Expert Article Library

Pump and Dump Fraud Scheme Expert

Case Name: United States v. Merriam, 68 Fed. Appx. 840 (unpublished)

Court: U.S. Court of Appeals for the 9th Circuit

Date: June 26, 2006

Expert: Fraud. Halley Milligan

Issues: Whether the district court erred by allowing a government expert witness to testify as to appellant’s state of mind in violation of Fed. R. Evid. 704(b). Appellant also claimed that the government's questions on cross-examination regarding the valuations of the portfolio companies were not probative of his character for truthfulness and thus, should have been excluded under Fed. R. Evid. 608(b).

Summary of case: Appellant was convicted in district court of conspiracy and wire fraud in violation of 18 U.S.C.S. §§ 371, 1343, and securities fraud in violation of 15 U.S.C.S. §§ 78j, 78f(f).

Role of the expert: Milligan testified about the likely role that the issuer of stock (appellant) in a “pump and dump” fraud scheme might play, given certain underlying facts.

Challenges to the Expert's testimony: Appellant argued that the opinion rendered by Milligan was improperly admitted because it was the "functional equivalent" of an opinion concerning his mental state, which was an element of the crime with which he was charged. The appellate court affirmed the conviction, holding that the expert's testimony did not compel the conclusion that appellant, as the issuer of stock, knew of the plan to promote the stock price and to sell off a large amount of stock once the price rose to a certain level. The appellate court noted that even if error had occurred the prejudicial effect of the evidence was not so great as to require a new trial.

Summary prepared by W. McLennan, Student, U.C. Hastings College of the Law