2.Expert Exhibit Admissibility Hearing
71 linesMR. COHEN: Your Honor, this might be a good time to take our lunch break.
JUDGE KAPLAN: Give me an idea of how much more you have.
MR. COHEN: I will certainly finish today, and probably about an hour, hour and a half.
JUDGE KAPLAN: We will take the lunch break, members of the jury. The lawyers and I have a little business to do, so we will make it a little longer today. I'll see you back at let's say five to 2.
(Jury not present)
JUDGE KAPLAN: Mr. Roos, what's on your mind?
MR. ROOS: Thank you, your Honor. If it's OK, I'll approach and give you a binder that has the witness materials for tomorrow.
JUDGE KAPLAN: Thank you.
MR. ROOS: Your Honor, I have just handed up to you the government exhibits that we intend to use tomorrow with Professor Peter Easton, who is the government's expert witness relating to accounting and financial calculations and tracing. We conferred with defense, and they helpfully identified their areas of objections so we could work this out before we are in front of the jury. I will just go sort of in order of the issues as I understand them.
JUDGE KAPLAN: We will try.
MR. ROOS: The first issue, as I understand it, is that one of the exhibits, which compares the balance of customer funds on the FTX database to the balance of funds within FTX's wallets, hot wallets we have heard about in the case, it compares those two lines and it's Government Exhibit 1051, if your Honor wants to take a look.
As I understand the objection, your Honor, it's a Rule 16 objection, which is that, in the defense view, it's outside the scope of the --
JUDGE KAPLAN: I'm sorry. Back up.
It's a Rule 16 objection, and then I lost you because you looked down.
MR. ROOS: My apologies.
It's a Rule 16 objection, as I understand it, to the timing of the disclosure relating to the opinion that's reflected in the exhibit.
JUDGE KAPLAN: What's the objection, Mr. Cohen?
MR. LISNER: Your Honor, I'll address on behalf of the defense, David Lisner.
This graph purports to show it's not just assets, crypto assets, between what's shown in the site and what's shown in wallets.
Professor Easton's expert disclosure, as far as I could tell, and me and Mr. Roos have not yet had a chance to compare language, but I don't see any place where an opinion about the balance of crypto assets between wallets and the database is reflected in his disclosure, and he is not offered as a crypto expert. As I understand, tallying up the amount of crypto assets in a wallet is not necessarily as simple as a bank account.
For that reason, we think this is outside of the disclosure.
JUDGE KAPLAN: I thought it was about timing.
MR. LISNER: That's the words Mr. Roos used.
The words I would have used is, Professor Easton's Rule 16 disclosure does not provide an opinion or describe an opinion regarding the balance of crypto assets. The closest I could find is opinion 9, which describes Alameda's balances, but this exhibit expressly excludes Alameda's balances and that's in a footnote.
JUDGE KAPLAN: It would have been helpful if somebody had told me that we were going to discuss this, because I have not looked at that Rule 16 disclosure in at least two months. I have no idea what it says today.
MR. LISNER: Apologies, your Honor. We received this and all other exhibits and backup for Professor Easton Saturday night at 11 p.m. This is the quickest we are able to address this.
MR. ROOS: Just to be clear on that, we produced the initial draft of this slide, and I think this is the answer to the disclosure question, we produced it on September 8, when we produced our exhibits.
And the question under Rule 16(g), in analyzing whether or not there is an appropriate disclosure, is whether or not there is a prejudice to the defense.
I would direct your Honor to two cases as you are considering this issue. The first is the Second Circuit's decision in Tin Yat Chin. I have a copy. I don't have a copy for everyone, but I can hand up my copy to the Court. I will give the cite. It's 476 F.3d 144. There the circuit, Judge Rakoff writing for the circuit, considered whether the government's disclosure of an expert, not just a slide, but an expert, one day before his testimony was unduly late and prejudicial, and the Court concluded that the district court's decision to give an extra day, so a one-day continuance, was sufficient. Here they have had this exhibit for about six weeks now, so that's more than enough time to prepare. There is no evidence of prejudice.
The second case I would point to is a district court decision by Judge Caproni. The case is Rosario. It has a Westlaw cite of 2014 WL 6076364. There she held that the production of the slides in that case for the witness provided sufficient disclosure to meet Rule 16's requirements.
JUDGE KAPLAN: Is there an opinion he is going to give about this?
MR. ROOS: His opinion is going to be that the amount in FTX's cryptocurrency wallets, there was a difference between what was in there and what was reflected in FTX's database for customer deposits, so the black line meaning this is what the database said they had in customer deposits. What FTX was actually keeping in cryptocurrency balances was considerably smaller.
JUDGE KAPLAN: Mr. Lisner, where is the prejudice to the defense?
MR. LISNER: The prejudice is, your Honor, while we may have had a version of this slide, it's based on tens of thousands, maybe hundreds of thousands of database entries that we received Saturday night. But, more importantly --
JUDGE KAPLAN: Did they or did they not produce this to you on or about September 8?
MR. LISNER: I don't currently have a recollection of this particular slide. We may have, but we did not receive the data.
May I add one other point, your Honor?
JUDGE KAPLAN: I'm sorry. I don't understand the distinction you're drawing.
JUDGE KAPLAN: Please hand it up.
I am asking Mr. Lisner what the distinction is between the graph and the data.
MR. LISNER: The distinction, your Honor, is that the graph is driven by an enormous amount of numbers, and we just received the numbers the other day. So what this graph was based on we didn't previously have.
The other point I would add, and I'll rest after this, your Honor, is I believe from Mr. Roos jumping to case law about late disclosure, I take that as an admission that it was not fairly captured by Professor Easton's expert disclosure.
JUDGE KAPLAN: You will take it as an admission, and I will think about it.
MR. LISNER: Understood.
JUDGE KAPLAN: This graph, Mr. Roos, that you handed me, which is marked Government Exhibit 1051, does not actually look to me like the one in the book.
MR. ROOS: The difference, your Honor, is the temporal period. If your Honor sees the black-and-white version I printed out for you, which is draft, it goes back to 2019, the ultimate exhibit is just 2021, 2022, so it sort of elongates it, but it's otherwise the same analysis.
JUDGE KAPLAN: Same data?
JUDGE KAPLAN: For the overlap period.
JUDGE KAPLAN: I will consider that.
Next issue.
MR. ROOS: The second issue, as I understand it, is that the defense is objecting to admitting certain of the government's exhibits, a majority of them, I think. No objection to using them as demonstratives.
I'll tell you that the government's plan is that there are exhibits in the binder before your Honor that are the results of the financial analysis. They come in two forms: Balance data over time, either bank accounts or data from the FTX transaction database, and the other form of analysis is financial tracing, so money flowing through accounts.
Those exhibits the government is offering into evidence, and they are all within the 1000 series. The government also intends to use certain demonstratives, such as, you know, a portion of a document to ask the witness whether or not he has analyzed the source of the funds for the investment that is reflected on the document, and for those we are not proposing to offer those demonstratives, which are in the 3000 series, into evidence.
I think the dispute, just to narrow it for the Court, is whether or not the 1000 series exhibits can be offered into evidence, and the government's view, informed, I think, again by the case law, is that both under the rules relating to experts, so a 703 chart, and the rules relating to summary charts, under 1006, that these are admissible into evidence.
JUDGE KAPLAN: Thank you.
Mr. Lisner, first of all, is it correct that we don't have an issue about the 3000 series?
MR. LISNER: No. We do have one issue. I think we have two categories of issues. I can describe them for you.
JUDGE KAPLAN: Yes.
MR. LISNER: In the 3000 series these are slides that, as Mr. Roos pointed out, the government intends to use as demonstratives. We have no problem with that, but a number of them include call-outs or pictures of documents not in evidence. If the government purports to publish excerpts of documents not in evidence, that's our concern.
For a lot of the documents I think we could work something out with the government, and I'm happy to speak with Mr. Roos over the lunch break, but the principle is, they shouldn't be allowed to publish documents not in evidence under the guise of demonstrative.
JUDGE KAPLAN: The expert is entitled, if memory serves, under Rule 703, to explain the basis for his opinions, and the opinion need not be based entirely on material in evidence, as long as the non-evidentiary material is evidence of a sort that experts in the field rely upon.
Now, obviously, there is a potential there at an extreme for abuse, and I appreciate that, but I'm not understanding why I should assume, as a categorical matter, that anything that's non-evidentiary that the expert refers to in justifying the opinion shouldn't be placed in front of the jury.
MR. LISNER: I think in 703, for material that is inadmissible for which the expert relies, there is a balancing test of whether it's sufficiently probative, which we take your point. It could be published, but not all of these documents appear to be relevant to the analysis. There are news articles which are hearsay.
And, again, I'm happy to speak with Mr. Roos over the break --
JUDGE KAPLAN: They are not hearsay to the extent that they are offered to illustrate the basis for the expert's opinion, but I certainly welcome your working on this further with Mr. Roos, because the problem I'm having with your argument about the 3000 series right now is that you are taking the categorical position, implicitly anyway, that anything that's not evidentiary that's called out in one of these demonstratives is inherently, simply by virtue of being non-evidentiary, unduly prejudicial and so forth, and that's not the way that analysis works.
MR. LISNER: I understand, your Honor. I take the point. Why don't we work out what we can and maybe whatever is left, an appropriate limiting instruction perhaps.
JUDGE KAPLAN: That's fine.
MR. ROOS: For what it's worth, I think besides the news articles, we intend to offer the exhibits that are cited in there, which may just sort of moot the issue.
JUDGE KAPLAN: Don't eat up my lunch with that. You eat up your lunches.
What about the 1000 series, Mr. Lisner?
MR. LISNER: The 1000 series is for only part of them. We are fine with admitting them as summary Exhibits 1000 up through 1017. But from 1017 to 1050, these are a series of, I guess I'll call them flow charts that purport to show or describe the flow of funds became bank accounts for certain transactions. For example, 1039 is the one I happen to have open in my book. This appears to be expert conclusion and not a 1006 summary or include expert conclusions and not be based solely on the underlying bank records, and I think maybe with more foundation we can get there.
The issue that we see is, Professor Easton is, according to his Rule 16 disclosure, is going to tell us everything was commingled between bank accounts, customer funds and FTX Alameda funds. And then these slides purport to separate it out, which funds are which. I don't know how Professor Easton continued to do that, but it sounds like an accounting conclusion and not a fair 1006 summary.
JUDGE KAPLAN: You invited my attention to 1039. You start off at the left side of the flow chart with $11 million in customer funds from customer bank accounts, and the only other inflow reflected is a $200,000 inflow over a couple-day period both going into North Dimension.
I can understand conceptually what you are talking about, but if 99 percent of it is from one source and 1 percent of it from the other, what difference does it make? It's immaterial. Isn't it?
MR. LISNER: It may be, but sitting here, I don't know that. So that's why I have to --
JUDGE KAPLAN: All you have to do is ask yourself what 200,000, as a percentage of 11.2 million, is, and then you know the answer.
MR. LISNER: That may be true, but the backup data for this, again, is a spreadsheet that drives this. We received it in 3500 material. And that spreadsheet says, in the absence of time stamps and similar sized inflows, we performed a conservative LIFO analysis. It sounds like there was an analysis applied to the numbers to get to this chart, and that's what the issue is for us.
JUDGE KAPLAN: We all know what a LIFO analysis is, don't we. So does the witness. Last in, first out.
MR. LISNER: Yes, your Honor.
JUDGE KAPLAN: Standard accounting, right?
MR. LISNER: Yes.
Professor Easton is being offered as an accounting expert.
JUDGE KAPLAN: Does that take care of that group?
MR. LISNER: That's everything on that group. That's all of our objections.
JUDGE KAPLAN: We did make some progress here. I hope you can get to the goal line in time for your dessert.
See you later.
(Luncheon recess)
AFTERNOON SESSION 2:00 p.m.
JUDGE KAPLAN: Let's get the witness and the jury.
(Jury present)
JUDGE KAPLAN: The record will reflect that the jurors and the defendant all are present, as they have been throughout.
I hope everybody had a pleasant lunch break.
The witness is still under oath.
You may proceed, Mr. Cohen.
MR. COHEN: Thank you, your Honor.
BY MR. COHEN: