Judge Woods Admits Complex Expert Testimony in Trader’s Fraud Case, Denies All Daubert Motions

The government alleges that Leech engaged in a fraudulent “cherry-picking” scheme from January 2021 through October 2023, executing trades and then allocating well-performing positions to favored accounts while dumping underperforming trades into disfavored portfolios.

Woods rejected the defense’s argument that the government’s experts improperly opined on Leech’s state of mind under Federal Rule of Evidence 704(b). The court found that testimony describing statistical patterns as “consistent with” Leech using first-day performance data to make allocation decisions does not expressly state the inference of criminal intent, leaving that conclusion for the jury.

“The words ‘using’ and ‘influenced’ appear in the experts’ disclosures to summarize testimony that proposes to opine on Mr. Leech’s conduct, not the mental state of the charged crime,” Woods wrote.

The judge also upheld the reliability of the government’s statistical methods, including the use of end-of-day prices and recorded allocation times as proxies for actual allocation decisions. Woods noted that challenges to the factual basis of these assumptions go to the weight of the evidence, not its admissibility.

On the defense side, Woods denied the government’s motion to exclude testimony from a “blind allocation exercise” designed by Charles River Associates. The exercise tasked a finance professor with allocating Leech’s trades based on portfolio duration and convexity targets, resulting in a 56.8% match rate with Leech’s actual allocations.

Woods ruled that the exercise was sufficiently reliable and relevant to test the government’s theory that first-day performance differences were not the result of random chance. He cautioned, however, that the defense should avoid framing the exercise as rebutting a “null hypothesis” of the government’s case, stating he expects to sustain any properly raised objection if the defense uses that framing.

The court ordered both sides to meet and confer to agree on mutually acceptable language for their experts to use at trial, aiming to minimize objections regarding the phrasing of testimony about Leech’s mental state and the description of the defense’s exercise.

Leech faces five counts, including investment adviser fraud, securities fraud, and making false statements to the SEC.