expertwitnessguru.com | October 27, 2013
Posted by Shweta Nawani
In a recent development in the JP Morgan whistleblower suit brought by ex-employee Jennifer Sharkey, the U.S. District Court of New York limited the expert testimony of Plaintiff’s finance and accounting expert for merely bolstering the Plaintiff’s allegations. The Defendants’ motion to preclude the expert testimony was granted in part and denied in part.
Background of the case
Jennifer Sharkey, who worked as a Vice President and Wealth Manager in JPMC’s Private Wealth Management department from 2006 until her termination in 2009, managed more than 75 “High Net Worth Client” relationships with assets that totaled over $500 million. Sharkey was the second highest producer in her department. In 2009, Sharkey was assigned to manage a long term client of JPMC by her direct supervisor Lassiter. This Client who generated quarterly returns to the tune of $150,000 for JPMC, had been JPMC’s client for more than 20 years.
A few weeks after Sharkey was assigned to manage the Client, she formed a belief that the Client was violating federal securities laws, and that JPMC should terminate the client relationship. She conveyed her concerns regarding the Client’s involvement in illegal activities, including allegations of mail fraud, bank fraud, and money laundering to Lassiter. Sharkey’s concerns were based upon concerns expressed by JPMC’s compliance and risk management team and independent research conducted by Sharkey into the Client’s activities.
When Sharkey conveyed the conclusions of her research and her recommendation to the individual Defendants, they ignored her concerns and recommendation. Instead, the individual Defendants allegedly downplayed and dismissed Sharkey’s concerns, both because they directly contradicted their own conclusions and because Sharkey’s concerns exposed weaknesses in JPMC’s risk processing procedures, particularly since JPMC had been doing business with the Client for more than 20 years. On July 30, 2009, Sharkey submitted a final KYC report regarding the Client, which included her recommendation that J.P. Morgan immediately terminate its relationship with the Client. Six days later, on August 5, 2009, Sharkey’s employment with JPMC was terminated without warning or prior notice. On inquiring as to the reasons of her termination, Sharkey was informed “it was an abrupt decision that has nothing to do with your performance, but instead was made by Lassiter because she feels she cannot trust you anymore.”
Following this, Sharkey filed a complaint with the Occupational Safety and Health Administration (OSHA) alleging violations of the Sarbanes–Oxley Act of 2002 (SOX). After her complaint to OSHA was dismissed, Sharkey filed a complaint with the U.S. District Court of New York against JP Morgan Chase & Co. and its employees Joe Kenney, Adam Green, and Leslie Lassiter in May 2010, alleging violations of SOX and for breach of contract. In January 2011, Sharkey’s complaint was dismissed by court since the illegal activity reported by Sharkey was not adequately alleged in the original complaint. Though her breach of contract claim was dismissed with prejudice, Sharkey was granted leave to replead her SOX claims. She filed her Amended Complaint on February 14, 2011.
Plaintiff’s accounting expert served her report on May 20, 2013 and her deposition was taken on June 6, 2013. One week later, Defendants moved to strike the expert’s testimony.
Motion to strike expert testimony
The Court noted that in her deposition, the expert testified as to her knowledge of SOX compliance and trainings as well as customer identification programs, which are utilized to seek out any instances of fraudulent behavior. The Court further noted that her resume included vast experience in this area relating from prior positions, publications and teaching involving SOX and other areas of financial compliance.
Defendants’ concern with [expert] arose from her testimony as to the following:
- the “evidence supports [Plaintiff's] recommendation to terminate [Client A]”;
- Plaintiff’s recommendation to terminate Client A was “reasonable”;
- Plaintiff had a “reasonable belief” that Client A was engaged in money laundering and violating the statutes enumerated in SOX;
- “there is sufficient, competent evidential matter to support the belief that [Client A] should be terminated because there was evidence that there was potential for fraud, money laundering, [and] security [laws] violations”; and
[expert] “reviewed the JPMorgan [Know Your Client (“KYC”) and anti-money laundering] processes, [that she] looked at evidence that [those processes were] followed, and there was evidence to support a recommendation of termination.”
Defendants contended that expert’s testimony inappropriately “evaluates and provides an assessment of the documentary and factual evidence related to the case,” of which the expert had no personal knowledge, as well as opined on lay matters that required no expert testimony, such as whether Plaintiff followed JPMC’s KYC and anti-money laundering processes. Defendants further contended that expert’s testimony as to the fact whether Plaintiff had a “reasonable belief” that Client A was engaged in illegal activity improperly usurped the role of the jury by “telling the jury what result to reach.” The Court agreed with the Defendants on this issue and held that expert may not testify on the issues of reasonability and that she may not merely bolster Plaintiff’s testimony as to the internal processes of JPMC of which she had no personal knowledge. The Court also precluded the expert from testifying as to whether the evidence in this case reasonably supported a termination of Client A’s relationship with JPMC. Finally, Defendants contended, and the Court agreed, that even if these opinions were admissible, expert was unqualified to testify as an expert, since she herself admitted during deposition that she had no experience or expertise as to the following: (1) a bank’s decision to terminate a client; (2) a bank’s KYC process; and (3) money laundering or securities fraud matters.
The Court, however, held that the expert witness’s expertise as an accountant and with respect to SOX compliance programs had been sufficiently established. Therefore, she may testify as to those matters and transactions which, as an accountant, might trigger concern under SOX (so called “red flags”), and why.
Defendant’s motion to strike the expert testimony of the Plaintiff’s accounting expert witness was granted in part and denied in part.
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