EXHIBIT 1 

Case: 1:02-cv-05893 Document #: 2142-1 Filed: 04/22/16 Page 1 of 15 PageID #:82564
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· · · · ·IN THE UNITED STATES DISTRICT COURT

· · · · FOR THE NORTHERN DISTRICT OF ILLINOIS

· · · · · · · · · No. 1:02-CV-05893

- - - - - - - - - - - - - - - - - - - - - -

LAWRENCE E. JAFFE PENSION PLAN, on behalf

of itself and all others similarly situated,

· · · · · · · · ·Plaintiffs,

·vs.

HOUSEHOLD INTERNATIONAL, INC., et al.,

· · · · · · · · · Defendants.

- - - - - - - - - - - - - - - - - - - - - -

· · · · · · · VIDEOTAPED DEPOSITION OF

· · · · · · · FRANK ALLEN FERRELL, III

· · · ·Saturday, February 27, 2016 9:02 a.m.

· · · · · · · · · Skadden Arps LLP

· · · ·500 Boylston Street, Boston, MA 02116

Reported by:

Janet Sambataro, RMR, CRR, CLR

Job No. 10022056

Page 2

· · · · · · · · · · February 27, 2016

· · · · · · · · · · 9:02 a.m.

· · ·Videotaped deposition of FRANK ALLEN

FERRELL, III, held at the offices of Skadden Arps

LLP, 500 Boylston Street, Boston, Massachusetts,

pursuant to Agreement before Janet Sambataro, a

Registered Merit Reporter, Certified Realtime

Reporter, Certified LiveNote Reporter, and a

Notary Public within and for the Commonwealth of

Massachusetts.

Page 3

APPEARANCES:

ROBBINS, GELLER, RUDMAN & DOWD LLP

(By Luke O. Brooks, Esquire)

Post Montgomery Center

One Montgomery Street

San Francisco, California 94104

415.288.4534

lukeb@rgrdlaw.com

Counsel for the Plaintiffs

- and -

ROBBINS, GELLER, RUDMAN & DOWD LLP

(By Michael J. Dowd, Esquire)

655 W. Broadway

San Diego, California 92101

619.231.1058

miked@rgrdlaw.com

Counsel for the Plaintiffs

- Continued -

Page 4

APPEARANCES:· (Continued)

SKADDEN ARPS SLATE MEAGHER & FLOM, LLP

(By Patrick Fitzgerald, Esquire, and

Andrew J. Fuchs, Esquire)

155 N. Wacker Drive

Chicago, Illinois 60606

312.407.0700

patrick.fitzgerald@skadden.com

andrew.fuchs@skadden.com

Counsel for the Defendant, Household

International, Inc.

- and -

WILLIAMS & CONNOLLY

(By Steven M. Farina, Esquire, and

Leslie Cooper Mahaffey, Esquire)

725 Twelfth Street, N.W.

Washington, D.C. 20005

202.434.5526

sfarina@wc.com

lmahaffey@wc.com

Counsel for the Defendant, Household International,

Inc.

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Page 5

APPEARANCES:· (Continued)

MCDERMOTT, WILL & EMERY LLP

(By David S. Rosenbloom, Esquire) (Via Telephone)

227 West Monroe Street

Chicago, Illinois 60606-5096

312.372.2000

drosenbloom@mwe.com

Counsel for the Defendant, Gary Gilmer

KATTEN MUCHIN ROSENMAN LLP

(By Dawn M. Canty, Esquire)· (Via Telephone)

525 West Monroe Street

Chicago, IL 60661-3693.

312.902.5200

dawn.canty@kattenlaw.com

Counsel for the Defendant, William F. Aldinger

ALSO PRESENT:

Mark LoSacco, HSBC (Via Videoconference)

Shawn Budd, Videographer

Page 6

· · · · · · · · · ·I N D E X

WITNESS· · · · · · · · · · · DIRECT· · · ·CROSS

FRANK ALLEN FERRELL, III

By Mr. Brooks· · · · · · · · · · 10

By Mr. Fitzgerald· · · · · · · · · · · · · 304

· · · · · · · · E X H I B I T S

Number· · · · · Description· · · · · · · · · Page

Exhibit 1· Expert Report of Professor

· · · · · ·Allen Ferrell· · · · · · · · · · · ·11

Exhibit 2· Expert Rebuttal Report of

· · · · · ·Professor Allen Ferrell

· · · · · ·with exhibits· · · · · · · · · · · ·11

Exhibit 3· United States Court of Appeals

· · · · · ·for the Seventh Circuit Opinion,

· · · · · ·No. 13-3532· · · · · · · · · · · · ·68

Exhibit 4· Cumulative Residual Price Change

· · · · · ·on Fraud Related Event Dates

· · · · · ·Identified in Company Investor

· · · · · ·Relations Reports· · · · · · · · · 155

Exhibit 5· Report of Daniel R. Fischel,

· · · · · ·dated August 15, 2007· · · · · · · 165

Exhibit 6· Exhibits to Professor Fischel's

· · · · · ·August 15, 2007 report· · · · · · ·173

· · · · · ·- Continued -

Page 7

· · · · · · · · E X H I B I T S

Number· · · · · Description· · · · · · · · · Page

Exhibit 7· Cornell and Morgan article in

· · · · · ·the "UCLA Law Review"

· · · · · ·June 1990· · · · · · · · · · · · · 208

Exhibit 8· Article entitled "The Loss

· · · · · ·Causation Requirement for

· · · · · ·Rule 10b-5 Causes of Action:

· · · · · ·The Implications of Dura

· · · · · ·Pharmaceuticals, Inc. v.

· · · · · ·Broudo"· · · · · · · · · · · · · · 215

Exhibit 9· Excerpt from Household

· · · · · ·International, Inc. Form 10-K

· · · · · ·for year ending

· · · · · ·December 31, 2001· · · · · · · · · 221

Exhibit 10 Sur-Rebuttal Report of

· · · · · ·Daniel R. Fischel· · · · · · · · · 232

Exhibit 11 CIBC World Markets Industry

· · · · · ·Update entitled "Specialty

· · · · · ·Finance - Third-Quarter 2002

· · · · · ·Preview"· · · · · · · · · · · · · ·240

Exhibit 12 A.G. Edwards report entitled

· · · · · ·"Specialty Finance Quarterly

· · · · · ·Fourth Quarter 2001"· · · · · · · ·249

· · · · · ·- Continued -

Page 8

· · · · · · · · E X H I B I T S

Number· · · · · Description· · · · · · · · · Page

Exhibit 13 Exhibit 2a, Exhibit 8a and 8B· · · 255

Exhibit 14 Second Rebuttal Report of

· · · · · ·Daniel R. Fischel· · · · · · · · · 260

· · · · · ·PREVIOUSLY MARKED EXHIBITS

Number· · · · · Description· · · · · · · · · Page

Exhibit 820· Document Bates-stamped

· · · · · · ·HHS 03237027 through -7042· · · ·251

Exhibit 198· Document Bates-stamped

· · · · · · ·HHS 02075630 through -5650· · · ·277

Exhibit 199· Document Bates-stamped

· · · · · · ·HHS 02075738 through -5763· · · ·281

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· · · · · · ·P R O C E E D I N G S

· · · · · THE VIDEOGRAPHER:· Okay.· We are on the

record.· This is the video operator speaking,

Shawn Budd with Aptus Court Reporting.

· · · · Today's date is February 27th, 2016, and

the time is 9:02 a.m.· We are here in Boston,

Massachusetts to take the video deposition of

Allen Ferrell in the matter of Lawrence E. Jaffe

Pension Plan versus Household International, Inc.

· · · · Would counsel please introduce

themselves.

· · · · · MR. BROOKS:· Luke Brooks from Robbins

Geller Rudman & Dowd for the plaintiffs.

· · · · · MR. DOWD:· Mike Dowd from Robbins

Geller.

· · · · · MR. FITZGERALD:· Pat Fitzgerald from

Skadden Arps for defendant, Household.

· · · · · MR. FUCHS:· Andrew Fuchs for Household.

· · · · · MR. FARINA:· Steve Farina, Williams &

Connolly, for Household.

· · · · · MS. MAHAFFEY:· Leslie Mahaffey from

Williams & Connolly, for Household.

· · · · · THE VIDEOGRAPHER:· Will the court

reporter please swear in the witness.

· · · · · MR. BROOKS:· We have people on the

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phone.

· · · · · MR. FITZGERALD:· Will people on the

phone take themselves off mute for a moment and

identify themselves, that would be great.

· · · · · MR. ROSENBLOOM:· David Rosenbloom,

McDermott Will & Emery.

· · · · · COURT REPORTER:· I can't hear.· David

Rosenbloom?

· · · · · MR. FITZGERALD:· Yes.

· · · · · MR. FUCHS:· Anyone else?

· · · · · MS. CANTY:· Dawn Canty.

· · · · · MR. FITZGERALD:· I think it's Dawn

Canty for defendant, Bill Aldinger.

· · · · · MR. ROSENBLOOM:· And David Rosenbloom

for defendant, Gary Gilmer.

· · · · · ·(Reporter clarification.)

· · · · · THE VIDEOGRAPHER:· And will the court

reporter please swear in the witness.

· · · · · ·FRANK ALLEN FERRELL, III,

having been duly sworn, after presenting

identification in the form of a driver's license,

deposes and says as follows:

· · · · · · · ·DIRECT EXAMINATION

BY MR. BROOKS:

· · ·Q.· ·Good morning.· Would you state your

Page 11

full name for the record, please.

· · ·A.· ·Frank Allen Ferrell, III.

· · ·Q.· ·And how would you like to be addressed

in this deposition?

· · ·A.· ·Professor Ferrell is fine.

· · ·Q.· ·What is your current business address?

· · ·A.· ·My home address is

41 Bloomfield Street, Lexington, MA 02421.· My

office is Harvard Law School, Griswold 303,

1525 Massachusetts Ave., Cambridge, MA 02138.

· · ·Q.· ·And we've introduced, off the record,

Exhibits 1 and 2.· Exhibit 1 is the Expert Report

of Professor Allen Ferrell and Exhibit 2 is the

Expert Rebuttal Report of Professor Allen Ferrell

with the exhibits.

· · ·Do you have those in front of you?· Correct?

· · · · · · ·(Expert Report of Professor

· ·Allen Ferrell marked Exhibit 1.)

· · · · · · ·(Expert Rebuttal Report of

· ·Professor Allen Ferrell with exhibits marked

· ·Exhibit 2.)

· · ·A.· ·Yes.

BY MR. BROOKS:

· · ·Q.· ·So according to Exhibit A of your

report, you've been deposed 15 times in the last

Page 12

four years.· Does that sound about right?

· · ·A.· ·Which -- which report are you referring

to?

· · ·Q.· ·The original report.

· · · · · MR. FITZGERALD:· While he's looking

through that, Mark LoSacco, L-O-S-A-C-C-O from

HSBC, may patch in at certain times, but I don't

know if he's on now.· But you asked for counsel.

But we should be aware of that.

· · ·A.· ·So there appears to be 17, but that

would include testimony at arbitration.

BY MR. BROOKS:

· · ·Q.· ·We can skip discussing how a deposition

works.· Is that fair to say?

· · ·A.· ·Sure.

· · ·Q.· ·Okay.· You understand you're under

oath.· Right?

· · ·A.· ·Yes.

· · ·Q.· ·Subject to the penalty of perjury?

· · ·A.· ·Yes.

· · ·Q.· ·And you're going to testify truthfully

today?

· · ·A.· ·Yes.

· · ·Q.· ·Have you ever been retained by

plaintiffs' counsel in a securities fraud class

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Correct?

· · ·A.· ·That's correct.· It also includes

production from Fischel.· But I don't remember

whether that production included -- I'm not

saying that production included transcripts.

But -- but, again, it's the same answer that I

gave earlier.

· · ·Q.· ·Do you know who Joe Vozar is?

· · ·A.· ·I don't have a specific recollection.

I do know that Professor Fischel cites to various

statements by Household officials at different

times.· So I did review that.· But I haven't

memorized the positions of everybody in

Household.

· · ·Q.· ·You didn't read the deposition or trial

testimony of plaintiff's expert, Harris Devor,

did you?

· · ·A.· ·I don't have a specific recollection of

that.

· · ·Q.· ·And you didn't read the trial testimony

or deposition testimony of plaintiff's expert

Catherine Ghiglieri?

· · ·A.· ·Again, I don't have a specific

recollection of that, but I would incorporate my

earlier answer in terms of the process by which I

Page 50

reviewed these types of materials.

· · ·Q.· ·If a person is not mentioned in

Fischel's reports, you didn't read their

testimony?

· · ·A.· ·Not quite what I said.· If it's not

relied upon or pointed to as a basis in

Professor Fischel's various reports, and it's not

otherwise listed on these two Appendix Bs, then I

believe it's accurate that I did not otherwise

review it.

· · ·Q.· ·Did anyone on your behalf speak to any

current or former Household employees about this

case?

· · · · · MR. FITZGERALD:· Object to form.

· · ·A.· ·Not that I --

· · · · · MR. FITZGERALD:· Go ahead.

· · · · · THE WITNESS:· Sorry.

· · ·A.· ·Not to my knowledge.

BY MR. BROOKS:

· · ·Q.· ·So other than the information that's

listed in Appendix B to both reports, you didn't

rely on information from current or former

Household employees to form your opinion.· Is

that fair to say?

· · ·A.· ·Yes.· It's fair to say -- just to be

Page 51

clear, it's fair to say that I'm not relying upon

conversations I had or conversations that

somebody on my behalf had with Household

officials.

· · ·Q.· ·In fact, you're not aware of any such

conversations?

· · ·A.· ·That's right.· Ergo, I would not be

relying on it.· Yes.

· · ·Q.· ·What did you do to learn about the

details of defendants' fraud, if anything?

· · ·A.· ·Well, I spent a significant amount of

time reading the -- I read the Corrected Amended

Consolidated Class Action Complaint for violation

of the federal securities law.· I read the jury

verdict form, where the jury specifically found

17 misrepresentations, also rejected a number of

other misrepresentations.· So my understanding is

that's the finding that has not been vacated, at

least -- I'm not providing legal opinion, but

that's my understanding.

· · ·And I did read some of the court orders to

get an understanding of the context.· And I did

review a number of materials from the initial

litigation, if I can call it that.

· · ·Q.· ·Did you read the District Court's most

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recent opinion denying defendants' motion to

exclude Professor Fischel?

· · ·A.· ·I did.

· · ·Q.· ·You didn't review plaintiff's trial

brief.· Is that correct?

· · ·A.· ·I don't believe so.

· · ·Q.· ·Did you review the opening statements

at the trial?

· · ·A.· ·I don't believe so.

· · ·Q.· ·What about the closing arguments?

· · ·A.· ·I don't believe so.

· · ·Q.· ·You didn't have all the trial exhibits,

did you?

· · ·A.· ·I did receive a lot of trial exhibits,

but I don't -- I'm not representing it was all

the trial exhibits.· And, again, I would

reiterate, I did review the jury verdict form

that represents the finding of the jury, as I

understand it.

· · ·Q.· ·So you understand that the jury found

defendants made material false and misleading

statements and omissions about three categories.

Right?

· · ·A.· ·Yes.

· · ·Q.· ·And what were those categories?

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statement.· Right?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·My memory -- you'll have to show me the

jury verdict form to refresh my recollection, but

my memory of the jury verdict form is they

identified the material misstatements and

omissions.

BY MR. BROOKS:

· · ·Q.· ·And you don't remember one way or

another whether they identified if material

misstatements or omissions dealt with predatory

lending, reaging, or the restatement?

· · ·A.· ·I do remember that.· So my memory, not

having the jury verdict form in front of me, is

that's consistent with my memory.

· · ·Q.· ·And what you're saying is other than

what's on the jury verdict form, you have no idea

what that predatory lending box means.· Correct?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·Again, I think you're asking me a legal

opinion.· My understanding of the jury verdict

form, but I'm not providing a legal opinion, is

that it was identifying the nature of the

material or what category the material

misrepresentation fell into, according to the

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jury.

BY MR. BROOKS:

· · ·Q.· ·You didn't look for details about the

fraud from any source, other than the jury

verdict form?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·I don't understand the question.· My

understanding, but I'm not giving a legal

opinion, is that the actionable -- not the

actionable -- the material misstatements and

omissions that forms the basis for liability in

this case are the material misstatements and

omissions as find -- found by the jury on the

jury verdict form.

· · ·My understanding, without giving a legal

opinion, is that there's not other fraud beyond

that that would form a basis for liability.

Without providing a legal opinion, I'm just

giving you my understanding of what constitutes

the fraud.

BY MR. BROOKS:

· · ·Q.· ·So can you tell me what reaging was?

· · · · · MR. FITZGERALD:· If we're going to move

to reaging, do you want to take a break?· We've

been going about an hour.

Page 59

· · · · · MR. BROOKS:· Let's just get through a

couple more questions.

· · · · · MR. FITZGERALD:· Okay.

BY MR. BROOKS:

· · ·Q.· ·Can you tell me what reaging was?

· · ·A.· ·So, again, the complaint and

Professor Fischel discusses this, so my memory of

their discussion, the complaint, and the -- and

Professor Fischel's discussion of reaging

involved whether a certain -- how certain

accounts were treated in terms of delinquencies

and the timing thereof.· So at a very general

level.

· · ·But, again, the specific answer would be the

reaging fraud or the fraud relating to reaging as

found by the jury.· So the specific material

misrepresentations and omissions relating to

reaging, as found by the jury.

· · ·Q.· ·So reaging was a practice that

Household engaged in.· Do you understand that?

· · ·A.· ·That's my --

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·That's my general understanding.

BY MR. BROOKS:

· · ·Q.· ·And how did it work?

Page 60

· · ·A.· ·Well, again, my understanding is that

the jury found certain statements concerning

reaging constituted fraud.· And --

· · ·Q.· ·I'm asking --

· · ·A.· ·-- so that's what -- that's what I'm

focused on in terms of thinking about damages and

loss causation.

· · ·Q.· ·Do you understand how reaging worked?

Yes or no?

· · ·A.· ·I --

· · · · · MR. FITZGERALD:· Just objection to

scope.· He's being offered on a damages case, and

objection, asked and answered.

· · ·A.· ·I did review the complaint and

Professor Fischel's description of that. I

reviewed Household's 10-Ks and 10-Qs, where they

talk about treatment of certain accounts and how

those are going to be reported.· But again, for

purposes of my analysis, I was focused on the

fraud and how to properly and scientifically

think about damages and loss causation in that

context.

BY MR. BROOKS:

· · ·Q.· ·What financial metrics did reaging

impact at Household?

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· · · · · MR. FITZGERALD:· Same objection.

· · ·A.· ·So, again, my understanding is the

jury -- you know, if you want to put the jury

verdict form in front of me to remind me of the

specific material misrepresentations about

reaging, that would be helpful.· But my memory

from the complaint and Professor Fischel is that

it involved whether an account was delinquent or

not or whether it was going to be caught up in

some sense.· But that's a very general

understanding.· Again, what's important for me

and my scope is what constitutes the fraud.

BY MR. BROOKS:

· · ·Q.· ·You understand that reaging impacted

Household's two plus delinquency statistics.

Right?

· · · · · MR. FITZGERALD:· Objection to scope.

If you're going to ask him about the findings and

the fraud, we should probably put the exhibit in

front of him.

· · · · · MR. BROOKS:· I'm just asking about

reaging.

BY MR. BROOKS:

· · ·Q.· ·You understand that reaging impacted

Household's two plus delinquency statistics.

Page 62

Right?

· · · · · MR. FITZGERALD:· Same objection to

scope.

· · ·A.· ·You know, my -- that's consistent with

my general memory, but I would want to -- you

know, I would need to confirm that.· So -- but

that's generally consistent with my memory.· But,

again, what's relevant for my purposes is what

actually constitutes the fraud.

· · · · · MR. BROOKS:· Okay.· We can take a

break.

· · · · · MR. FITZGERALD:· Great.

· · · · · THE VIDEOGRAPHER:· The time is two

minutes after 10:00.· We're off the record.

· · · · · · ·(A recess was taken.)

· · · · · THE VIDEOGRAPHER:· We are back on the

record.· The time is 10:18.

· · · · · THE WITNESS:· Can I make a clarify --

there's something I remembered in response to an

earlier question, if I could, which you had asked

me if there was other people at the meeting when

I met with counsel, and I should have added, I

just remembered, is that personnel from

Cornerstone were at those meetings, as well.· So

I wanted to add that to my earlier answer.

Page 63

BY MR. BROOKS:

· · ·Q.· ·Who from Cornerstone was at the meeting

or meetings?

· · ·A.· ·So Kristin Feitzinger was there. I

mangled that.· Also present was Nick Yavorsky,

Yavorsky.· I'm just trying to remember if there's

anybody else.· Those are the two -- those are the

two names that come to mind.

· · ·Q.· ·Are they senior people from

Cornerstone?

· · ·A.· ·Yes.· I believe so.· I would say

Kristin Feitzinger, Feitzinger is certainly a

senior person.· As I understand it, she's a

principal at Cornerstone.

· · ·Q.· ·You divided them between senior and

junior --

· · ·A.· ·Yes.

· · ·Q.· ·-- people for compensation, so that's

why I asked it that way.

· · ·A.· ·Sure.

· · ·Q.· ·Who else from Cornerstone?

· · ·A.· ·Well, just to be clear, I don't -- I

know that my understanding is that Kristin is --

is senior, is my understanding.

· · ·Q.· ·And what are her credentials?

Page 64

· · ·A.· ·She went to Stanford.· She has a

master's from Stanford.· I believe she also has

an MBA from Stanford.

· · ·Q.· ·What's her master's in?

· · ·A.· ·I don't know.· You asked about her

credentials.· I also know that she's been

working -- has done work for the last 20 some

years in the -- in the area of damages and event

studies and that general area.

· · ·Q.· ·Sorry.· What about Nick Yavorsky?· What

are his credentials?

· · ·A.· ·So, again, my understanding is for the

last seven, eight years, he's been working in

this area.· This area being damages, event study,

loss causation, economics, in that.· And I

believe he has an MBA.· I'm blanking on the name

of the school now.

· · ·Q.· ·Where are they based?

· · ·A.· ·Los Angeles.

· · ·Q.· ·Who else from Cornerstone has worked on

this engagement with you?

· · ·A.· ·So to my knowledge, in terms of people

that I've interacted with, in addition to those

two people, I would add Jamie Lee and Katie

Galli.

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Page 97

know -- and so one would have to deal with the

confounding information.· So all I'm saying is

Professor Fischel hasn't done it.· And to

ascertain damages, one would have to make an

assumption or articulate an approach to do the

disentanglement.

BY MR. BROOKS:

· · ·Q.· ·You haven't done it for those days that

you claim are confounded, but use in your $4.19

calculation.· Correct?

· · ·A.· ·I have not --

· · · · · MR. FITZGERALD:· Object to the form.

· · ·A.· ·I have not done it.· My job was to

assess Professor Fischel.· Professor Fischel says

he's reliably estimated damages.· And this is one

way in which he hasn't done so.

BY MR. BROOKS:

· · ·Q.· ·And one of the suggestions in your

academic writing for dealing with confounded

information is to remove the dates from the

analysis.· Right?

· · ·A.· ·So I want to be very careful here.· My

article is very clear on this.· I say, as a

general matter -- you know, I'm not talking about

a particular case, as a general matter, one

Page 98

potential tool, depending on the facts and

circumstances of the case, is to remove the date.

So, for example, if you have seven corrective

disclosures in a hypothetical case, there's five

with statistically significant declines and

they're not confounded.· The other two are.· One

approach, depending on the facts and

circumstances, would be to drop those dates.

· · ·I'm not saying, and I'm not saying in this

case, that the automatic or the appropriate

approach is to necessarily or unthinkingly drop

the dates.

· · ·Q.· ·Dropping the dates that you claim are

confounded from your model would result in

negative inflation from the fraud.· Correct?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·No.· I would not call that inflation.

Because I'm not opining that on those four

dates -- I'm not -- I'm not -- not offering the

opinion that on those four dates there isn't

corrective information.· I'm not opining on that

issue.· So I would not draw the conclusion that

there's negative inflation.· I don't say that and

I don't believe it.· And it's simply not the

case.

Page 99

BY MR. BROOKS:

· · ·Q.· ·Well, if you remove those four dates

from your model, the calculation would be that

the inflation was negative.· Right?

· · · · · MR. FITZGERALD:· Objection.· Only to

form.

· · ·A.· ·No.· Because you are -- you know, I'm

not -- first of all, I don't agree with

automatically dropping dates.· I don't say that

in my article.· And I agree that a negative

inflation number throughout the class period

doesn't make sense and I don't say that.· And I'm

not saying that.· And the suggestion otherwise is

false.

BY MR. BROOKS:

· · ·Q.· ·But if you remove the residual declines

on those four days from your model, the model

would spit out a negative inflation number,

wouldn't it?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·Well --

BY MR. BROOKS:

· · ·Q.· ·It's mathematics.· Right?

· · · · · MR. FITZGERALD:· Let him answer the

question.· Objection to form.

Page 100

· · ·A.· ·Well, you have to understand what --

you know, in order to make an inference from

what -- in order to make an inference about

inflation, you have to understand what you're

doing.· So if you're dropping -- so I say -- let

me back up.

· · ·In my article cited by the Seventh Circuit,

I say that if you drop confounding days, you are

losing something valuable, which is potentially

corrective information that has an impact.· So if

you were to drop confounding information --

confounding days, you're losing something,

potentially.· And so I would not draw the

inference that a negative number means negative

inflation.· That's a non sequitur.

BY MR. BROOKS:

· · ·Q.· ·The model is designed to estimate

inflation in the stock, correct?

· · ·A.· ·The -- well, the purpose of my model is

to assess Professor Fischel.· And it's presented

in that light, in light of what does a properly

specified model generate.· And on the confounding

issue, I'm merely pointing out that

Professor Fischel has not done the job of a

damages experts, which is to reliably estimate

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Page 101

damages.· It's not my job to do that.· My job was

to assess whether Professor Fischel has done so.

· · ·Q.· ·So if you turn to Exhibit 8 to your

rebuttal report.

· · ·A.· ·Yes.

· · ·Q.· ·This is maximum alleged inflation using

a specific disclosure model.· Right?

· · ·A.· ·Correct.

· · ·Q.· ·And why is this presented as a maximum?

· · ·A.· ·So this is using -- I just want to

double-check this.· So if you go to Page 1 of

Exhibit 8, you'll see on November 14th, 2001,

four dollars and 19 dollars -- sorry, $4.19 of

inflation as of that date.· So this is utilizing

the full residual price declines associated with

the six days.· So in that sense, it's the

maximum, because it's including the entire

residual on the four confounding days and

treating it as solely a price reaction to

corrective information.

· · ·Q.· ·Now, I noticed on this chart that it

doesn't go back to the beginning of the class

period that the jury found.

· · ·A.· ·Correct.

· · ·Q.· ·Why is that?

Page 102

· · ·A.· ·Well, so this is the disclosure period.

So the first disclosure is November 15th, and so

I'm analyzing the disclosure period here. I

point out in my report, and I'll just go to the

language in the report, that to go back, one

would need to allocate that inflation, the $4.19,

to the various material misrepresentations and

omissions, accepting the jury verdict as

reflective of the jury verdict form.

· · ·Q.· ·And you haven't attempted to do that.

Correct.

· · ·A.· ·I want to get the exact language in my

report.· I believe it's towards the end.· So give

me one second.

· · ·Okay.· So that -- I'm referring to

Paragraph 100.· I'll tell you what Paragraph 100

says.· It's on Page 46.· My understanding is that

one would need to allocate the inflation, in my

Exhibit -- Exhibit A would be $4.19 to the

different alleged misrepresentations or,

accepting the jury verdict, the 17 misstatements

that the jury found.

· · ·Q.· ·Why is it your understanding that one

would need to allocate?

· · · · · MR. FITZGERALD:· Objection.· You can

Page 103

answer.

· · ·A.· ·So my understanding of the damages and

inflation exercise is that there's different

misstatements occurring at different points in

time.· So the 17 are spaced over time, and there

could be different inflation for different

misrepresentations because they're occurring at

different points.· So the level of inflation

could potentially be different as of the first

misrepresentation relative to the last

misrepresentation, because -- you know, because

there's 17 by that point versus one.· And the

nature of the misrepresentation varies.

BY MR. BROOKS:

· · ·Q.· ·And you haven't looked at the nature of

the misrepresentation to determine what's

appropriate.· Is that right?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·That's correct.· But I want to read the

exact -- correct, with this understanding, which

is it's an exercise, it's an allocation exercise,

my understanding it is the plaintiff's burden to

perform.· So, again, my role was to assess Dr. --

Professor Fischel's analysis, and this is another

way in which he's failed to do his job.· It's not

Page 104

my job.

BY MR. BROOKS:

· · ·Q.· ·Well, Professor Fischel has taken his

inflation estimation back to March 23, the first

day of the -- the first false statement in the

case.· You understand that.· Right?

· · ·A.· ·Correct.

· · ·Q.· ·And you had that information.· Right?

· · ·A.· ·Correct.

· · ·Q.· ·And you're not saying, one way or

another, whether he was incorrect in assigning

the full amount of inflation, starting March 28,

2001.· Is that correct?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·I wouldn't -- no, it's not correct.

What I'm saying in Paragraph 100 is he hasn't

done any analysis to support that allocation, the

allocation being that each misrepresentation date

is associated with the same quantum of inflation.

BY MR. BROOKS:

· · ·Q.· ·Do you agree that plaintiffs proved at

the first trial that Household's share price

declined after the truth about defendants' fraud

came out?

· · · · · MR. FITZGERALD:· Objection to scope of

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Page 105

what he's testifying to.

· · ·A.· ·It's outside my scope.· I haven't

analyzed that.· What I do know, without -- I was

not asked to opine on whether there was fraud or

not.· I do know that there's a jury verdict that

reflects 17 misstatements, as identified by the

jury.· And also I would add, a number of

misrepresentation dates that were rejected by the

jury.

BY MR. BROOKS:

· · ·Q.· ·So you don't dispute that plaintiffs

proved at the first trial that Household's share

price declined after the truth about defendants'

fraud came out, do you?

· · · · · MR. FITZGERALD:· Same objection.

· · ·A.· ·That's outside my scope.

BY MR. BROOKS:

· · ·Q.· ·You don't dispute it?

· · ·A.· ·My -- well, my --

· · ·Q.· ·It's outside your scope, so you don't

dispute it.· Right?

· · · · · MR. FITZGERALD:· Objection.

· · ·A.· ·I don't have an opinion on that,

because it's outside my scope.· My scope was to

provide my own independent opinion using standard

Page 106

rigorous methodology to assess what

Professor Fischel is offering in his report,

second supplemental rebuttal and surreply.

BY MR. BROOKS:

· · ·Q.· ·You can't dispute it if you don't have

an opinion about it.· Right, sir?

· · · · · MR. FITZGERALD:· Objection.

· · ·A.· ·I have opinions about what

Professor Fischel is doing.

BY MR. BROOKS:

· · ·Q.· ·Do you have an opinion as to whether

defendants' materially false and misleading

statements and omissions found by the jury were a

substantial factor in causing investors who

purchased Household's stock between March 23rd

2001 and October 11th, 2002 losses?

· · ·A.· ·You know, that's a very imprecise

question.· I quantify inflation under -- in my

specific disclosure model.· And I'll just refer

back to that.· So if you ignore the confounding

information, it's $4.19 and that would be the

maximum inflation under that assumption as

reflected in my Exhibit 8.

· · ·Q.· ·So you don't dispute that defendants'

materially false and misleading statements and

Page 107

omissions, as found by the jury, were a

substantial factor in causing investors who

purchased Household's stock between March 23rd,

2001 and October 11th, 2002 losses.· Correct?

· · · · · MR. FITZGERALD:· Object to the form.

· · ·A.· ·I don't know what you mean by

"substantial factor."· I quantify the inflation

using the specific disclosure model.· And that's

my opinion.

BY MR. BROOKS:

· · ·Q.· ·And that's the quantification reflected

in Exhibit 3a.· Correct?

· · ·A.· ·Well, it's reflected in my report.

· · ·Q.· ·Sorry.· Exhibit A?

· · ·A.· ·Exhibit A.· But also -- I mean, I have

other analyses in my report.· $4.19 is the

maximum, ignoring confounding information, using

a standard, appropriate methodology with a

well-specified model.

· · ·Q.· ·Do you have an opinion as to whether

there was loss causation in this case?

· · ·A.· ·Well, Professor Fischel -- I'm just

opining on what Professor Fischel has done.· Has

Professor Fischel established loss causation with

respect to the inflation that he finds?· And the

Page 108

answer to that is no.

· · ·Q.· ·You haven't developed an opinion as to

loss causation as to any other inflation.· Is

that your testimony?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·My testimony is I was asked to assess

Professor Fischel's analysis.· And in the course

of that, I do provide a specific disclosure model

that is appropriate and scientifically rigorous.

BY MR. BROOKS:

· · ·Q.· ·And in assessing whether

Professor Fischel established loss causation with

respect to the inflation that he finds, what

definition of loss causation did you use?

· · ·A.· ·So Professor Fischel opines that -- I'm

going to forget the exact figures, 23, $24 is

caused by what he calls leakage.· And, therefore,

according to him, it constitutes recoverable

damages, damages for which, according to him,

there's loss causation.· And I have any number of

reasons for why that opinion is wrong and

fundamentally wrong.

· · ·Q.· ·So my question was:· In assessing

whether Professor Fischel established loss

causation with respect to the inflation that he

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date that's not confounded with the caveat that

there's a November 9th disclosure.

BY MR. BROOKS:

· · ·Q.· ·If it was not fraud-related, it would

not be a specific disclosure date.· Right?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·So I'm assuming in the report that this

is corrective information, but -- but -- let me

put it this way:· In my report, this is not a

confounded day.· The issue that I raise with this

date is the November 9th.· And there's nothing

else I have to say about November 9th --

November 15th.

BY MR. BROOKS:

· · ·Q.· ·Why are you so reluctant to say whether

this is fraud-related information or not?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·Because I wasn't asked to opine on what

the fraud was.· I was -- I'm assuming the -- the

misrepresentations in the jury verdict, without

opining on it.· So that was my hesitation, is not

to be viewed as providing an opinion on what --

on what the fraud actually is, if there is any,

rather than just noting -- merely noting what's

on the jury verdict, without providing an opinion

Page 162

on that.

BY MR. BROOKS:

· · ·Q.· ·Do you agree that in order to determine

whether something is fraud-related or not, one

has to understand the fraud?

· · ·A.· ·I agree with that.

· · ·Q.· ·Skipping down to December 3rd, 2001,

this is an entry discussing "articles published

by "Barron's" and "Business Week" that alleged

Household's strong results were in part driven by

aggressive chargeoff policies."· Do you agree

that this is a fraud-related disclosure?

· · · · · MR. FITZGERALD:· What day are we on?

12/3/01?

· · · · · MR. BROOKS:· Yeah.

· · ·A.· ·You know --

· · · · · MR. FITZGERALD:· Thank you.

· · ·A.· ·-- I don't have the investor relations

report.· You know, I -- I feel uncomfortable

commenting on a sentence that's been cut and

pasted from a larger report without knowing the

context.· So I'm just not going to provide an

opinion on the investor relation report without

being given an opportunity to read the whole

thing, what the basis is for this in the report.

Page 163

· · ·I do talk about December 3rd in my report,

and I'll be happy to talk about what I do say

about December 3rd.

BY MR. BROOKS:

· · ·Q.· ·Well, yeah.· I mean, I'm asking you

about the disclosures, as summarized here.

Right?· So you understand that there were

disclosures on December 3rd, 2001, don't you?

· · ·A.· ·I have in my report a discussion of

December 3rd.· That's correct.

· · ·Q.· ·And a discussion of disclosures on

December 3rd?

· · ·A.· ·I believe so.

· · ·Q.· ·And were those --

· · ·A.· ·You know, hold on a second.· So there's

a lot of dates here.· I mean, I do have in my

Exhibit 3a, December 3rd.· So let me -- let me

restate my answer.

· · ·So I do have December 3rd in my Exhibit 3a.

And I just don't remember if I have a specific

discussion of that.· I have to -- let me flip

through my report.

· · ·I certainly reviewed Professor Fischel's

claimed disclosures on that date.· But I'm

flipping through my report to see, beyond my

Page 164

Exhibit 3a, if I have a discussion of that.· So

I'm looking at my initial report.

· · ·It looks like my first specific disclosure

date is December 12th.· And I'm looking at my

rebuttal.· And I'm looking at Page 32 of my

rebuttal.· Oh, so I do have December -- are we

talking about December 12?· So it's on page --

· · ·Q.· ·We're not talking about December 12.

· · ·A.· ·I'm sorry.· December 3rd.· So I won't

eat up any more time.· I'm just flipping through

it.· I can't readily find December 3rd, but I do

have, on Exhibit 3a, the statistical significance

on that date.· And I did review Professor

Fischel's discussion and citations on this date.

· · ·Q.· ·Did you review the "Barron's" and

"Business Week" articles?

· · ·A.· ·I believe so.

· · ·Q.· ·And --

· · ·A.· ·My memory is certainly the "Barron's"

is discussed in Fischel.· I reviewed a lot of

articles.· I -- I -- I probably reviewed it. I

certainly reviewed it if it's discussed in

Professor Fischel, but I certainly reviewed this

date.

· · · · · MR. FARINA:· The lunch is here if you

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Page 225

reading from 10-K.· "We generally compete with

banks, thrifts, insurance companies, credit

unions, mortgage lenders and brokers, finance

companies, securities brokers and dealers and

other domestic and foreign financial institutions

in the United States, Canada and the United

Kingdom."· So that's what it says.· And I

wouldn't change the wording of it.

· · · · · MR. FITZGERALD:· I think you referred

to Exhibit 8.· I think you meant Exhibit 9.

Otherwise, I don't want to interrupt.

· · ·A.· ·Oh, yeah.· I thought you were directing

me to the 10-K.

· · ·Q.· ·The 10-K, for the record, is Exhibit 9.

The article is Exhibit 8.

· · ·A.· ·Okay.

· · ·Q.· ·You were discussing the 10-K in your

last answer?

· · ·A.· ·Correct.· There might have been some

confusion.· I thought you were -- my

understanding of the question was you were

characterizing the 10-K.

· · · · · MR. FITZGERALD:· I only interrupted,

you referred to the wrong exhibit number it.· You

were reading from a document that was Exhibit 9.

Page 226

· · ·A.· ·Okay.

· · · · · MR. FITZGERALD:· You said you were

reading from Exhibit 8.· And Mr. Brooks and I

both understood that.· We just wanted the record

to be clear.

· · · · · THE WITNESS:· Okay.· Sorry.

· · · · · MR. BROOKS:· No.

· · ·Q.· ·So you're saying that when Household

tells the market we generally compete with these

lines of business, they're not saying that

they're comparable to these lines of business.

Is that your testimony is this is?

· · · · · MR. FITZGERALD:· Objection.

· · ·Q.· ·That's how I'm quote mischaracterizing

the document?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·Well, it doesn't say lines of business.

It says different institutions they generally

compete with.· So that's -- that's what the

document says.

· · ·Q.· ·Well, looking at the list in

Household's 10-K, is there any one of these

examples that you think is not a comparable, in

terms of their line of business?

· · ·A.· ·I think that it's fine, and, in fact, I

Page 227

do use S&P 500 financials, which as we discussed,

includes these institutions.· But it's important

to include the consumer finance companies as

well.· And it's a better specified model.

· · ·Q.· ·And specifically, the consumer finance

companies that CSFB selected.· Right?

· · ·A.· ·Correct.

· · ·Q.· ·What was your process for landing on

that particular group of consumer finance

companies?

· · ·A.· ·Sure.· So the process was, it was very

important to me to use a third-party

identification of comparables contemporaneous

with the time period.· Not to use -- not to be

accused of constructing something for the

purposes of litigation, but to use a third-party

identifying of comparables during the relevant --

contemporaneous with the -- with the time period

at issue.· So that was criteria one.· Criterion

one.· The second criterion is consistent with the

academic literature, and I'll explain that in a

minute, I went to the "Institutional Investor"

magazine, which ranks analysts.· I identified the

star analyst, according to "Institutional

Investor" magazine, for 2001.· I'm going to

Page 228

mispronounce the gentleman's name, but it's the

person who produced or whose name is on the CSFB

report.· So was identified for 2001 as the star

analyst, and I went to his report, where he

identifies those firms.· And the final thing I

would note, which was important to my thinking,

is that the academic literature regularly uses

this source, the "Institutional Investor"

magazine, to identify star analysts.· And so I

felt that was an objective way to identify

comparables.

· · ·Q.· ·Where in your report can I see that

academic literature?

· · ·A.· ·I don't cite the academic literature.

It's just something I'm familiar with as general

background information.

· · ·Q.· ·What literature are you referring to?

· · ·A.· ·So I don't have article citations off

the top of my head but there's a number of

articles that cite, that use "Institutional

Investor" magazine or this publication to

identify the star analysts and do various types

of analyses.

· · ·So some papers look at, do the star analysts

do a good job predicting future, you know, the

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Page 229

future accounting returns or the future

performance of the firm at issue, in some sense.

So there's a number papers or -- that use that --

that ranking for analytical purposes.

· · ·Q.· ·So you relied on "Institutional

Investor" magazine.· Why didn't you include it in

the documents that you relied on?

· · ·A.· ·I believe it is there.· My memory is

it's there, in some form or another.· I'm sorry.

I'm in the wrong document.· That's -- my memory

is it was there, but I could be mistaken.

· · ·Q.· ·Well, let's turn to --

· · ·A.· ·So it would be in the rebuttal.· Oh,

no.· Maybe it would be in the -- I think we have

to look at both.

· · ·Q.· ·Why don't you take a look at Appendix B

to your original report.· I don't see anything

about "Institutional Investor" magazine.· Do you

agree that it's not there?

· · ·A.· ·Are you now --

· · ·Q.· ·My question was why don't you look at

Appendix B to your original report.· I don't see

anything about "Institutional Investor" magazine.

Do you agree it's not there in the original

report, Professor?

Page 230

· · ·A.· ·So I'm not finding it here.· My memory

was -- I thought it was contained somewhere here

in some form, but I'm not seeing it right here,

right now.

· · ·Q.· ·It's not in the rebuttal report,

either, is it?

· · ·A.· ·I'm not finding it right now.

· · ·Q.· ·Do you think that you cited the

academic articles that refer experts to

"Institutional Investor" magazine in your

reports?

· · ·A.· ·No.· I did not cite the academic

articles.· So my testimony on that was that it's

just my general background information.· So I

would want to spend more time to confirm that

it's not here.· So there's references to produced

files and so forth.· But it is correct that,

sitting here right now, I don't -- I don't

readily -- I don't see it.

· · ·Q.· ·So is it your testimony that the

academic literature refers to star analysts'

selection of peer indices for experts, in cases

like this one, to adopt a peer index?

· · ·A.· ·That is not my testimony.

· · ·Q.· ·Okay.· What does the academic

Page 231

literature that you can't tell us about

specifically -- withdrawn.

· · ·What does the academic literature that you

relied on but didn't disclose to us say that you

were relying on in going to "Institutional

Investor" magazine?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·Yeah.· So I -- so I'm not saying I

relied upon it.· I'm saying it's part of my

background knowledge.· It's a publication that

ranks analysts.· And I did use that to identify

this particular analyst.

· · ·So -- but in terms of the academic

literature, there's articles -- I don't have them

memorized, off the top of my head -- that use

that ranking to identify star analysts for

various purposes.

BY MR. BROOKS:

· · ·Q.· ·None of those purposes are for

identifying a peer group.· Correct?

· · ·A.· ·That, I don't know.· I'm not -- I'm not

making that representation.

· · ·Q.· ·Why did you try to identify the

star analyst?

· · ·A.· ·Because presumably the star analyst is

Page 232

the best analyst, at least according to that

ranking.· There's a number of analysts.· And so

you would want some objective criteria --

criterion to identify one of those analysts.

· · ·Q.· ·Was this your idea or Cornerstone's

idea?

· · ·A.· ·It was my idea.

· · ·Q.· ·What exactly is the CSFB Specialty

Finance Index?

· · ·A.· ·Well, it's a group of nine firms

identified, I believe, in a March 2001

publication -- let me just make sure I'm not

getting the date wrong -- that -- you know, that

are listed in that document, in the CSFB report.

· · ·Q.· ·Is it a traded index?

· · ·A.· ·Not to my knowledge.

· · · · · · ·(Sur-Rebuttal Report of Daniel

· ·R. Fischel marked Exhibit 10.)

· · · · · MR. BROOKS:· I'm going to mark as

Exhibit 10 Fischel's surrebuttal report.

· · · · · THE WITNESS:· Okay.

BY MR. BROOKS:

· · ·Q.· ·Exhibit 1 to this report --

· · ·A.· ·To the surreply.

· · ·Q.· ·To the surrebuttal report.· That's the

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· · ·I don't understand how Professor Fischel

would conclude that fraud, according to him, is

increasing the systemic risk, and, therefore,

affecting the beta.· So it's very unclear to me

and puzzling what the theory is for why

firm-specific alleged corrective information

would manifest itself in a changed beta, which is

what the structural break is showing.

BY MR. BROOKS:

· · ·Q.· ·Anything else?

· · ·A.· ·That's my general response.· But I

would incorporate the analyses in my reports.

· · ·Q.· ·You've identified six general

categories of what you opine are company-specific

non-fraud negative news released during the

leakage period that may have impacted Household's

stock price.· Right?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·I don't think I break it out into the

six categories, unless I'm misremembering.· I'm

not saying that's inaccurate.· I'm just saying

that's not how I bucketed the information.

Again, I'm not saying it's an inaccurate, you

know, bucketing; but it's not one that I deploy

in my report.

Page 290

BY MR. BROOKS:

· · ·Q.· ·You don't dispute that bucketing?· You

don't think it would be misleading?· Is that what

you're saying?

· · ·A.· ·I would need to review all the

non-fraud information that I point to and match

it up.

· · ·I would emphasize the most -- a very

important category would be subprime and nonprime

and the concerns that the market had during this

period in connection with Household's business.

· · ·Q.· ·You're saying that --

· · ·A.· ·And I would also add the barring cost,

the reliance of Household on the commercial paper

market.

· · ·Q.· ·So the concerns that the market had

about subprime and nonprime and the borrowing

costs are the two most significant factors.· Is

that your opinion?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·I would say that was -- you know,

that's -- you know, sitting here, those are two

themes that come out of the market commentary.

But I would just simply point to my reports,

where I identify on specific days non-fraud

Page 291

information.· And so that would be the most

complete characterization.

· · ·Those are just two important themes that

come out of -- or two market concerns that are

reflected in the market commentary during this --

during this period.

BY MR. BROOKS:

· · ·Q.· ·So you haven't done anything to

quantify the dollar impact of any of these

concerns that you claim are company-specific,

non-fraud.· Right?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·No.· I have my Exhibit 3a and 3b.

· · ·Q.· ·Exhibits 3a and 3b quantify the dollar

impact of the company-specific non-fraud

information?

· · ·A.· ·Oh, I misunderstood you.· So those

exhibits are showing -- okay.· So for the dates

in Exhibit 3a and 3b, they're showing dates that

are statistically significant.· And so for those

days, you would want to ask the question whether

there's, you know, non-fraud information or

corrective information.

· · ·Q.· ·My question is whether you've done

anything to quantify the impact of what you're

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calling company-specific non-fraud information on

Household's stock during the disclosure period.

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·So an important piece of terminology,

company-specific I would define as residuals in a

model.· And the residuals that I have in my

Exhibit 3a and 3b, I do have residuals --

statistically significant residuals in that.· And

I do discuss, for example, on August 7th, on

September 16th, and on October 8th, whether those

residuals are explainable by non-fraud

information.

BY MR. BROOKS:

· · ·Q.· ·Is it your opinion that Household's

worsening credit quality was a company-specific

non-fraud factor that was impacting Household's

stock during the disclosure period?

· · ·A.· ·So I would refer to my specific

discussions of the -- you know, as a partial

answer to that, of the residuals in Exhibit 3b.

So those would be days which are company-specific

in the sense that I'm using the term and the

nature of the non-fraud information I identify on

those days.

· · ·I can't remember every day off the top of my

Case: 1:02-cv-05893 Document #: 2142-1 Filed: 04/22/16 Page 14 of 15 PageID #:82577
Page 293

head, but I would go to that as examples of

company-specific, in the sense of a statistically

significant residual, that's explainable by

non-fraud information.

· · ·Q.· ·So why don't you turn to Paragraph 62

of your original report.

· · · · · · · (Witness complies.)

· · ·A.· ·Okay.· I'm there.· Is this the

January 28th?· I just want to make sure I'm at

the right place.

· · ·Q.· ·January 28th.· Right.

· · ·A.· ·Okay.

· · ·Q.· ·This is one of those dates that was

statistically significant under Professor

Fischel's analysis.· Right?

· · ·A.· ·Correct.

· · ·Q.· ·And you found that there were

company-specific, non-fraud disclosures that

contributed to the decline.· Right?

· · ·A.· ·I have to review to refresh my

recollection.

· · ·Okay.· Could you repeat the question.

· · ·Q.· ·You found that there were firm-specific

non-fraud disclosures on this date that

contributed to the decline.· Correct?

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· · ·A.· ·That's not -- that's actually not

accurate.· So in this report, my initial report,

I said may have.· In the second report, I

quantify it.

· · ·So I want to be very clear here.· So for

firm-specific non-fraud in this report, the

initial report is firm-specific, non-fraud in the

context of Fischel's regression.· So he has a

statistically significant residual on this date.

And the question is, in his residual, given his

model, is there firm-specific, non-fraud

information.

· · ·Now, when you properly control, you have a

properly specified model, it's not statistically

significant, proving or establishing that what I

identified as firm-specific, non-fraud

information in the context of Fischel's model is

accurate.

· · ·Q.· ·Doesn't the fact that it's not

statistically significant show that, under your

model, it was industry factors that caused the

decline?

· · ·A.· ·Yes.· But, again, what -- this is a

very important point.· What I'm saying is, in

Professor Fischel's model, there's a

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statistically significant residual on this day.

Okay.· And in this initial report, I'm pointing

out, on this date, that, in his model, in his

residual, there's non-fraud, firm-specific

information that's in his residual.· And then I

discuss that.

· · ·In a properly specified model, when you --

which controls for some credit card issues,

subprime, as reflected in the CSFB, it's no

longer statistically significant.· So that proves

that in his residual, there was non-fraud

information that's removed -- that's being

removed by the corrective model.

· · ·Q.· ·What it proves is that the information,

at least if you're right, was not

company-specific.· Right?· Because when there's

no statistically significant decline, that means

that it was not company-specific information that

caused the decline.· Isn't that right?

· · · · · MR. FITZGERALD:· Objection to form.

· · ·A.· ·This is missing a very important point,

which is company-specific, as I define it, and as

is relevant in this case, you know, in assessing

Professor Fischel's reports, means the residual

in a model.

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· · ·So the -- so it's the -- there's a

firm-specific effect in his model on

January 28th.· You're right, in my model there's

no longer a firm-specific effect, and that is

proof that what he is labeling a firm-specific

effect that's fraud -- that's caused by fraud or

fraud information is, in fact, just capturing

industry information in a better specified model.

BY MR. BROOKS:

· · ·Q.· ·Using your --

· · ·A.· ·I have a discussion of this in the

report that I can find, if that would be helpful.

· · ·Q.· ·Including your index that you claim has

a tighter peer group, but leaving all the other

specifications the same, Professor Fischel found

that it didn't impact his statistically

significant --

· · · · · MR. FITZGERALD:· Objection to form.

BY MR. BROOKS:

· · ·Q.· ·-- dates.· Isn't that right?

· · ·A.· ·So are you saying that when he includes

my peer index in his estimation window that

January 28th remains statistically significant?

· · ·Q.· ·Isn't that what he's found?

· · ·A.· ·I don't recall that specifically. I

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