Corporate Governance Expert’s Testimony Permitted In Fraud Case

by Steven Meyerowitz, for Financial Fraud Law, January 21, 2010.

In a fraud case against two defendants, the federal government indicated that Professor Eric J. Pan would provide background testimony on numerous corporate governance issues, including the respective roles that shareholders, various corporate officers, the board of directors, board committees, and independent auditors play in a publicly held corporation; a publicly held corporation’s disclosure and reporting obligations; corporate officers’ responsibility to ensure that a corporation’s public statements and disclosures are truthful, accurate, and complete; and the significance of GAAS and GAAP, and the independent audit function’s scope and limitations. The defendants argued that Professor Pan’s expert testimony should be excluded because it would be “rife” with legal conclusions, and thus would “usurp” the court’s function to instruct the jury on federal corporate governance laws and the jury’s role in applying the relevant facts to these laws.

In a recent decision, the court found that the expected testimony fell “entirely within the realm of acceptable corporate governance testimony.” It pointed out that the government intended solely to solicit background and explanatory information concerning corporate governance and accounting concepts, such as the nature of fiduciary duties, a publicly-held corporation’s disclosure requirements, the independent and outside audit functions, and the importance of GAAP. Nothing indicated that the government intended to solicit the expert’s opinion as to the defendants’ acts, the court continued. It added that the government had reaffirmed that it did “not intend to elicit, during its case-in-chief, any such opinions from Professor Pan.”…(continue reading)


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