In a recent (ongoing) case in California, a senior couple, Robin Denker and Jerry Klein sued Michael Ricchio, the ex-husband of Denker’s daughter, claiming elder financial abuse, unjust enrichment, negligence and breach of contract.
Denker and Klein (Plaintiffs) invested $13,000 into an initial coin offering for ICN (Iconomi) at Ricchio’s suggestion. Ricchio purchased the cryptocurrency and held it in accounts under his name. Plaintiffs were unable to access these accounts or their cryptocurrency without Ricchio’s assistance. Eventually, when Plaintiffs asked Ricchio to return access to their cryptocurrency holdings, Richhio not only refused to do so, but also informed them that he had sold the cryptocurrencies long ago and offered to return $40,000. The Plaintiffs did not believe him and sued, bringing nine causes of action and sought up to $2 million in damages, along with double and treble damages and punitive damages.
The Plaintiffs retained Dorothy Haraminac, a forensic accountant and the founder of Greenvets LLC, as their expert witness while the Defendant retained Harry G. Lee Jr., a blockchain expert who did a blockchain analysis on the investments made by the Plaintiffs through the Defendant. Both parties moved to exclude the other’s expert.
Harry G. Lee Jr. (Defendant’s blockchain expert witness)
Issue 1: Untimely disclosure
Denker sought an order to exclude the testimony of expert Lee on procedural grounds of untimely disclosure. Lee’s report was disclosed two weeks after the date for initial expert disclosures. The court held that Lee was deposed, and Denker had full opportunity to examine the witness. Assuming that the report should have been disclosed as an initial report, the two-week delay was harmless.
Issue 2: Failure to disclose basis for opinion
Denker alleged that Lee failed to disclose the basis for his opinions. A schedule of assets upon which Lee relied was never produced. The Court noted that Denker’s expert Dorothy Haraminac used the same schedule in her work, so the shortcoming of not receiving the schedule was neutralized. Also, Lee used a proprietary tool to conduct his block chain analysis to which Denker never had access. However, Denker had an opportunity to examine Lee about his core analysis at deposition. The court held this to be sufficient and denied the motion.
Issue 3: Daubert challenge
Lee had given a valuation opinion and had also opined that Ricchio was a mere hobbyist when it came to cryptocurrency trading. Denker challenged both these opinions under Daubert.
Regarding the valuation opinion, the Court held that:
- the use of an incorrect conversion for Iconomi coins, which Lee subsequently corrected, could be addressed on cross examination and only went to the weight of his opinion
- he used a “consulting” standard rather than an audit standard again went to weight
- there was nothing improper about experts assuming one version of disputed facts
- the challenge to various inputs to Lee’s analysis went to weight rather than admissibility.
The court held that these factors called for a forceful cross examination that would not be cause for exclusion.
With respect to the “hobbyist” opinion, the Court noted that Lee tied his analysis to a dictionary definition of hobbyist in which area he conceded he had no expertise. The court allowed Lee to present his frequency analysis, and let the jury draw its own conclusions. The judge also stated that frequency analysis is a legitimate, repeatable methodology.
The motion to strike Lee’s testimony was denied.
Dorothy Haraminac (Plaintiff’s Witness)
Issue 1: Calculation of damages
In calculating damages, Haraminac used a “Demand Date,” the date on which Denker requested the return of funds, and “Date of Refusal,” the date on which Ricchio refused to return the funds. She used these benchmarks in making her calculations. An expert is not required to vouch for each assumption that goes into a calculation. Others can be cross-examined as to the accuracy of these benchmarks.
The motion was denied.
Issue 2: Additional considerations
In her opinion concerning Denker’s losses, she included a section entitled “Additional Considerations.” These included surmises about Ricchio’s possible use of Denker’s funds for his own transactions and details Ricchio’s other unrelated trading activities in the period.
The Court excluded this paragraph as irrelevant.
Issue 3: “Hobbyist” opinion
Haraminac relied on an IRS standard to form her opinion that Ricchio was not a “hobbyist” trade. Haraminac made three points:
- she does not know whether the IRS uses the factors for cryptocurrency;
- she never previously applied these factors to cryptocurrency; and
- she offers no opinion with regard to the applicability of these factors to cryptocurrency.
The court held Haraminac to be simply incorrect as to the third point. The other issues were decided to go to weight, and to be tested on cross-examination. The court declined to exclude this opinion.