down to the hull. In fact, plaintiff’s counsel will likely want additional experts, beyond fire investigators, to inspect the remainder of the vessel.

Forensic Engineers:

This post on Polymersolutions.com defines forensic engineering as follows, “…using reverse engineering to figure out why a structure, material or component failed to perform as intended. Then, those findings can be used as evidence in court if that failure caused injury, property damage, or was related to some other criminal case.”

From the information currently available, the fire originated in the engine room. If the engine itself caught fire, an engineer specializing in engine mechanics or naval engineering could be used to determine what caused the engine to fail and erupt in flames.

Such an engineer would inspect the components of the engine to determine which item may have failed. It is important to note, once the failed item is discovered, it may expand liability to the manufacturer of the failed component.

Maritime & Admiralty Safety Experts:

The news tells us the captain of the ferry noticed smoke coming from the engine room, so he turned the boat around and ordered the passengers to evacuate.

I expect a great deal of the investigation and approach to establishing liability will hinge on whether the captain followed the appropriate safety protocols for marine passenger safety.

Industries are governed by safety regulations and maritime is no different. A maritime expert will be asked to evaluate the actions of the captain, and other crew, to determine if they acted appropriately under the circumstances.

Did the captain or crew properly inspect the boat before leaving port? Did he order an evacuation too late? Could the captain have done something, before leaving port, that would have prevented the catastrophe? Was the evacuation properly executed? Did the captain follow maritime safety standards in abandoning ship and making sure passengers made it to shore?

Maritime Medicine / Emergency Medicine Experts:

A passenger presented to the emergency room and died a short while later. With this information, I expect both plaintiff and defense counsel to retain medical experts. Since the passenger was only treated at the ER before expiring, both sides will retain emergency medicine experts to review her ER records and possibly opine about whether or not she could have been saved had she presented to the ER sooner.

There is one type of expert both sides may not immediately consider: a maritime medicine expert witness. Although the boat was only 100 yards offshore and the passengers were in waist deep water, this was a maritime accident resulting in death.

It is quite possible that boating accidents taking take place in cold ocean waters require a specific medical response. Was the appropriate medical response utilized? Was there something that could have been done to prevent the death after rescue? Should the passenger have been released home or monitored for 24 hours? What appropriate actions should have been taken after an ocean-based rescue? These are questions for an expert with a long history of maritime lifesaving experience.

Other experts may be involved in litigation stemming from this accident, but these are the most likely types of experts I see being retained in this matter.

Expert WitnessPsychologyUncategorized

NFL investigating Panthers for possible breach of concussion protocol

According to this article on Yahoo, the NFL and the NFL Players Association have opened an investigation into whether the Carolina Panthers violated the concussion protocol for quarterback Cam Newton on Sunday.

This armchair pundit can tell you in watching the replay, Mr. Newton took a pretty solid hit to the head. Thereafter, in walking towards the sideline he fell to his knees. According to Yahoo, Cam Newton only missed one play. You may have wondered, as I did, what is the NFL’s concussion protocol. For that I turned to SBNation.com where they lay out the protocol as follows:

  1. When a potential concussion is identified the player shall be removed immediately from the field.
  2. The NFL team physician and the unaffiliated neurotrauma consultant (UNC) will:
    • Review the video of the play
    • Perform a focused neurological examination
  3. Madden Rule: If there is suspicion of a concussion, the player will be escorted to the locker room for a full assessment
  4. If the player is diagnosed with a concussion, there is NO same-day return to play
  5. If the player passes the exam, he will be monitored for systems throughout the game.

As we witnessed on Sunday, Cam Newton was only ushered to the blue medical tent and then back to the bench. We have to assume the team physician and the unaffiliated neurotrauma consultant did their due diligence to protect him from further harm. Mr. Newton claimed after the game there was a problem with his eye rather than a head injury. I’m of the mind that the human eye is a part of the head and further examination may be necessary. Then again, I am only playing a doctor in this piece.

Why am I concerned about this protocol and the possible failure to adhere to it? In the last 8 years I have seen the reports and talked to the expert witnesses who testify about traumatic brain injury and chronic traumatic encephalopathy (CTE). The real doctors take it very seriously. The damage from CTE is immense and life altering.

I can tell you from my personal experience, the number of doctors specializing in TBI and CTE has at least doubled (probably tripled) in my time at Experts.com. They come in a wide range of medical specialties:

My concern is the medical professionals do what is right for Cam Newton, even if he is only interested in getting back to the game.

With all this said, I want to invite a couple of my friends, both lawyers and former college football players, to respond on this topic in their own time and on their own blogs.

So, to Bernard Nomberg of Nomberg Law Firm and Morris Lilienthal of Martinson & Beason, what say you? Did the Panthers fail to follow protocol? Does the protocol need to change?

UPDATE: January 12, 2018

We asked for input from the lawyers mentioned above. We have received both of their responses in blog posts!

From Morris Lilienthal – Protecting Players: Following Concussion Protocol is a Must.

From Bernard Nomberg – Big Hit on Cam Newton Calls into Question NFL Concussion Protocol.

 

EngineeringExpert WitnessInsuranceUncategorized

California Wildfires: Personal Analysis of Expert Information

Approximately two months after the horrific fires in Northern California (Santa Rosa, Napa, etc.,) we are witnessing catastrophic wildfires tearing through the Southern California landscape. Unlike the fires in October, I have not noticed any smoke or ash in the air this week. However, I am keeping a close eye on the fire activity in the Los Angeles area and have maintained communication with friends who are being impacted by the devastation.

Watching the news and reading the articles on this matter led me to read some articles, by fire experts, on our website. I wanted to pull together some information that might prove useful for those suffering immense loss and even displacement. Here is what I learned from Experts.com members:

Collect the Evidence – Document, Document, Document:

Once the fires are extinguished, you are going to be dealing with your insurance company. Your home, office, vehicles, and other property do not need to be engulfed in flames to suffer damage. Being in the region of a fire can cause costly soot damage to both real and personal property.

For example, let’s assume your home suffered some soot damage as a result of wildfires in your region. When your insurance adjuster comes to review the damage to your property, they are going to want to know if it was a common source of residential soot or the result of regional wildfires. Here are some common causes of residential soot as described in an article by Member EFI Global.

  • Smoking
  • Candles
  • Fire Places
  • Cooking
  • Heater malfunctions
  • Wildfires nearby
  • Interior fires (cooking, appliance etc.)

The article goes on to state, “localized soot over stoves, fire places, heater vents, and used candles is explainable to those sources and is generally not a covered loss.” This is why I believe it is important to document!

If you are noticing soot damage to your home as a result of the wildfires, you should begin taking your own photos and video to properly document areas of damage you have found since the fires began. You do not want your insurance adjuster to arrive, do their own investigation, note the areas above, and claim these are the result of the soot damage in your home. Make sure you have your own documentation of these areas and other areas damaged by soot.

The documentation should take place inside and outside the home. I have seen several pictures of fire retardant found on neighborhood streets, vehicles, and homes. If the fire retardant hit your property, make sure to document the exterior of the home for fire, smoke, and other damage related to extinguishing the fire.

If you can locate pictures from before the fire. Do it! Get some before and after photos assembled to help present the damage you see to your home.

Review Policy & Contact Insurance Provider:

Granted, most articles online will probably tell you to do this first. I am assuming you’re doing this at about the same time you are collecting your own evidence to provide to the adjuster.

Upon reporting the damage to your insurance company, you should inquire as to who may be able to assist with fire restoration in your region. Remember, if flames actually reached your home and water was used to extinguish the flames, you have to be cognizant of the potential for mold. This is why you want to find someone competent with fire restoration protocols. Your insurance should be able to guide you to finding the right provider.

Separate the Good from the Bad:

It is possible portions of your home remain undamaged. If this is the case, you’ll want to separate items that are damaged from those that are undamaged.

By separating the items you prevent further harm to the undamaged portions of your home. The separate section of damaged property will actually serve as your inventory for your insurance provider. It will help you to establish what was lost and what should be covered.

Take Care of Each Other:

Do not forget, fires are life altering events. We have experienced some catastrophic wildfires in California this year. The losses are felt throughout many neighborhoods. In preparing for this post, I found this article from the Napa Valley Register. It shares the story of a man who has lost a house in Santa Rosa, only to find out that his original home (turned rental) was destroyed in the Ventura fire this week.

If you can, reach out and help your neighbor. Help someone in your community. If you are insulated from the wildfires, maybe just write a blog post providing some information for those you know who have been impacted by the devastation.

Uncategorized

CURRICULUM VITAE: TO PUBLISH OR NOT TO PUBLISH

Experts.com Curriculum Vitae PhotoIn the Expert Witness and Consultant industry, the Curriculum Vitae is an essential marketing tool that not only highlights the achievements of an Expert or a Consultant, but can do so in the best possible light. Far more comprehensive than a resume, it usually includes terms of employment, academic credentials, publications, and other significant achievements.

There is an ongoing debate as to whether CVs should be posted for public viewing or whether they should be available only on request. There are two schools of thought on the issue:

  1. Promote, Promote, Promote:  The idea is that the more visible and accessible your qualifications are, the more likely you are to be retained. If an attorney is looking for an Expert Witness and comes across his CV, he may make immediate contact or download it and put it in his files for future use.  The point is that the Expert’s experience is being marketed to those in need of his services.  However, where there is a benefit, there is usually a detriment. In this case, the downside to easy accessibility can be fraudulent use without consent. *
  2. Keep It Close To The Vest:  Like a straight flush, some Experts and Consultants prefer not to “show their cards” until they have had a chance to speak to their prospective client. The idea that more experience can be conveyed in a conversation than from the one-sided viewing of a CV does have merit.  However, it is also possible that, in the interest of time, those searching for expertise prefer to know beforehand that the Expert possesses the necessary qualifications before making contact.

The decision of whether or not to publish a Curriculum Vitae is, of course, a personal one. Across 1,300 Expert Witness categories, you will find that most of our members prefer to publish their CVs . If you have pondered this issue yourself and have any thoughts to share, please take a moment to comment below.

*Please see Experts.com’s next blog post on Watermarking CVs.

Uncategorized

Trademark Expert Witness key to Louboutin vs. YSL Red Sole Shoe Case

The beginning of last month, the U.S. Court of Appeals in Manhattan ruled that designer and shoemaker Christian Louboutin Sarl’s Red Shoe Sole is entitled to limited trademark protection. The safeguard extends only to the red lacquered outer sole that contrasts with the color of the rest of the shoe and not to shoes that are monochromatically red.
Trademark Expert and Experts.com Member, Gabriele Goldaper, testified in the case that Louboutin’s Red Sole Mark is “prominent, famous, and there is no competitive need for YSL or any other competitor to make use of the Red Sole Mark on their shoes…” She also testified that, “…its use merely permits YSL to trade upon the reputation and goodwill that Louboutin has built in that mark over two decades.” See Declaration filed in support of Preliminary Injunction.
Considering all of the evidence and expert testimony, the court held that “…the lacquered red outsole, as applied to a shoe with an ‘upper’ of a different color, has ‘come to identify and distinguish’ the Louboutin brand and is therefore a distinctive symbol that qualifies for trademark protection.” Although the case is returning to the lower court for review by a trial court, for now, except if the whole shoe is red, Louboutin has the sole right to the red sole.
Read more about Experts.com Member Gabriele Goldaper.