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United States of America v. Louis Tomasetta and Eugene Hovanec

March 30, 2012


The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge:



On February 27, 2012, Defendants Louis Tomasetta and Eugene Hovanec ("Defendants") moved in limine to preclude three sell-side securities analysts from offering lay witness opinion testimony, arguing that: Government was tardy in disclosing its intent to call such witnesses; the testimony is improper under Fed.R.Evid. 701; and, in any event, the testimony is irrelevant. On March 7, 2012, the Government submitted a perfunctory three paragraph response which did not respond to the tardiness argument. Rather than describe what the proposed testimony would be, its relevance, or its materiality to the case at hand, the Government instead was content with the bland assurance that it did not intend to elicit improper testimony. After Defendants submitted a reply brief on March 16, 2012, the Government submitted a sur-reply on Saturday March 17, 2012, which belatedly came to partial grips with Defendants' objections.*fn1 At the final pretrial conference, on March 19, 2012, the Court granted Defendants' motion in limine, explaining that it was"troubled by the fact that the disclosure of the three names is late. I don't think that the information that's being offered, the proposed testimony falls within the rule of Rule 701. And I have doubts about the relevance of what the analysts are testifying to." (Mar. 19, 2012 Tr. at 19.) The Court was concerned that the analyst would testify about the ultimate issues which the jury must decide.

The Government now moves for reconsideration. While the Court is reluctant to condone the Government's tardiness and the initial paucity of details, subsequent events, including testimony at trial, support reconsideration. Upon reconsideration, the Court finds that the proposed testimony, as proffered in the Government's March 21, 2012 letter, is admissible as either relevant fact testimony, or under Fed.R.Evid. 701, and therefore overrules Defendants' objections. The security analysts will be permitted to testify subject to the limitations discussed below. In light of the length of the trial, the number of witnesses and the voluminous documents in evidence, the Government should try to have only one witness. The Court will not permit redundant testimony.


There is no doubt concerning the inadequacy of the Government's tardy disclosures of its intent to call up to three sell-side security analysts. Nor is there any doubt that the Government was delinquent in offering a sufficient proffer to the Court as to the content of the proposed testimony and why (in the Government's view) the testimony is admissible. The Government was required to provide a witness list to the Defendants by November 21, 2011. (See Dkt. No. 52.) Despite having met with Sirini Pajjuri, William Harrison, and Allan Mishan, the three proposed securities analyst at issue,*fn2 by November 4, 2011, the Government did not notify the Defendants that these analysts may be called as witnesses until January 13, 2012.*fn3 Indeed, even on January 13, the Government only disclosed that it "may" call three sell-side analysts.

The Defendants', having already been precluded from calling expert witnesses, filed a timely motion in limine to exclude improper lay opinion testimony by the security analysts, raising serious concerns about the admissibility of such testimony under Rule 701. The Government submitted an opposition that was, at best, very abbreviated and certainly unhelpful. In light of an estimated five week trial, with numerous witnesses and hundreds of exhibits, the Government's attempts to belatedly add three more witnesses, without a clear indication as to their testimony, the Court granted the in limine motion.

The Court has now had the benefit of receiving the Government's subsequent (and sufficiently detailed) proffer, having heard the parties' opening statements, and in view of the testimony during the past five days of trial in which transcripts of Vitesse's earnings calls with analysts calls were received in evidence,*fn4 Vitesse's press releases were received in evidence,*fn5 and several witnesses have testified that Vitesse's Board members and/or executives discussed how analysts' expectations compared with Vitesse's guidance and actual performance.*fn6 Based on this information, the Court finds that the proffered security analyst testimony is admissible as either relevant fact testimony or lay witness opinion testimony that satisfies Fed.R.Evid. 701.*fn7

Much of the proposed testimony is fact testimony by a percipient witness that is relevant to the jury's determination of materiality and intent.*fn8 Specifically, the Governments seeks to introduce testimony regarding:

 What research analysts do, and how they serve their clients, the investors, with research reports making investment recommendations on companies within a particular sector of the economy;

 The kinds of clients the analysts had during the relevant period;  The analysts focus on the semi-conductor industry and the specific companies within the industry that they covered;  The time period in which the analysts covered Vitesse;  The sources of information the analysts used to analyze Vitesse's financial condition between 2001-2006, including the company's filings with the SEC, such as the 10-Ks and 10-Qs; the company's press releases and earnings calls; industry conferences; quarterly guidance; and informal conversations with management, among others;  What specific information from the above list that the analysts read, heard, asked about, or learned about;  Whether the analysts looked for specific trends or growth;  How the analysts used the information listed above to write reports and make investment recommendations for their clients about whether to invest in Vitesse;  What the analysts wrote in some of their reports;*fn9

 Whether the analysts changed their ratings of Vitesse over time;

 Whether any of their clients invested in Vitesse, and what kind of clients they were. This is fact testimony, and relevant because the information the analysts learned and passed along to their clients will aid the jury in determining the materiality of the disclosures to a reasonable investor.*fn10 Courts have allowed comparable analyst testimony in securities fraud cases. (See e.g., Gov't Mar. 19, 2012 Ltr. Ex. C (transcript from United States v. Rigas, 02 Cr.1236 (LBS) at 3625, 3628)). The above fact testimony is thus admissible.

The Government also seeks to introduce opinion testimony. Rule 701 of the Federal Rules of Evidence provides that lay witness opinion testimony must be "(a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical or other specialized knowledge within the scope of Rule 702." Testimony that "undertakes to tell the jury what results to reach . . . does not aid the jury in making a decision, but rather attempts to substitutes the [witness's] judgment for the jury's." United States v. Duncan, 42 F.3d 97, 101 (2d Cir. 1994). Testimony regarding the disclosures that an analyst was interested in and why, however, is helpful to the jury and has been admitted in securities fraud trials. See Rigas, 02 Cr.1236 (LBS), ...

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