MANHATTAN (LN) — U.S. District Judge Gregory H. Woods denied cross-motions to exclude expert testimony on May 6 against S. Kenneth Leech, II, permitting both the government and the defense to present sophisticated analyses of Treasury futures trading data at trial.
Leech, the former Chief Investment Officer at Western Asset Management Company, faces 5 counts including investment adviser fraud, securities fraud, and providing false statements. The government alleges Leech executed trades, waited to see how they performed, and then allocated profitable trades to favored accounts while dumping underperforming ones into disfavored accounts.
The government’s experts, Harvard Business School Professor Lauren Cohen and New York University’s Professor Petter Kolm, propose to testify that statistical analyses show trades allocated to Leech’s “Macro Opps” strategy had an average first-day return of $0.24 million, while those allocated to “Core Strategies” averaged a loss of $0.31 million.
Defense experts, including Charles River Associates Vice President Aaron Dolgoff and NYU Professor Bruce Tuckman, conducted a blind allocation exercise. Dolgoff proposes to testify that Tuckman’s allocations matched Leech’s 56.8 percent of the time, suggesting the performance differential could result from legitimate portfolio management needs rather than fraud.
Woods ruled the testimony from all experts admissible under Federal Rule of Evidence 702, finding the methodologies sufficiently reliable. However, the judge issued specific warnings regarding the language experts may use on the stand.
The court cautioned that experts must avoid implying Leech’s mental state, a prohibition under Federal Rule of Evidence 704(b). Woods noted that while experts may testify that data is “consistent with” Leech using performance information to make allocation decisions, they cannot expressly state that Leech acted with intent to defraud.
The judge also warned the defense against characterizing the government’s case as relying on a “null hypothesis,” a statistical term Woods said could confuse jurors in a case already saturated with complex statistical evidence. The court noted that while the defense used the term in its briefing, it does not appear disclosures, but warned that eliciting such testimony at trial would likely be objected to.
To minimize trial disruptions, Woods ordered both sides to meet and confer to agree on mutually acceptable language for their experts. The parties must file a letter with the court detailing the status of those discussions within two weeks.
The defense also has two weeks to propose a limiting instruction regarding evidence from a “Post Period” after October 2023, when Leech no longer had discretion to allocate trades to the Core Strategies. The government argues this evidence is probative, while the defense contends it risks prejudicing the jury by implying Leech was restricted due to suspected wrongdoing.