EXHIBIT 2 

Case: 1:02-cv-05893 Document #: 2130-2 Filed: 03/30/16 Page 1 of 47 PageID #:82024
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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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my instructions and supervision.· I did have

Cornerstone, for some of the non-fraud

information, I asked them to sort of put in the

block quotes that I had selected.· There was some

editing, grammatical work that they helped me on.

But with those caveats, I wrote the report.

· · ·Q.· ·You know Professor Fischel personally.

Correct?

· · ·A.· ·I do.

· · ·Q.· ·And you have a contract to do work for

his company, Lexecon.· Is that right?

· · ·A.· ·I do have a contract with Lexecon.

· · ·Q.· ·And that contract gives Lexecon a right

of first refusal to support your expert work.· Is

that right?

· · ·A.· ·Yes.

· · ·Q.· ·And you often use Lexecon's support

staff to support your expert work.· Correct?

· · ·A.· ·Yes.

· · ·Q.· ·And, in fact, you're currently using

Lexecon support staff to support some of your

expert work.· Right?

· · ·A.· ·Yes.

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

You mean in other cases?

Page 30

· · · · · MR. BROOKS:· In other cases.

· · ·A.· ·So with the clarification, I want to

clarify for the record, not in this case.

BY MR. BROOKS:

· · ·Q.· ·And does that include Mike Keable at

Lexecon?

· · ·A.· ·Yes.

· · ·Q.· ·And what is your opinion of Mike Keable

as an economist?

· · ·A.· ·I like Mike and I think -- I think --

and I think highly of Mike.

· · ·Q.· ·Is he reliable?

· · ·A.· ·In the cases I've worked on, I found

him to be reliable.

· · ·Q.· ·Do you think he's talented?

· · ·A.· ·I do.

· · ·Q.· ·Do you think he's honest?

· · ·A.· ·I do.

· · ·Q.· ·Do you think that -- withdrawn.

· · ·And have you worked with Peter Clayburgh

before?

· · ·A.· ·I have.

· · ·Q.· ·And what do you think of Mr. Clayburgh?

· · ·A.· ·I like him, and I think he's smart.

· · ·Q.· ·Is he reliable?

Page 31

· · ·A.· ·In the -- I don't have as much

experience with him that I have with others, but

in the few matters I worked with him, I found him

to be reliable on the cases that I worked on.

· · ·Q.· ·Did you find him to be talented?

· · ·A.· ·Yes.

· · ·Q.· ·And honest?

· · ·A.· ·Yes.· I wouldn't work with somebody I

didn't think was honest.

· · ·Q.· ·And have you worked with David

Strahlberg?

· · ·A.· ·I know I've talked to him.· It's

possible I worked on a case with him, but I don't

recall, offhand, working with him on a case.

Again, I could be misremembering.· It's possible

that he was involved in some capacity on a matter

that I was involved in, but I don't have a

specific recollection of him working on a case.

· · ·Q.· ·What is your opinion of

Professor Fischel as an economist?

· · ·A.· ·I think he is very smart and talented,

and I like him.

· · ·Q.· ·Would you say he's brilliant?

· · ·A.· ·I would say he's a brilliant legal

academic.

Page 32

· · ·Q.· ·And do you think Professor Fischel is

honest?

· · ·A.· ·I do.

· · ·Q.· ·So turning to Paragraph 14 in your

report, Exhibit 1 here, this is your assignment.

Correct?

· · ·A.· ·The assignment in this report is

reflected in Paragraph 14.

· · ·Q.· ·And who defined the assignment?

· · ·A.· ·Counsel for Household.

· · ·Q.· ·And I see that you cited the appellate

order in Footnote 21 in that paragraph.· Do you

see that?

· · ·A.· ·I do.

· · ·Q.· ·And that's the Seventh Circuit's

appellate order in this case.· Right?

· · ·A.· ·Yes.

· · ·Q.· ·And was your assignment informed by the

appellate order?

· · ·A.· ·Well, as I said, the assignment was

defined by counsel for Household.· And that was

to assess Professor Fischel's second supplemental

report.· And in the second supplemental report,

he references the appellate order, is my memory.

· · ·Q.· ·Was the scope of your work informed by

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the appellate order?

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

ahead.

· · ·A.· ·I'm sorry.· So in the sense that I was

asked to assess the second supplemental report,

and my memory is Professor Fischel references the

appellate order in how he defines his scope in

the second supplemental report.

BY MR. BROOKS:

· · ·Q.· ·Did you read the appellate order?

· · ·A.· ·I did.

· · ·Q.· ·Did you read it carefully?

· · ·A.· ·Yes.

· · ·Q.· ·Do you believe that you adhered to the

Seventh Circuit's opinion in performing your

analysis?

· · ·A.· ·That calls for a legal opinion.· I'm

not going to offer a legal opinion.· All I can

say is this was the scope of my assignment, as

defined by counsel for Household.

· · ·Q.· ·What did you do to prepare for the

deposition today?

· · ·A.· ·I reviewed my reports.· I reviewed

Professor Fischel's reports.· I listened to

Professor Fischel's deposition.· I reviewed the

Page 34

surreply report.· I looked at underlying

documents, and I met with counsel.

· · ·Q.· ·When did you meet with counsel?

· · ·A.· ·So I met with counsel yesterday.· And I

met with counsel several times in person before

that, as well.

· · ·Q.· ·To prepare for the deposition?

· · ·A.· ·Correct.

· · ·Q.· ·How many times?

· · ·A.· ·So I met with counsel in Chicago a few

days ago.· I remember meeting with counsel -- I'm

just going to blank on the location, but I did

also, prior to Chicago, meet with counsel in

person, as well.· So that's three meetings.· So

there might be a fourth.· I just -- I don't have

a clear recollect --

· · ·Q.· ·How long --

· · ·A.· ·-- a clear recollection.

· · ·Q.· ·How long was the meeting before the

Chicago meeting?

· · ·A.· ·I want to say a day or a part of a day.

· · ·Q.· ·How about the meeting in Chicago?

· · ·A.· ·So I -- so that was two days, but just

to be clear, I met -- I believe it was two days.

I can be misremembering the exact length of time.

Page 35

I do remember meeting with counsel in Chicago for

a day and then the second day I was listening to

Professor Fischel.

· · ·Q.· ·So you met on Tuesday and listened to

Professor Fischel's deposition on Wednesday?

· · ·A.· ·Yes.· And now you reminded me. I

actually didn't meet the entire day.· I flew out

Tuesday morning.· So I actually -- now that I

remember, I got to Chicago midday on Tuesday.

And then you can remind -- my memory is that --

then that Professor Fischel was deposed the

following day, the Wednesday.

· · ·Q.· ·That's my memory too.

· · ·Was anyone at these meetings, other than

counsel for the defendants?

· · ·A.· ·Yes.

· · ·Q.· ·Who else was there?

· · ·A.· ·There was -- I don't know.· I'm not

exactly clear on how you define counsel for

defendants.· But counsel from HSBC was there as

well.

· · ·Q.· ·Anyone else?

· · ·A.· ·No.

· · ·Q.· ·How many lawyers were at these

meetings, approximately?

Page 36

· · ·A.· ·I mean, it varied.

· · ·Q.· ·What was the most?

· · ·A.· ·So counsel present here were at some of

the meetings, and the other person that comes to

mind is Ryan Stoll from Skadden Arps.

· · ·Q.· ·So five or six?

· · ·A.· ·Well, just to be clear, all five or six

were not present in every meeting.· So it was --

but those -- as well as counsel for HSBC.· But

I'm not saying they were all present for every

meeting.· That's not accurate.

· · ·Q.· ·Do you know Dr. Mukesh Bajaj?

· · ·A.· ·I do not.

· · ·Q.· ·Do you understand he was Household's

prior expert in this case on loss causation and

damages?

· · ·A.· ·I believe that's right.

· · ·Q.· ·You read his reports and transcripts,

right?

· · ·A.· ·I did.

· · ·Q.· ·So you know he was their expert, don't

you?

· · ·A.· ·Yes.· I was just pausing, because I

don't remember how he characterized who he was --

whether he was retained by counsel or by

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Household directly; but yes, he performed those

types of analysis.

· · ·Q.· ·So you read all of his reports.· Is

that right?

· · ·A.· ·Yes.

· · ·Q.· ·And you read his trial testimony.

Correct?

· · ·A.· ·I did.

· · ·Q.· ·You read his deposition testimony.

Correct?

· · ·A.· ·I did.

· · ·Q.· ·And was there anything that stood out

to you about his methodology that was incorrect,

in your opinion?

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

here.

· · ·A.· ·So you can look at Paragraph 14 in my

original report and Paragraph 7 of my second

report.· That was not within the scope of my

assignment.· So you can direct me to particular

portions of what he said, but it was something

that I did not focus on.

BY MR. BROOKS:

· · ·Q.· ·You read all his stuff.· Right?

· · ·A.· ·I did read it back in the summer, last

Page 38

year.· But again, assessing his work is outside

the scope of these two reports.

· · ·Q.· ·So I'm not asking you whether it was in

the scope of your reports.· I'm asking whether

there was anything you disagreed with from a

methodological perspective about Dr. Bajaj's

reports?

· · · · · MR. FITZGERALD:· I object.· Going down

the line of inquiry, if he's not retained to

analyze Dr. Bajaj's testimony, you have an

expert, asking him to do it on the fly doesn't

seem to me to be appropriate.

· · · · · MR. BROOKS:· Are you going to instruct

him not to answer?· I think I'm entitled to ask.

· · · · · MR. FITZGERALD:· You're asking him to

critique somebody he wasn't asked to critique

before on the fly, which I don't think is

appropriate.

· · · · · MR. BROOKS:· You can instruct him not

to answer.· I don't think it's proper.· But I

don't want to get in a big discussion with you.

· · · · · MR. FITZGERALD:· Why don't we move on

from this.· Let me talk to co-counsel at a break

as to what the understanding is, so we can

revisit it.· I just don't -- I just don't think

Page 39

you have a right to take an expert who is

testifying about a topic, then make your expert

analyze something else.· But why don't we talk

about it at a break, so I don't run the clock on

you?· You move on and we'll come back.

· · · · · MR. BROOKS:· I mean, he's testifying

about loss causation and damages.· That's what

Dr. Bajaj testified about.· Right?

· · · · · MR. FITZGERALD:· Right.

· · · · · MR. BROOKS:· It's the same topic.

BY MR. BROOKS:

· · ·Q.· ·In performing your work, did you

believe it was important to stay consistent with

Dr. Bajaj's prior opinions?

· · ·A.· ·No.· My understanding of my role is I

was to provide my own independent expert analysis

within the scope, as defined in Paragraph 7 of

my -- of my rebuttal report, and Paragraph 14 of

my original report.

· · ·Q.· ·You understand that Dr. Bajaj worked

with Cornerstone, just like you're working with

Cornerstone, don't you?

· · ·A.· ·That, I didn't know.

· · ·Q.· ·His deposition?

· · ·A.· ·You know, that could well be the case,

Page 40

but I don't have a recollection of that.

· · ·Q.· ·So you didn't think it was important to

stay consistent with Dr. Bajaj's opinions because

that wasn't the scope of your work.· Is that your

testimony?

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

You can answer.

· · ·A.· ·My -- my role, as I understand it, is

to provide my -- my own best independent analysis

within the scope of my assignment, as defined in

Paragraph 14 of my original report and

Paragraph 7 of my rebuttal report.

BY MR. BROOKS:

· · ·Q.· ·So whether or not you conflicted with

prior evidence that Household had put on at the

previous trial was not your concern?

· · · · · MR. FITZGERALD:· Objection --

BY MR. BROOKS:

· · ·Q.· ·Is that fair to say?

· · · · · MR. FITZGERALD:· -- to form.

· · ·A.· ·That's not fair to say.· I reviewed the

evidence and provided an independent analysis of

the evidence within the scope.· And the scope,

again, is to assess -- reading from my original

report, to assess Professor Fischel's second

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supplemental report.· So that would obviously

include his analysis, his statements in that

report.· And then Paragraph 7 of the rebuttal, I

was asked to assess Professor Fischel's second

rebuttal report.· And so that was my scope.

· · ·Q.· ·Do you know who William Aldinger is?

· · ·A.· ·Yes.· Generally speaking.

· · ·Q.· ·Who is that?

· · ·A.· ·He's a Household official, and I think

I have a footnote where I list the individual

defendants.· I don't -- I didn't memorize them.

But he's -- he was, at some point, a Household

official.

· · ·Q.· ·Did you read his trial testimony?

· · ·A.· ·My memory is -- my memory is that

Professor Fischel cites to -- I would have to

review Professor Fischel.

· · ·My memory he does cite to some trial

testimony.· It might have been of that

individual.· I just -- I just would have to look

again to refresh my recollection.

· · ·Q.· ·I asked if you read his trial

testimony, Mr. Aldinger's?

· · ·A.· ·Yeah.· So my memory is that

Professor Fischel cites to some of that trial

Page 42

testimony, and I did review that.· But I would

have to look at that to refresh my recollection.

But that's my best recollection.

· · ·Q.· ·You reviewed the portion that

Professor Fischel cited to?

· · ·A.· ·Well, I reviewed the portion and then

obviously the context in which it's been -- the

back and forth.· So that's my best recollection.

· · ·Q.· ·You didn't read his entire testimony.

Is that correct?

· · ·A.· ·That's -- that's right.· So my memory

is -- and again, I could be mistaken.· There's a

lot of documents in this case.· My memory is that

Professor Fischel cited to certain portions. I

skimmed through the transcript, but I focused on

what he's citing to and in the context.· Anyway,

that's my best recollection.

· · ·Q.· ·Did you read Mr. Aldinger's deposition

transcripts in this case?

· · ·A.· ·Again, my memory -- and there's a lot

of documents in this case.· I'm just --

· · ·Q.· ·Let me ask a different question.· Did

you read Mr. Aldinger's complete deposition

testimony?

· · ·A.· ·My memory is -- give me one second

Page 43

here.

· · ·So my memory is that when Professor Fischel

cited to depositions or transcripts, that I

focused on those portions in the context in which

they're happening and that I skimmed the rest.

But it's fair to say I focused on the portions

and the context that he is citing to as a basis

for his opinion.

· · ·Q.· ·Do you think you skimmed the rest of

Mr. Aldinger's trial and deposition testimony?

· · ·A.· ·I remember I received, for the day, the

trial transcript.· And I remember skimming

through -- I'm not representing I did every day.

But the transcript that he's citing to, I did

receive.

· · ·Q.· ·Who is David Schoenholz?

· · ·A.· ·My memory is that he was a Household

official.· But again -- and I don't remember

whether he was an individual defendant or not --

· · ·Q.· ·He is.

· · ·A.· ·-- in this litigation.· But I have a

footnote listing those individuals.

· · ·Q.· ·Without looking at that footnote, you

don't know his position.· Is that fair to say?

· · ·A.· ·I don't recall, offhand.· I do remember

Page 44

that he was a Household official, and

Professor Fischel cites to various statements by

him for -- as evidence of certain propositions.

· · ·Q.· ·And did you read Mr. Schoenholz' trial

testimony?

· · ·A.· ·Same answer as before.· So I'm going to

have the same answer with respect to the

citations by Dr. Fischel to -- that he has for

certain propositions in his -- in his various

reports.

· · ·Q.· ·Have you spoken to Mr. Schoenholz about

this case?

· · ·A.· ·No.

· · ·Q.· ·Have you spoken to any current or

former Household employees, other than lawyers,

about this case?

· · ·A.· ·No.

· · ·Q.· ·And your answer is the same, I take it,

for Mr. Schoenholz' deposition transcripts, if

Professor Fischel cited them, you reviewed the

citation and the areas around it.· Is that fair

to say?

· · ·A.· ·Well, that wasn't my testimony. I

received -- my memory is I received the

transcript that he's citing to.· I skimmed

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through it, but it's fair to say I focused on the

portions that he's relying upon and obviously the

context in which it's happening.· So it's the

same answer.

· · ·Q.· ·And what about Gary Gilmer, what was

his position at Household?

· · ·A.· ·I don't recall, offhand.

· · ·Q.· ·Did you read any of his trial

testimony?

· · ·A.· ·Again, same answer, I don't -- I

haven't mem- -- you know, Professor Fischel, in

all these various reports, cites to a lot of

things.· I did review the citations he has.· And

it would be the same testimony that I gave

earlier.

· · ·Q.· ·You didn't think it was important to

review Household's executives' testimony for

anything other than what Professor Fischel cited?

· · ·A.· ·Well, Professor Fischel cites a lot, so

I did review a lot of transcripts, and I felt

that was sufficient for my assignment, which was

to assess Professor Fischel's second supplemental

report, and then in the expert rebuttal report,

to assess Professor Fischel's rebuttal report.

Make sure I'm getting that right.

Page 46

· · ·Yeah, so -- so it is fair to say that I'm

focused on what Professor Fischel's analysis is

and whether -- and to provide an assessment of

that.

· · ·Q.· ·Were you provided exhibits with the

testimony that you -- that you received?

· · ·A.· ·I do remember -- I do remember

receiving exhibits.

· · ·Q.· ·Which exhibits did you receive?

· · ·A.· ·Now -- now you're beyond my memory. I

do remember receiving exhibits.

· · ·Q.· ·Who is Edgar Ancona?

· · ·A.· ·I don't recall, offhand.

· · ·Q.· ·You never read his deposition

transcript.· Is that correct?

· · ·A.· ·Again --

· · ·Q.· ·He's not cited in Professor Fischel's

report.

· · ·A.· ·So if it's not cited in Professor -- if

it's not something cited in Professor Fischel's

report, and it's not otherwise cited in my

documents relied upon list, then I have not

reviewed it.

· · ·Q.· ·So you haven't read any deposition

testimony or trial transcripts from anyone other

Page 47

than those people who are cited in your documents

relied upon?

· · ·A.· ·I didn't --

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

You can answer.

· · ·A.· ·That was not my testimony.· So my

testimony was that I obviously reviewed the

depositions listed.· I also reviewed

Professor Fischel's -- the materials that he's

relying upon, which did include, as I remember

it, citations to transcripts.

· · ·Q.· ·Okay.· So why don't you turn to

Exhibit B [sic] to your initial report.

· · · · · · · (Witness complies.)

· · · · · MR. FITZGERALD:· Do you mean

Appendix B?

· · · · · MR. BROOKS:· Appendix B.

BY MR. BROOKS:

· · ·Q.· ·Appendix B, it's before the exhibits.

· · ·A.· ·Do you want me to be in the initial

report or --

· · ·Q.· ·In the initial report, yeah.

· · ·A.· ·Okay.

· · ·Q.· ·So for the initial report, you list

deposition testimony of Professor Fischel,

Page 48

Dr. Bajaj, trial testimony of Professor Fischel,

trial testimony of Dr. Bajaj, and the rebuttal

trial testimony of Professor Fischel.· Do you see

that?

· · ·A.· ·I do.

· · ·Q.· ·So for the initial report, you didn't

read any other deposition transcripts or trial

testimony.· Is that correct?

· · ·A.· ·That's not --

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

· · ·A.· ·That's not correct, so --

BY MR. BROOKS:

· · ·Q.· ·Okay.· So in addition to what you've

listed here, is it true that the only deposition

or trial testimony that you read was testimony

that was cited in Professor Fischel's first

report?

· · ·A.· ·That's not quite accurate, because I

testified that I obviously read what he's citing

to, but also the surrounding context.· So with

that -- you know, so incorporating my earlier

answer to your question, that's accurate.

· · ·Q.· ·And let's just take a look at

Appendix B.· For your rebuttal report, there's no

deposition or trial testimony relied upon.

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Page 53

· · ·A.· ·So I'm just -- I'm utilizing, for this

purpose, the Consolidated Class Action Complaint

and Professor Fischel's characterization, and I

think those documents characterize it as reaging

the restatement or the account -- I'll leave it

at that.· The restatement and the predatory

lending.

· · ·Q.· ·So describe your understanding of the

predatory lending fraud that defendants

committed.

· · ·A.· ·You're testing my memory here. I

would -- to give an accurate answer, I would just

go to the jury verdict form.· So there's 17

misstatements that have been specifically

identified on the verdict -- verdict form.· And I

really would not be able to add beyond that.

· · ·Q.· ·So you don't understand any of the

details underlying the false statements relating

to predatory lending.· Is that your testimony?

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

· · ·A.· ·That's not what I said.

BY MR. BROOKS:

· · ·Q.· ·What are the details that you

understand about the predatory lending fraud that

the defendants committed?

Page 54

· · ·A.· ·Well --

· · · · · MR. FITZGERALD:· Objection.· Asked and

answered.

· · ·A.· ·So the predatory lending fraud, my

understanding is the material misstatements that

the jury found on the jury verdict form, which is

listed in my Appendix B, that relate to predatory

lending.· And that would be the most accurate and

complete answer to your question, as to what

constitutes the fraud with respect to predatory

lending.

BY MR. BROOKS:

· · ·Q.· ·Can you state for me any details

related to the widespread predatory lending that

Household was engaged in that you're aware of?

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

asked and answered.

· · ·A.· ·So, again, you know, if you're asking

me to recall, off the top of my head, the jury

verdict form, I did review that very carefully,

and there are misstatements and

misrepresentations that the jury found that

related to predatory lending.· And so the most

accurate and complete answer would be to look at

the specific misstatements the jury found to be

Page 55

materially misleading.

BY MR. BROOKS:

· · ·Q.· ·What types of predatory lending did

Household engage in?

· · · · · MR. FITZGERALD:· Objection.· Asked and

answered.· You can answer.

· · ·A.· ·You know, again, I would just go to the

jury verdict form for the fraud that was found by

the jury as relates to predatory lending.

BY MR. BROOKS:

· · ·Q.· ·Well, you understand that the fraud is

securities fraud.· Right?

· · ·A.· ·Yes.

· · ·Q.· ·Defendants committed securities fraud?

· · ·A.· ·That's my understanding.

· · ·Q.· ·And those are false statements and

omissions.· Right?

· · ·A.· ·I'm not here to provide a legal

opinion, but that is accurate.

· · ·Q.· ·That is your understanding?

· · ·A.· ·It is.

· · ·Q.· ·And those false statements and

omissions were about certain business practices.

Right?

· · ·A.· ·Agreed.

Page 56

· · ·Q.· ·So the verdict form lists the false

statements and omissions.· You understand that,

right?

· · ·A.· ·Right.

· · ·Q.· ·But the verdict form doesn't list the

details of the fraudulent business practices.

· · · · · MR. FITZGERALD:· Objection to --

BY MR. BROOKS:

· · ·Q.· ·Do you understand that?

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

· · ·A.· ·I disagree with that characterization.

The fraud -- the fraud that was found by the jury

is specifically identified by the jury on the

jury verdict form.· My understanding, but I'm not

giving a legal opinion, is that that constitutes

the entirety of the fraud at issue in this case.

That is, the 17 material misrepresentations and

omissions, as found by the jury.· I do not -- my

understanding, but I'm not providing a legal

opinion, is that there's not other fraud beyond

that.

BY MR. BROOKS:

· · ·Q.· ·So you understand that the jury, on the

verdict form, checked a box for each statement as

to which part of the fraud applied to that

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Page 57

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

Page 58

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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Page 61

· · · · · 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 65

· · ·Q.· ·And are they senior or junior?

· · ·A.· ·Well, Katie Galli, again -- this is my

understanding, I could be mistaken -- heads or

coheads the LA office.· And Jamie Lee, I know, is

less senior, but I don't -- frankly, I don't know

where he is in the hierarchy.

· · ·Q.· ·What are Katie Galli's credentials?

· · ·A.· ·So I know she went to Stanford.· I know

that she worked at Stanford doing research. I

don't recall what her graduate degrees are in.

Let me restate that.· I know she did work -- she

worked at Stanford doing research.· And I also

know that for several decades now, she's --

20 years or so, 15, 20 years, she's been working

in this area.

· · ·Q.· ·What about Jamie Lee, what are his

credentials?

· · ·A.· ·So Jamie Lee, as I remember it, has a

Ph.D. in economics from Harvard.· I don't

remember where he went undergraduate.· And I

don't know how long he's been working at

Cornerstone.

· · ·Q.· ·Cornerstone is supporting defendants'

other two experts in this case.· Is that correct?

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

Page 66

· · ·Q.· ·Mr. James and Cornell.· Is that right?

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

what it's worth.

· · ·Q.· ·And are the same folks supporting

Christopher James as are supporting you?

· · ·A.· ·I don't know.

· · ·Q.· ·And what about Cornell, are the same

folks supporting Cornell?

· · ·A.· ·I don't know.

· · ·Q.· ·And you don't know one way or the other

whether anyone from this team at Cornerstone

worked with Dr. Bajaj previously.· Is that your

testimony?

· · ·A.· ·It is.

· · ·Q.· ·Do you have an understanding as to

whether anyone on this Cornerstone team was

working on Household before you were retained?

· · ·A.· ·I don't know either way.

· · ·Q.· ·How did you select Cornerstone, if you

did?

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

· · ·A.· ·So as we discussed earlier, I do have a

contract with Compass Lexecon, and unless --

sorry, I would use them unless they're

conflicted.· That's obviously the case here.· And

Page 67

I've worked with Cornerstone, and more

specifically the Cornerstone LA office on a -- on

several matters in the past.· So I had a high

level of confidence in the quality of the work

and the support that I would receive.

BY MR. BROOKS:

· · ·Q.· ·So did you choose Cornerstone or did

counsel suggest them?

· · ·A.· ·My -- again, this is going back to the

summer.· My memory was it was a conversation

about what would make sense in terms of support.

I gave my views.· And I just remember there was a

back and forth.· So I don't remember it as being

a directive from either party.

· · ·Q.· ·So Compass Lexecon is your first choice

provider of support for these expert engagements.

Correct?

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

· · ·A.· ·That's not quite my testimony.· My

testimony is I have a contractual obligation to

use them as support unless they're conflicted,

which was -- which was the case here.

BY MR. BROOKS:

· · ·Q.· ·So you entered into a contract

requiring you to make Compass Lexecon your first

Page 68

choice on expert engagements.· Right?

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

· · ·A.· ·Well, if it's a contract, it's not a

choice.· So, yes, I do use Compass Lexecon unless

they're conflicted or for whatever other reasons

Compass Lexecon decides not to provide support.

BY MR. BROOKS:

· · ·Q.· ·You entered into this contract with

Compass Lexecon on your own freewill.· Is that

right?

· · ·A.· ·Yes.

· · ·Q.· ·That was a choice you made?

· · ·A.· ·It is.

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

BY MR. BROOKS:

· · ·Q.· ·And that contract that requires you to

go to Compass Lexecon first for support.· Right?

· · ·A.· ·Yes.· They have a right of first

refusal pursuant to my contract.

· · · · · · ·(United States Court of Appeals

· ·for the Seventh Circuit Opinion, No. 13-3532

· ·marked Exhibit 3.)

BY MR. BROOKS:

· · ·Q.· ·The court reporter has handed you

Exhibit 3.· This is the Seventh Circuit's opinion

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Page 69

in this case, which is listed in your reliance

materials.· Right?

· · ·A.· ·Correct.

· · ·Q.· ·So turn to Page 2 of Exhibit 3.· And in

the last paragraph, in the first column, it

begins "Between."· Do you see that?

· · ·A.· ·I do.

· · ·Q.· ·It says, "Between the summers of 1999

and 2001, Household's stock rose from around $40

per share to the mid 60s and by July of 2001 was

trading as high as $69," and you agree with that.

Right?

· · ·A.· ·I have no reason to disagree with that.

· · ·Q.· ·And then looking up to the prior

paragraph it says, in the second sentence, "In

1999, company executives implemented an

aggressive growth strategy in pursuit of a higher

stock price."· Do you see that?

· · ·A.· ·I do.

· · ·Q.· ·Do you disagree with that finding?

· · · · · MR. FITZGERALD:· So let me stop you

here.· Are you asking him to verify what the

words are on the Seventh Circuit opinion or --

he's not offered, I mean, to ask him to agree or

disagree with facts and opinion.· That's not the

Page 70

scope of his testimony.· He's here to offer

testimony about damages that flow from a finding.

And asking him if the judge found it was raining

on a certain day, agree or disagree, it's beyond

the scope.

· · · · · MR. BROOKS:· Okay.· You can answer.

· · · · · MR. FITZGERALD:· He's not here to offer

an opinion on facts -- we can all argue about

what the legal significance of the findings.· But

I don't understand why you're going to ask him to

opine on whether or not sentences in a legal

opinion are true.· That's not within the scope.

BY MR. BROOKS:

· · ·Q.· ·Go ahead and answer.· Just answer the

question.

· · · · · MR. BROOKS:· Are you going to instruct

him not to answer?· This isn't a 30(b)(6)

deposition.· This is one of his reliance

materials and I'm entitled to examine him on it.

He relied on this.

· · · · · MR. FITZGERALD:· Okay.

· · · · · MR. BROOKS:· He said he read it

carefully.

· · · · · MR. FITZGERALD:· What are you asking?

Are you asking --

Page 71

· · · · · MR. BROOKS:· I'm asking him whether he

agrees with these findings.· If he agrees with

them, he can say yes.· If he doesn't, he can say

no.

· · · · · MR. FITZGERALD:· And on what basis --

· · · · · MR. BROOKS:· And then we'll follow up.

· · · · · MR. FITZGERALD:· Okay.· I'm going to

direct him not to answer.· He's not here to offer

factual opinions.· He's here to offer a

scientific method to calculate damages based upon

a finding of liability.· And to ask an expert

witness, agree or disagree with fact findings, if

that's what they are, from the Seventh Circuit

opinion, I don't think is appropriate.

· · · · · MR. BROOKS:· Okay.· I think it's

completely inappropriate to instruct him not to

answer.· If that's your instruction, that's fine.

I'm going to ask my questions and you can

instruct him or not instruct him.· All right?

· · · · · MR. FITZGERALD:· Okay.

BY MR. BROOKS:

· · ·Q.· ·So you're not going to answer that

question?

· · · · · MR. FITZGERALD:· I'm directing him not

to answer that question.

Page 72

· · ·A.· ·I will follow the instruction.

BY MR. BROOKS:

· · ·Q.· ·The next sentence reads, "Over the next

two years, the stock price rose dramatically but

the company's growth was driven by predatory

lending practices."· Do you see that?

· · ·A.· ·I do.

· · ·Q.· ·Do you disagree with that finding by

the Seventh Circuit?

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

instruction.

· · ·A.· ·I'll follow the instruction.

BY MR. BROOKS:

· · ·Q.· ·The Seventh Circuit continued, "This,

in turn, increased the delinquency rate of

Household's loans, which the executives then

tried to mask with creative accounting."· Do you

agree with that?

· · · · · MR. FITZGERALD:· Same instruct -- same

objection.· Same instruction.

BY MR. BROOKS:

· · ·Q.· ·Do you disagree with it?

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

instruction.

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Page 73

BY MR. BROOKS:

· · ·Q.· ·Do you understand what that means, sir?

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

you --

BY MR. BROOKS:

· · ·Q.· ·Do you understand what it means that

Household's predatory lending increased the

delinquency rate of Household's loans, which the

executives then tried to mask with creative

accounting?

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

instruction.

BY MR. BROOKS:

· · ·Q.· ·Do you have any understanding as to

what that means, sir?

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

instruction.· You're going to have him opine on

an opinion --

BY MR. BROOKS:

· · ·Q.· ·They continue, "Their technique was to

reage delinquent loans to distort a popular

metric that investors use to gauge the quality of

loan portfolios, the percentage of loans that are

two or more months delinquent."· Do you see that,

sir?

Page 74

· · ·A.· ·I do see that.

· · ·Q.· ·Do you agree with that?

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

instruction.

· · ·A.· ·I'll follow the instruction.

BY MR. BROOKS:

· · ·Q.· ·Do you dispute that finding by the

Seventh Circuit?

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

industry.

· · ·A.· ·I'll follow the instruction.

BY MR. BROOKS:

· · ·Q.· ·Do you understand what that means, sir,

that sentence?

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

industry.

· · ·A.· ·I'll follow the instruction.

BY MR. BROOKS:

· · ·Q.· ·Do you have any idea what it means that

Household and the executives' technique was to

reage delinquent loans to distort a popular

metric that investors used to gauge the quality

of loan portfolios, the percentage of loans that

are two or more months delinquent?· Do you have

any idea what that means?

Page 75

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

Continuing instruction.

· · ·A.· ·I'll follow the instruction.

BY MR. BROOKS:

· · ·Q.· ·They continued, "Household also

improperly recorded the revenue from four credit

card agreements that would ultimately issue

corrections in August 2002."· Do you see that?

· · ·A.· ·I do see that.

· · ·Q.· ·That was the restatement.· Right?

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

instruction.

· · ·A.· ·I'll follow the instruction.

BY MR. BROOKS:

· · ·Q.· ·You don't know whether that was a

restatement.· Is that fair to say?

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

instruction.

· · ·A.· ·I'll follow the instruction.

BY MR. BROOKS:

· · ·Q.· ·Do you have any idea what that sentence

means, sir?

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

instruction.

Page 76

BY MR. BROOKS:

· · ·Q.· ·You're unwilling to tell me whether you

know what that means?

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

instruction.

· · ·A.· ·I'll follow the instruction.

BY MR. BROOKS:

· · ·Q.· ·Turning to the next paragraph, skipping

the sentence we already covered, the Court

continued, "But the reality of Household's

situation" --

· · ·A.· ·I'm sorry.· Where are you?

· · ·Q.· ·In the next paragraph.

· · ·A.· ·On the second column?

· · ·Q.· ·Second sentence, first column.

· · ·A.· ·Okay.· First column.

· · · · · MR. FITZGERALD:· Is it okay if I point

him to it?

· · · · · MR. BROOKS:· Yeah.

· · · · · MR. FITZGERALD:· He's over here

(indicating), the truth --

· · · · · THE WITNESS:· Oh, but the reality, is

that what --

· · · · · MR. FITZGERALD:· Yes.

· · · · · THE WITNESS:· Okay.· I see that.· Sorry

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Page 77

about that.

BY MR. BROOKS:

· · ·Q.· ·The Court wrote, "But the reality of

Household's situation eventually caught up with

its stock price.· The truth came to light over a

period of about a year through a series of

disclosures that began when California sued

Household over its predatory lending."

· · ·Do you see that?

· · ·A.· ·I do.

· · ·Q.· ·Do you understand what that means, sir?

· · · · · MR. FITZGERALD:· Objection.· Same

objection.

BY MR. BROOKS:

· · ·Q.· ·Do you agree or disagree that the --

· · ·A.· ·I follow -- I'll follow the

instruction.

· · ·Q.· ·Do you agree or disagree that the truth

came to light over a period of about a year

through a series of disclosures that began when

California sued Household over its predatory

lending?

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

instruction.

· · ·A.· ·I'll follow the instruction.

Page 78

BY MR. BROOKS:

· · ·Q.· ·Independent of this document, do you

agree that the truth about Household's fraud came

to light over a period of about a year through a

series of disclosures that began when California

sued Household over its predatory lending?

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

· · ·A.· ·So in my report, and I would go to my

rebuttal report, I do have a specific disclosure

model where I analyze Professor Fischel's

14 purported specific disclosure days.· And it is

true that those 14 days are over a period of

time, but on specific days.· I believe the first

of those 14 -- but I would just go to my

Exhibit 3a and 3b of my rebuttal report.

· · ·So looking at Exhibit 3a of my rebuttal

report, the first purported corrective disclosure

in Professor Fischel's specific disclosure model

is November 15th.· And in Professor Fischel's

specific disclosure model, it ends on October 11,

2002.· And, of course, I also have my corrected

Fischel regression with respect to these dates.

· · · · · MR. BROOKS:· So I'll move to strike

that as nonresponsive.

Page 79

BY MR. BROOKS:

· · ·Q.· ·My question is:· Do you agree that the

truth about Household's fraud came to light over

a period of about a year through a series of

disclosures that began when California sued

Household over its predatory lending?

· · · · · MR. FITZGERALD:· And same objection.

If you're reading the Seventh Circuit opinion and

asking whether he agrees with the fact-findings

or not, same instruction.· If you want to ask him

questions independently of the Seventh Circuit

opinion as to when the disclosure period was, I

think he properly answered it.· You can ask him

that.

BY MR. BROOKS:

· · ·Q.· ·Do you agree or not that the truth

about Household's fraud came to light over a

period of about a year?

· · ·A.· ·That's a very general statement.· My --

my specific analysis, my scientifically based

rigorous methodology for analyzing the disclosure

period, you know, is reflected in Exhibit 3a,

among other exhibits, and discussion that I have

in the report.· And it is true that the first

date in that model is November 15th, 2001.

Page 80

· · ·Q.· ·Is it your opinion that the truth about

Household's fraud emerged at any point and

impacted Household's stock price?

· · ·A.· ·Well, yeah, I -- yes, in the sense that

I specifically -- and spent a great deal of time

discussing my report, the 14 purported corrected

disclosure dates, the six that are actually

statistically significant using a proper and

scientifically rigorous methodology, and the

confounding information on four of those six.

That's my analysis of that question.

· · ·Q.· ·I'd like an answer to the question.· Do

you agree that the truth came out about

Household's fraud and impacted Household's stock

price?

· · · · · MR. FITZGERALD:· I object to the

statement.· You had an answer.· Just so we

understand, when he talks about the fraud, he's

accepting whatever the jury findings were.· And I

assume you're asking that without him stating

whether it's a fraud or not.· He's accepting the

jury's findings.· I think he just gave an answer

about how information emerged during the

disclosure period.

· · ·A.· ·I do want to make clear in my answer

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Page 137

BY MR. BROOKS:

· · ·Q.· ·You're correct.

· · ·A.· ·Okay.

· · ·Q.· ·So with that in mind and with the

period of November 15th to October 11th, 2002 in

mind, November 15, 2001 to October 11, 2002, do

you agree with the Court's observation there?

· · ·A.· ·I'm not going to comment on the

Court -- what the Court is saying or not saying.

I guess I'm hesitant to opine on whether it

overstates or understates, based on my opinion,

because the model is fundamentally misspecified.

So I wouldn't work within the model.· I would say

that the leakage model, as defined by

Professor Fischel, is fundamentally flawed and I

would use a specific disclosure model.· And so in

that sense, it does overstate it, because I come

up with $4.19, putting aside the confounding

information, whereas he comes up with $23.94.

· · ·Q.· ·So you can't say one way or the other

whether it's true that if during the relevant

period, there was significant negative

information about Household unrelated to these

corrective disclosures and not attributable to

market or industry trends, then the model would

Page 138

overstate the effect of the disclosures and, in

turn, of the false statements.· Correct?

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

· · ·A.· ·Well, my understanding of the leakage

model is that Professor Fischel is automatically

attributing every residual to the fraud or

revelation of the fraud or fraud-related

information.· So I guess in the sense that he's

attributing every negative residual to

fraud-related information automatically in his

model, it would increase the estimates of

inflation in his model.· But again, I just

fundamentally reject the model, to begin with.

BY MR. BROOKS:

· · ·Q.· ·So you can't say whether or not this

Court's statement is true that I just read.

Right?

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

commenting on the Court's statement.

· · · · · MR. BROOKS:· Withdrawn.

BY MR. BROOKS:

· · ·Q.· ·You can't say whether or not the

sentence I just read from the Seventh Circuit's

opinion is something you agree with.· Right?

· · · · · MR. FITZGERALD:· I'm objecting to

Page 139

these -- he's already answered the question.· If

you want to ask him what the effect of certain

things will have on the model, but he's not going

to opine on whether or not the Seventh Circuit is

right or wrong in a sentence from context --

sentence removed from an opinion where he's not

here giving a legal opinion.· I'm fine with you

asking him about if X or Y happens, what happens

to inflation.· But he's not going to comment

on --

· · · · · MR. BROOKS:· I think it's completely

inappropriate for you to interfere.

· · · · · MR. FITZGERALD:· You can ask the

substance of the question.· But if you're going

to frame him as a witness to opine on what the

Seventh Circuit said and what they meant and

whether they got it right or wrong, I have a

problem with it.· If you want to ask him the

effect of what alleged leakage does or doesn't

do, I'm fine with that.

· · ·A.· ·Could you reread the --

BY MR. BROOKS:

· · ·Q.· ·You can't say one way or another

whether the sentence that we've been discussing

from the Seventh Circuit's opinion is something

Page 140

you agree with.· Correct?

· · ·A.· ·I agree --

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

· · ·A.· ·I agree with it in the sense of my

earlier question -- my earlier answer, which is

in the model, which I fundamentally reject as

inconsistent with the evidence in this case and

the academic literature, in the context of this

model, where you're automatically associating

every residual to the fraud or fraud-related

information as he defines it, then I think it's

mathematically true, in his -- the context of his

model that the more negative residuals you have,

that that would result in a greater inflation

calculation, under his model, which is

fundamentally flawed to begin with.

BY MR. BROOKS:

· · ·Q.· ·Do you agree or disagree with the next

observation that the Seventh Circuit made in this

paragraph, which was, of course, this can cut

both ways, if, during the relevant period, there

was significant positive information about

Household, then the model would understate the

effect of the disclosures?

· · · · · MR. FITZGERALD:· I have the same

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Page 141

objection about asking him to agree or disagree

with the Seventh Circuit.· You can ask him if X

happens, does Y happen, I'm fine with that.· But

he shouldn't be opining on what he thinks of a

legal -- of a Court opinion.

· · ·A.· ·So I have two response -- two parts to

my answer.· One is I agree that in his model,

which is fundamentally flawed, that if there's

more positive residuals, then that would decrease

inflation -- that would result in a decrease in

inflation that he would otherwise calculate in

that model.· I disagree with the statement that

it would understate the effect of revelation of

the fraud, assuming there's revelation of the

fraud, because the model, itself, is

fundamentally flawed.

· · ·So I'm not agreeing that -- you know, I'm

not -- so what happens to the residuals does

affect the model, Professor Fischel's leakage

model calculations.· But I don't -- whether it

goes up or down, the whole model is flawed.

BY MR. BROOKS:

· · ·Q.· ·Go ahead and turn to Page 8.

· · · · · · · (Witness complies.)

Page 142

BY MR. BROOKS:

· · ·Q.· ·And on Page 8, the second paragraph

from the bottom on the left, it starts,

"Fischel's models."

· · ·A.· ·Mm-hmm.

· · ·Q.· ·"The Court found Fischel's models

controlled for market and industry factors and

general trends in the economy.· The regression

analysis took care of that."· You disagree with

that finding.· Correct?

· · · · · MR. FITZGERALD:· Objection.· He's not

going to opine on whether he disagrees or --

agrees or disagrees with the Seventh Circuit

findings.· You can ask him whether the model

controls for X or Y, but you shouldn't be asking

him to opine on an opinion by the Seventh

Circuit.

BY MR. BROOKS:

· · ·Q.· ·You reject this finding that Fischel's

models controlled for market and industry factors

and general trends in the economy, the regression

analysis took care of that --

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

direct him not to answer whether he agrees with

the finding as stated.· I don't know the full

Page 143

context, but as stated language in the opinions.

If you want to ask him the underlying facts, does

he think that Fischel's model controlled for

something or not, I have no objection to him

answering that.· But to frame the answer to a

witness, who is testifying about a damage

calculation, as to interpret particular sentences

in an opinion, I -- I direct him not to do that.

BY MR. BROOKS:

· · ·Q.· ·Do you agree or disagree that Fischel's

model controlled for market and industry factors

and general trends in the economy because the

regression analysis took care of that?

· · ·A.· ·I guess -- you know, putting aside --

I'm not opining on what the Court meant or didn't

mean, whether there's a finding or non-finding.

I'm not opining on the meaning of the Seventh

Circuit opinion.· Whether -- what is reflected in

the residual in a market model, in a regression

model is going -- is going to be a function of

how you control for market and industry.

· · ·And so in Professor Fischel's model, as I

spent a lot of time talking about in my report,

he has a two-factor model.· And given his

definition of "industry," there would be industry

Page 144

effects in the sense of affecting a subgroup of

firms that would show up in the residual.· So,

for -- not to leave this at 1,000 feet, or

30,000 feet.· So, for example, in his model, if

there's effects on subprime lenders -- so I have

five in my report, subprime consumer finance

companies -- then, as a general matter, that

would not be controlled for in his regression

with, because he has a two-factor model.

· · ·So it controls for industry in the sense of

he's controlled for S&P 500 financials.· It would

not include industry effects such as the subprime

group.

· · ·Q.· ·So with that in mind, do you agree or

disagree that Fischel's model controlled for

market and industry factors and general trends in

the economy because the regression analysis took

care of that?

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

· · ·A.· ·You know, I agree with that in the

context of my answer.· It would not control, and

I -- I understand his testimony to agree with

this.· It would not control for effects on

Household's business that are -- that have a

disproportionate effect.

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Page 145

· · ·So, for example, impact on the subprime

consumer finance companies, that would not be

controlled for in his industry control.· You can

consider that industry effect.· And in that sense

it would not be controlled for.· Effects that are

mediated through the S&P 500 financials would be

controlled for.

· · ·Q.· ·You agree that it's possible for news

to impact a stock price even if the price

reaction is not statistically significant.

Correct?

· · ·A.· ·As a general matter, that could be

true, depending on the facts and circumstances.

But you would want a scientifically rigorous

basis to make -- to make that -- in order to

reach that conclusion.

· · ·Q.· ·But it's possible that news affects a

stock price in ways that's, you know, not

necessarily statistically significant.· Right?

· · ·A.· ·Framed at that level of generality, I

agree with that.

· · ·Q.· ·And in some circumstances, market

agents learn about valuation relevant events from

many sources over a long period of time.

Correct?

Page 146

· · ·A.· ·Can you reread the question?

· · ·Q.· ·In some circumstances, market agents

learn about valuation relevant events from many

sources over a long period of time.· Correct?

· · ·A.· ·That could be true, depending on the

facts and circumstances.

· · ·Q.· ·So information can reach the market

gradually through many sources.· Right?

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

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

"gradually," but -- but I agree that in an

efficient market, all publicly-available

information will be reflecting in the stock

price.

BY MR. BROOKS:

· · ·Q.· ·And if information is released

gradually about a certain topic, it can reach the

market gradually through many sources.· Right?

· · · · · MR. FITZGERALD:· Form objection.

· · ·A.· ·I agree that in an efficient market,

the source for public information could be many

sources.

BY MR. BROOKS:

· · ·Q.· ·And that information, if -- about a

certain topic, if released gradually, will reach

Page 147

the market gradually.· Right?

· · · · · MR. FITZGERALD:· Form objection.

· · ·A.· ·You know, I just would say that the

public information set can change in an efficient

market from day-to-day, from many different

sources.· I do want to be clear that when you say

gradually, I would not view a change in the

public information set that's being impounded in

the stock price to -- to consist of the same

information that's been expressed earlier.

BY MR. BROOKS:

· · ·Q.· ·Well, in this case, Professor Fischel

opines that information about Household's

predatory lending practices reached the market at

various points during the leakage period.· You

understand that.· Right?

· · · · · MR. FITZGERALD:· Form objection.

· · ·A.· ·That's consistent with my memory of

what he's saying.

BY MR. BROOKS:

· · ·Q.· ·And, in addition, the defendants in

this case falsely denied that they were engaged

in predatory lending throughout the leakage

period, didn't they?

· · · · · MR. FITZGERALD:· Objection.· He's not

Page 148

here as a fact witness.· Whatever the Seventh

Circuit found or whatever the jury found, it is

what it is.· He's not here to testify that it did

or did not happen.

· · ·A.· ·I don't have a view on what constituted

the misrepresentations beyond noting what's on

the jury verdict form.

BY MR. BROOKS:

· · ·Q.· ·Do you dispute in this case that there

was a continuous flow of fraud-related

information that occurred in the face of ongoing

company denials over the disclosure period?

· · · · · MR. FITZGERALD:· Form objection.

· · ·A.· ·If what you're referring to in your

question is Professor Fischel's justification for

his leakage model, what he calls his leakage

model, then I very much disagree.

BY MR. BROOKS:

· · ·Q.· ·I'm asking a factual question.· Do you

dispute that there was a continuous flow of

fraud-related information that occurred in the

face of company denials over the disclosure

period?

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

· · ·A.· ·I disagree with --

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Page 149

· · · · · MR. FITZGERALD:· You can answer.

· · ·A.· ·I disagree with that in the context of

how Professor Fischel is defining that.

BY MR. BROOKS:

· · ·Q.· ·Outside of Professor Fischel's context,

okay, as a factual matter, do you dispute that

there was a continuous flow of fraud-related

information that occurred in the face of ongoing

company denials over the disclosure period?

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

· · ·A.· ·I don't have a view beyond what I say

about Professor Fischel's analysis, which he

claims that there's continuous flow of

information that is causing all the residuals in

Household's stock price.· And I disagree with

that.

BY MR. BROOKS:

· · ·Q.· ·So separating what Professor Fischel

claims caused the residuals in Household's stock

price, okay?

· · ·A.· ·Okay.

· · ·Q.· ·He also claims that there was a

continuous flow of fraud-related information that

occurred in the face of ongoing company denials,

as a factual matter.· Do you dispute that?

Page 150

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

· · ·A.· ·I dispute -- I reject as inconsistent

with the economic evidence the claim that there's

continuous leakage that's causing the residuals

in his market model.

BY MR. BROOKS:

· · ·Q.· ·I asked you to separate what

Professor Fischel claims caused the residuals in

his market model.· Okay?

· · ·A.· ·Yeah.

· · ·Q.· ·I'm asking you as a factual question,

do you dispute that there was a continuous flow

of fraud-related information that occurred in the

face of ongoing company denials over the

disclosure period?

· · · · · MR. FITZGERALD:· Standing objection

that he's not here to testify as to whether the

fraud happened or didn't happen or how it

happened.· We're proceeding from the jury's

verdict.· And that's the objection to form since

it's compound.

· · · · Are you asking him about the facts of

what happened or are you asking him about the

facts of information and what effect it has on

the market?· You've got two questions in there.

Page 151

BY MR. BROOKS:

· · ·Q.· ·Do you understand my question, sir?

· · ·A.· ·I don't.

· · ·Q.· ·Okay.

· · ·A.· ·If you could read it.

· · ·Q.· ·My question is:· As a factual matter,

do you dispute that there was a continuous flow

of fraud-related information that occurred in the

face of ongoing company denials over the

disclosure period?

· · · · · MR. FITZGERALD:· Again, the same

objection.

· · ·A.· ·So I analyzed that question in the

context of Professor Fischel's so-called leakage

model.· And I do dispute that there's a

continuous flow of so-called fraud-related

information that's impacting the stock price on a

continuous basis.· There's no factual predicate

or rigorous scientific analysis to establish

that.· Basically, Fischel is assuming leakage to

find leakage.

BY MR. BROOKS:

· · ·Q.· ·Okay.· So as a predicate for his

conclusions, Professor Fischel has observed a

continuous flow of fraud-related information that

Page 152

occurred in the face of ongoing company denials

over the disclosure period.· You agree with that,

don't you?· That Professor Fischel has observed

that as a predicate for his analysis?

· · ·A.· ·My understanding -- I mean, maybe

it's -- we're meaning the same thing.· My

understanding of the predicate that he needs,

among other things, for his leakage model, his

so-called leakage model is that every single day,

the entire residual in his model is due to

leakage of the fraud.· And there's no factual

predicate to establish that.

· · ·Q.· ·I don't understand why you won't answer

my question.

· · · · · MR. FITZGERALD:· Objection.

BY MR. BROOKS:

· · ·Q.· ·I've asked you to set aside your

opinions about is the residuals in his model.

Okay?

· · ·A.· ·Yeah.

· · ·Q.· ·There are two parts.· And you've

answered every time with the residuals.· So just

answer my question.

· · · · · MR. FITZGERALD:· Objection.

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Page 153

BY MR. BROOKS:

· · ·Q.· ·Do you dispute --

· · · · · MR. FITZGERALD:· Just ask a question.

We don't need to lecture him.· He's trying to

answer a compound question --

· · · · · MR. BROOKS:· You've been lecturing me

all day.

· · · · · MR. FITZGERALD:· I haven't lectured all

day.· What I'm saying is you're asking a compound

question, and he's not going to answer a compound

question --

· · · · · MR. BROOKS:· The question is not

compound.

BY MR. BROOKS:

· · ·Q.· ·Do you dispute that there was a

continuous flow of fraud-related information that

occurred in the face of ongoing company denials,

as observed by Professor Fischel?

· · · · · MR. FITZGERALD:· That is a compound

question.· And if you're going to ask him a

compound question that he's going to answer, he's

got to explain so he doesn't take in multiple

assumptions in his question, and there's nothing

improper about that.

· · · · · MR. BROOKS:· We've -- we've been very

Page 154

clear about separating the impact of those

fraud-related -- of the fraud-related information

from this question.· Okay?· There's no doubt

about that, because I've said it seven times.· So

separate that impact out and answer this

question.

BY MR. BROOKS:

· · ·Q.· ·Was there, in your opinion, a

continuous flow of fraud-related information that

occurred in the face of ongoing company denials

over the disclosure period?

· · · · · MR. FITZGERALD:· Just -- my objection,

you still haven't -- there are assumptions about

what denials are and who's making denials, which

he's not here as a fact witness.· If you want to

talk about information flowing, if you're going

to ask a compound question, he's going to answer

appropriately.

· · ·A.· ·So my understanding of what

Professor Fischel is saying in his reports is

that there's a continuous leakage of

fraud-related information, as he defines

fraud-related information, that's causing -- and

I'm going to use the word again -- the residuals.

That's the factual predicate that he needs, among

Page 155

other things, not solely that, or he claims he

needs for his model.· And, for that, there's

no -- that's flatly inconsistent with economic

evidence.· It's just an assertion.

BY MR. BROOKS:

· · ·Q.· ·Do you agree that there was

fraud-related information that leaked into the

market during the disclosure period?

· · ·A.· ·Well, I would define "fraud-related

information" as information -- reasonably that

information, new information is reaching the

market every day that's causing the residual.

And there's no factual basis for that.· And

that's the reason, among other things, that his

so-called leakage model is fundamentally flawed

and unsupported.

· · · · · · ·(Cumulative Residual Price

· ·Change on Fraud Related Event Dates

· ·Identified in Company Investor Relations

· ·Reports marked Exhibit 4.)

BY MR. BROOKS:

· · ·Q.· ·I've handed you Exhibit 4, which is a

document that we created that summarizes

Household's investor relations reports, parts of

them during the leakage period.· Okay?· Have you

Page 156

ever reviewed the investor relations reports?

· · ·A.· ·I have.

· · ·Q.· ·And so these are --

· · ·A.· ·I'm not representing -- I have reviewed

some investor relations reports.

· · ·Q.· ·They're cited in the various expert

reports.· Right?

· · ·A.· ·That's correct.

· · ·Q.· ·Okay.· And in the trial testimony?

· · ·A.· ·That's correct.

· · ·Q.· ·So you're familiar with them?

· · ·A.· ·Generally speaking, yes, but -- and the

specific context that Professor Fischel is

utilizing them.

· · ·Q.· ·Okay.· You understand that they contain

comments from the company's investor relations

department about Household's stock price movement

and why the price was moving over time?

· · ·A.· ·There's a lot of comments in those

reports.· You can just direct me to specific

comments.· I don't have an overall

characterization of the nature of the comments.

They say a lot of different things in a lot of

the different reports.

· · ·Q.· ·So this exhibit is a compendium of

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Page 157

comments that are related to the fraud and the

residual price change per Fischel's second

supplemental Exhibit 1 over the leakage period.

Okay?

· · ·A.· ·Understood.

· · ·Q.· ·Okay.· And take a look at the

cumulative residual price change on Page 5.

· · · · · · · (Witness complies.)

· · ·A.· ·Okay.

BY MR. BROOKS:

· · ·Q.· ·It's $23.91.· Correct?

· · ·A.· ·That's what this document says.

· · ·Q.· ·And that's very close to the artificial

inflation that Household -- that Fischel's

leakage model calculates.· Correct?

· · ·A.· ·Without having Professor Fischel's

report in front of me, my memory, such as it is,

is $23.94, if you start at the beginning of the

disclosure period.

· · ·Q.· ·That's the cap.· Right?

· · ·A.· ·That's one of his ad hoc fixes to his

model.· Yes.

· · ·Q.· ·The highest amount of inflation that

Professor Fischel finds is $23.94.· Right?

· · ·A.· ·That is consistent with my memory.

Page 158

· · ·Q.· ·So it's 3 cents from the residual price

change using the specific disclosures model from

the dates in this report --

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

BY MR. BROOKS:

· · ·Q.· ·-- in this exhibit?

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

you asking --

· · · · · MR. BROOKS:· Withdrawn.

· · ·A.· ·-- me to opine where the $23.91 is

coming from?

BY MR. BROOKS:

· · ·Q.· ·No.· I'm representing to you that the

23.91 is the cumulative price change for the

dates that are shown in the second column in this

report.· Okay?

· · ·A.· ·The fourth column?

· · ·Q.· ·The second column.· See the dates in

the second column?

· · ·A.· ·Oh, I see.· Okay.· I understand your

representation.

· · ·Q.· ·Okay.· So I want to go through this, so

I'm not going to have you look at every single

entry and ask you some questions.· The first

entry --

Page 159

· · · · · MR. FITZGERALD:· One question.· Are the

entries verbatim from the reports or are they

abstracts when you have --

· · · · · MR. BROOKS:· No, they're -- they're cut

and pasted from the report.

· · · · · MR. FITZGERALD:· Thank you.

· · ·A.· ·So I didn't follow that.· So these are

verbatim from the report?

BY MR. BROOKS:

· · ·Q.· ·My understanding is they're cut and

pasted.· Yeah.

· · ·A.· ·Okay.

· · ·Q.· ·First is on November 15th, Household

responds to a lawsuit filed by California

Department of Corporations alleging that HFC and

Beneficial overcharged various fees and the stock

dropped from $60.91 on November 14th to 57.80 on

November 16th on over 5.8 million shares traded.

Do you see that?

· · ·A.· ·I do.

· · ·Q.· ·Okay.

· · ·A.· ·On the 15th and the 16th.

· · ·Q.· ·Correct.· Do you consider this to be

fraud-related information?

· · ·A.· ·I do have, in my Exhibit 3,

Page 160

November 15th as a non-confounded statistically

significant residual of $2.21.· The one caveat is

I do note in my report that there's an earlier

disclosure, I believe, on November 9th, that

reflected all or most of this information.

· · ·Q.· ·My question is simpler.· Do you

consider this information about the California

Department of Corporations lawsuit to be

fraud-related information?

· · · · · MR. FITZGERALD:· Form objection.

· · ·A.· ·So I do view this as a specific

disclosure day that's not confounded.· But the

question -- but the question I raise in my report

is whether, you know, there's an issue as to

whether this residual is due to this information

given the November 9th disclosure.· So that would

affect my judgment as to whether all or any of

the residual is attributable to this information

that's being disclosed on this day.

BY MR. BROOKS:

· · ·Q.· ·So because you view this as a specific

disclosure day that's not confounded, you agree

that it's fraud-related information.· Right?

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

· · ·A.· ·I believe it's a specific disclosure

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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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· · ·A.· ·I'm sure I did, because I read this

report in its entirety.· And it's an exhibit to

it.· So I did review it at some point.

· · ·Q.· ·And without reading Exhibit 8, you

can't tell me whether an article referencing the

fact that Household tricked and trapped customers

is fraud-related.· Is that your testimony?

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

· · ·A.· ·It is my testimony that I will not

comment on an article without refreshing my

recollection about the entire article.

· · · · · · ·(Exhibits to Professor Fischel's

· ·August 15, 2007 report marked Exhibit 6.)

BY MR. BROOKS:

· · ·Q.· ·We'll mark as Exhibit 6 the exhibits to

Professor Fischel's August 15, 2007 report.

There's Exhibit 8 for you.

· · ·A.· ·Thank you.· So I'm going to -- I'll

read Exhibit 8.

· · ·Q.· ·If that's what you need to do to tell

me an article about tricking and trapping

customers is related to fraud, sir, then go

ahead.

· · ·A.· ·I will read Exhibit 8.

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

Page 174

· · ·A.· ·Okay.· I've read the document.

BY MR. BROOKS:

· · ·Q.· ·What's the answer?

· · ·A.· ·Could you restate -- if you could

reread it, that would be helpful.

· · ·Q.· ·Is this February 18, 2002 National

Mortgage News article referenced in Paragraph 14

about California subsidiaries of Household

tricking and trapping customers into high-cost

mortgages fraud-related, in your opinion?

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

· · ·A.· ·So if -- I want to be clear on this

language of fraud-related information.· If, by

"fraud-related information," one means corrective

information, corrective of the misstatements, as

identified by the jury verdict, there will be a

series of questions that one would want to ask.

So, number one, I would want to know whether this

document and the statements in it are new

information.· If it's not new information, then

it's not news.

· · ·So just reading this document, by itself,

one would not be able to conclude that is a

corrective information in the sense of

representing new information to the market.

Page 175

· · ·Q.· ·I think you've --

· · ·A.· ·Now --

· · ·Q.· ·-- misinterpreted my question.

· · · · · MR. FITZGERALD:· Let him finish.

· · ·Q.· ·You misinterpreted --

· · ·A.· ·So I --

· · ·Q.· ·-- my question.· I'm not asking about

whether it's corrective information.· I want you

to listen very carefully.· I'm asking --

· · ·A.· ·I wasn't finished.

· · ·Q.· ·-- about whether the information in

this article --

· · ·A.· ·I wasn't finished --

· · ·Q.· ·-- relates to the fraud.

· · · · · MR. FITZGERALD:· And he was explaining

how he understood the terms, and --

· · · · · MR. BROOKS:· And I'm telling him he's

wrong.· Why are we wasting time if he's answering

the wrong question?

· · · · · MR. FITZGERALD:· He's explaining to you

what was ambiguous about the words you used in

your question, so he's not answering the wrong

question.· He's addressing the question you

asked.

· · ·A.· ·So if by -- as I was saying, if by

Page 176

"fraud-related information" we mean corrective --

· · ·Q.· ·I do not mean that.

· · ·A.· ·-- information --

· · ·Q.· ·I don't mean that.

· · ·A.· ·-- then -- or information that would

elicit a stock price reaction to which one could

attribute damages or inflation, one would want to

know whether this is new information.· Otherwise,

it would not be fraud-related information in that

sense.

· · ·One would want -- so one would want to make

the comparison to the informational environment

before this publication to know whether it's new

information that could conceivably move the

market.

· · ·And one would also want to know whether, on

this date, there is a statistically significant

price reaction so that -- so one could ascertain

whether there is any price movement to be

explained.· So, again, I think this -- this

language of "fraud-related," and if we define it

as corrective disclosure, one would need to

engage in that analysis.

· · ·And I would finally note, and then I'm done,

is this is not a date that Professor Fischel has

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identified anywhere as resulting in a stock price

movement that reflects dissipation of inflation.

· · · · · MR. BROOKS:· I'll move to strike that

answer as nonresponsive.

BY MR. BROOKS:

· · ·Q.· ·By "fraud-related" I mean, does it

disclose information related to the fraud?· Do

you understand that?

· · ·A.· ·And how --

· · ·Q.· ·Do you understand that definition?

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

· · ·A.· ·Well, I would want to know your

definition of "fraud."· I know that -- and I

asked because Professor Fischel defined "fraud"

as somehow untethered or more than what was

identified in the jury verdict form.

BY MR. BROOKS:

· · ·Q.· ·Based on your understanding of the

fraud in this case, your understanding of it, you

do have an understanding of it.· Right?

· · ·A.· ·I -- I'm not opining on fraud.

· · ·Q.· ·I'm asking if you have an understanding

of it.

· · ·A.· ·I have an understanding of the

misstatement -- I reviewed the misstatements and

Page 178

omissions found in the jury verdict form.

· · ·Q.· ·Based on your understanding of the

fraud in this case, do you consider this

information to be fraud-related?

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

· · ·A.· ·I find no basis to say this is

fraud-related in the relevant sense, which is new

information to the market that would result in a

stock price reaction that is statistically

significant and could be ascribed to this

document.· And that's the only relevant sense

when we're talking about Professor Fischel's

so-called leakage model.

BY MR. BROOKS:

· · ·Q.· ·It's a very simple question, and you

keep adding additional definitions to it that you

shouldn't.· Okay?· So listen pretty carefully to

me.

· · · · · MR. FITZGERALD:· Objection.

BY MR. BROOKS:

· · ·Q.· ·Is the information that was disclosed

in this article related to the fraud in this

case, in your opinion?

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

And asked and answered.

Page 179

· · ·A.· ·So my definition, given that you're

asking my opinion, of "fraud-related information"

that's relevant to assessing Professor Fischel's

leakage model, and so that's a definition I'm

using, is new information that would result in a

stock price reaction that is statistically

significant.· And I would note Professor Fischel,

himself, has not identified this as a date either

consistent with leakage or in a specific

disclosure model.

· · ·And I should add:· And, therefore, he's not

reasonably confident -- given that it's not a

specific disclosure date, he's not reasonably

confident that this has elicited a stock price

reaction on that day.

BY MR. BROOKS:

· · ·Q.· ·So your opinion is that this article

that discusses a California subsidiary tricking

and trapping customers into high-cost mortgages

in amounts so large in relation to the value of

their homes that the borrower could not refinance

with a competitor --

· · ·A.· ·Are you reading from the document?· I'm

sorry.· Go ahead.

· · ·Q.· ·-- is not fraud-related.· Correct?

Page 180

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

and answered.

· · ·A.· ·So, yeah, I read -- you didn't cite the

entire document.· So I would --

BY MR. BROOKS:

· · ·Q.· ·I'm reading from Professor Fischel's

report, which you claim every answer is

responsive to, sir.

· · ·A.· ·Right.· So my opinion is that this

document, there's no basis to associate this

document with a stock price reaction.· And, in

fact, that's consistent with Professor Fischel in

the sense that he, himself, is not reasonably

confident that on this date -- and I'll just

double-check his specific disclosure dates, that

on this date this represented new information to

the market that elicited a stock price reaction.

· · ·Q.· ·I'm not asking if it's new information,

and I'm not asking about the stock price

reaction.· Do you understand that?· I'm telling

you that.

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

BY MR. BROOKS:

· · ·Q.· ·Do you understand what that means?

· · ·A.· ·I understand.

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· · ·Q.· ·Okay.· So without respect to the

question of whether it's new information and

without respect to whether there was a stock

price reaction, does this article disclosing a

lawsuit, a class action lawsuit alleging that

Household's California subsidiaries tricked and

trapped customers, relate to the fraud, in your

opinion?

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

· · ·A.· ·So you're paraphrasing the article.

The article has one, two, three, four, five, six,

seven, eight, nine, ten, 11, 12, 13, 14 -- 15

paragraphs.· And it's not fraud-related for my

purposes in the sense that it in no way supports

Professor Fischel's inflation band under either

theory.· And so that's what is relevant for my

purposes.· And there's no basis to say that this

is fraud-related in the sense of corrective

information that would support his inflation

band.

· · ·Q.· ·So you're simply refusing to tell me

whether you think that the information in this

article relates to the fraud?· Is that right,

sir?

· · · · · MR. FITZGERALD:· Objection.

Page 182

· · ·Q.· ·Is that your answer?

· · · · · MR. FITZGERALD:· Objection.

· · ·A.· ·I've already answered it.· I could

answer -- I'll give you the same answer, which is

for purposes of assessing Professor Fischel's

inflation band, whether it's under a so-called

leakage model or a specific disclosure model,

there's no basis to say that this -- there's no

basis to say that this document supports that

calculation.

BY MR. BROOKS:

· · ·Q.· ·Okay.· So in order for a disclosure,

for purposes of your report, to be fraud-related,

that disclosure has to be new information and

cause a statistically significant stock price

decline.· Is that correct?

· · ·A.· ·So to support the conclusion that --

that the residual on this day in a properly

specified model should be attributed to so-called

leakage on this day, you would have to have some

basis to say it's new information.· So that is

correct.

· · ·Q.· ·So --

· · ·A.· ·So in an efficient market, the only

thing that will move a stock price is new

Page 183

information.· So if we're talking about an

inflation calculation, then one needs to point to

new information rather than endlessly repeating

the same statements.

· · ·Q.· ·So is any new information that comes

out during the leakage period that creates a

statistically significant stock price decline

fraud-related, under your definition?

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

· · ·A.· ·So if there's additional specific

disclosure dates that Professor Fischel believes

represents new information to the market, and

that the stock price reaction to that cannot be

explained by industry market factors, you know,

he was free -- you know, he doesn't do that on

this date.· So --

· · ·Q.· ·I'm asking about your definition --

· · ·A.· ·Yeah.

· · ·Q.· ·-- which is a very strange definition

of "fraud-related."· I'm trying to get to the

bottom of it.· Okay?

· · · · · MR. FITZGERALD:· Objection.

BY MR. BROOKS:

· · ·Q.· ·Keep that in mind.· Is any disclosure

that's new information and that creates a

Page 184

statistically significant stock price decline

during the leakage period, in your opinion,

fraud-related, or is something else required?

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

· · ·A.· ·So the proper methodology is to have a

specific disclosure methodology using the

standard model.· Professor Fischel's identified

14 days, and only 14 days, in which he's

reasonably confident the price reaction is

attributed to information on that day.

· · ·So, by definition, February 18th, which is

not among those 14, cannot -- the price reaction,

if any, on this date cannot be reasonably

attributed to this document.

· · ·Q.· ·So you've completely ignored my

question once again.· My question is --

· · · · · MR. FITZGERALD:· Objection to the

comment.

· · ·Q.· ·With respect to your definition of

fraud-related, as used in your report, okay, do

you have that in mind?· Do you have that in mind?

· · ·A.· ·I don't.· You have to -- if you ask me

about a specific page or paragraph in my report,

I'll be happy to take a look.

· · ·Q.· ·So you -- as you sit here today, you

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can't answer a question about what you mean by

"fraud-related" in your report.· Is that what

you're saying?

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

· · ·Q.· ·I have to point you to something?

· · ·A.· ·I thought in your question you were --

you were -- you were asking a question about a

specific part of my report, because you

referenced it.· But I gave you my definition, in

terms of assessing Professor Fischel's damage

calculation, which again is ascribing every

residual, every movement in the stock price

that's not describable by the market and industry

in its misspecified model to new information

or -- I'm sorry, to -- to -- to inflation.

· · ·Q.· ·You have opinions in your report --

withdrawn.

· · ·In your analysis for this case, did you make

judgments about whether information was

fraud-related or not fraud-related?

· · ·A.· ·So I certainly made judgments as to

whether with his so-called leakage model is -- is

supported by the economic evidence.

· · ·Q.· ·In the process of doing that, did you

make any judgments about whether evidence --

Page 186

withdrawn.

· · ·In the process of doing that, did you make

any judgments about whether disclosures were

fraud-related or not fraud-related?

· · ·A.· ·Again, you keep on using this phrase

"fraud-related."· Again, I think that's -- one

has to define that.

· · ·So for purposes of Professor Fischel's

model, to ascribe inflation to -- on every day,

to the -- to -- to the damages calculation, you

have to have new information revealed on that day

that is causing that price reaction.

· · ·Q.· ·And that information also has to be

related to the fraud.· It can't just be any

random information.· Right?

· · ·A.· ·I agree it can't be random information.

· · ·Q.· ·Okay.· It has to be related to the

fraud.· Right?

· · ·A.· ·Again, I want to be careful about the

"it" here.· So Professor Fischel's model,

so-called leakage model, among other flaws,

simply assumes that all the price reactions that

he can't describe in his misspecified model is

due to so-called leakage.· And I do have the

opinion that that's unsupported by the facts and

Page 187

circumstances of this case.

· · ·Q.· ·Do you have an opinion one way or

another whether information relating to the fraud

leaked out during the leakage period?

· · · · · MR. FITZGERALD:· Form objection.

· · ·A.· ·I don't agree with the terminology.· So

I don't want to answer and implicitly agree with

the term leakage model -- "leakage period."

· · ·So during the disclosure period, I do have

the opinion that economic evidence is

inconsistent with his extreme and unsupported

so-called leakage model.

BY MR. BROOKS:

· · ·Q.· ·Do you have an opinion one way or

another whether information relating to the fraud

was disclosed to the market during what you're

calling the disclosure period?

· · ·A.· ·Well, so I do analyze the 14 specific

disclosure days and address whether those days

represent days where new information is reaching

the market that is eliciting a stock price

reaction that can reasonably be attributed to a

disclosure on that day.

· · ·And, again, I would just go back to the

point that Professor Fischel himself is not

Page 188

reasonably confident that this date and any

residual on this date is attributable to this

information.

· · ·Q.· ·So in his supplemental report, Fischel

identified 11 dates on which there was a

statistically significant residual stock price

decline and information consistent with leakage

was released to the stock market.· Right?

· · ·A.· ·That's my general memory --

· · ·Q.· ·Okay.

· · ·A.· ·-- of what he's saying in that report.

· · ·Q.· ·And for any of those days, do you

disagree that the information he says was related

to the fraud was, in fact, not related --

withdrawn.· Let me just reask the questions.

· · ·For any of those days, do you contend that

the information that he says was related to the

fraud was, in fact, not related to the fraud?

· · ·A.· ·Yes.· I do disagree.· So in terms of --

· · ·Q.· ·Which days?

· · ·A.· ·Well, eight out of the 11 are not

statistically significant, so there's no new

information that's fraud-related that is moving

the market on that day in the way that I've

defined it.

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· · ·There are three days in a properly specified

model that is statistically significant, and then

I spend some time discussing those three

particular days.

· · ·Q.· ·On days where you found confounding

information, how would you characterize the

information that was not confounding?

· · ·A.· ·Which days do you have in mind?

· · ·Q.· ·Any of the days.· How you would you

refer to those days, that information?

· · ·A.· ·Well, I have four days under the

specific disclosure model, the standard model to

estimate damages that are confounded.· So I would

refer to that information as non-fraud

information.

· · ·Q.· ·And how would you refer to the other

information?

· · ·A.· ·The other information for those four

days, I'm assuming to be corrective information.

· · ·Q.· ·Corrective?

· · ·A.· ·Yes.

· · ·Q.· ·Why is -- why are they corrective?

What criteria do they fall under?

· · ·A.· ·So in my report, I'm not offering the

opinion that on those four days, the four days

Page 190

that are confounded in the specific disclosure

model are corrective.· I'm assuming that they --

I'm assuming they're corrective information, and

asking the question whether there's also

non-fraud-related information on those days.

· · ·Q.· ·Well, how do you define

non-fraud-related information?

· · ·A.· ·I define it in my report.

· · ·Q.· ·How?

· · ·A.· ·So if you turn to Page 44 of my

rebuttal report, I have a discussion of non-fraud

information on September 23, 2002, one of the

four -- I believe it's one of the four confounded

days in my specific disclosure model.· Let me

just double-check if that's accurate.· Correct.

· · ·Q.· ·I'm sorry.· What paragraph are you

referring to?

· · ·A.· ·Sure.· I'm sorry.· I should have given

you the paragraph number.· It's Paragraph 96.

· · · · · MR. FITZGERALD:· It's Page 44.· I did

the same thing.

· · ·A.· ·I would also reference Exhibit 2I,

which accompanies my discussion of

September 23rd, one of the exhibits to the

rebuttal report.

Page 191

· · ·Q.· ·So where does this give a definition of

non-fraud-related information?

· · ·A.· ·Well, I -- maybe I misspoke. I

didn't -- what I -- what I meant to say or hope I

said is I identified non-fraud information on

this date.

· · ·So on this date, I identify information that

is affecting a subgroup of my CSFB index, thereby

demonstrating that there is non-fraud information

on this date.

· · ·Q.· ·So when you -- I asked you previously

how do you define non-fraud-related information.

And you said, I define it in my report, and you

pointed to Page 44.· That was incorrect.· Right?

You don't define non-fraud-related information

there, do you?

· · ·A.· ·I disagree with your characterization.

By identifying the non-fraud information, that's

reflecting my -- you know, reflecting the concept

of non-fraud information.

· · ·Q.· ·What was your criteria for non-fraud

information in selecting it?

· · ·A.· ·Right.· So that's going to depend on --

· · ·Q.· ·Go ahead.

· · ·A.· ·So that's going to depend on the date

Page 192

that we're talking, because the informational

environment is changing.· And information that's

coming out is changing on different days.

· · ·Q.· ·So from date to date, you did not apply

a consistent definition of "non-fraud

information"?

· · ·A.· ·That's --

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

· · ·A.· ·That's mischaracterizing my testimony.

BY MR. BROOKS:

· · ·Q.· ·Well, you say it depends on the date.

I asked you what your definition was, and you

said it depended on the date.

· · ·So from date to date, you apply a different

definition.· Right, sir?

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

· · ·A.· ·That's a false statement about my --

that's absolutely false.· What -- what my report

does is that on different dates, the non-fraud

information is different.· And so, for example,

on September 23rd, I identify information that's

affecting Household, but also a subgroup of the

CSFB index.

· · ·So what the non-fraud information is on a

particular date, you know, might be different

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than the non-fraud information on another date.

· · ·Q.· ·But what criteria do you use to select

what's non-fraud information?

· · ·A.· ·So on this date, it would include

information that has a disproportionate effect on

a subgroup of the industry index at issue.

· · ·Q.· ·So any --

· · ·A.· ·So on Exhibit 2I, I go out of my way to

identify subprime companies that are being

affected on this particular date.

· · ·Q.· ·So --

· · ·A.· ·So that would be --

· · · · · MR. FARINA:· Could you not interrupt

him?· You interrupt him constantly.

· · · · · MR. BROOKS:· Well, he never answers my

question.

· · · · · MR. FARINA:· Please.· Please.

· · · · · MR. DOWD:· Well, let's not have more

than one guy talk.· I'll start talking too.

· · · · · MR. FITZGERALD:· All right.· Why don't

we take it back --

· · · · · MR. BROOKS:· Let's just do that, then.

· · · · · MR. FITZGERALD:· Everyone calm down.

Just if we could let him finish the answer.· You

follow up.

Page 194

· · ·A.· ·Okay.· So non-fraud information

includes information that is affecting

disproportionally a subgroup of the industry

index.· And I do that in Exhibit 2I.

BY MR. BROOKS:

· · ·Q.· ·So any information that's disclosed

that disproportionally impacts your subgroup of

the industry, under your definition, is

non-fraud-related.· Is that correct?

· · ·A.· ·That's too strong.· So the evidence --

that would be evidence that there's information

that's coming out that's affecting not just

Household, but the sector that -- you know, some

subsector.

· · ·So, for example, on September 23rd, I

identify subprime companies being affected on

that date.· So that would be non-fraud

information.· It's not specific to Household.

It's not general to the industry index, but it's

affecting this subgroup.

· · ·Q.· ·Turning back to Professor Fischel's

Exhibit 5.

· · ·A.· ·Exhibit?

· · ·Q.· ·I'm sorry.· His report, which is

Exhibit 5.

Page 195

· · ·A.· ·Okay.

· · ·Q.· ·In Paragraph 16, he discusses

information leaking out about the contents of a

report by Washington's Department of Financial

Institutions.· Take a look at that paragraph and

let me know when you've read it.

· · · · · MR. FITZGERALD:· If you need this, let

me know.· I moved it.

· · ·A.· ·Okay.· I finished reading the

paragraph.

· · ·Q.· ·Okay.· The paragraph identifies

articles generally discussing that the DFI report

has leaked out.· Correct?

· · ·A.· ·I -- I can't characterize these

documents without reading them.· So I would want

to read Exhibits 11, 12, and 13 if you want me to

make a general characterization rather than the

snippets that are quoted here by

Professor Fischel.

· · ·Q.· ·Do you understand what this paragraph

is discussing?· Can you comprehend it?

· · · · · MR. FITZGERALD:· Objection.

· · ·A.· ·I can.· Yes.· I can read the paragraph.

· · ·Q.· ·Okay.· Generally, the paragraph

discusses that the Washington DFI report leaked

Page 196

out.· Right?

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

· · ·Q.· ·The paragraph discusses that, doesn't

it?

· · ·A.· ·I see that -- I can read the words

where Professor Fischel says "Moreover,

information leaked out about the contents of a

report."· I won't read the whole sentence.

· · ·But if you're asking me to

characterize these documents and whether that's

consistent with his characterization, I would

need to reread those documents.

· · ·Q.· ·Okay.· I'm just asking you about his

characterization.· He says that the Washington

DFI report leaked out, as reported in these

various articles.· Doesn't he?

· · ·A.· ·He says what he says.· "Moreover,

information" -- quoting Professor Fischel,

"Moreover, information leaked out about the

contents of a report by Washington State's

Department of Financial Institutions."

· · ·So he does say that.· I agree that that's

what the words say.

· · ·Q.· ·And you don't have a factual dispute

that the -- that information leaked out about the

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contents of the Washington DFI report in this

time frame.· Do you?

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

· · ·A.· ·I do have a factual dispute as to

whether he has established the necessary factual

predicate for saying there was leakage in the

sense that he's using it, which is there's

information that's being revealed that's new to

the market that's causing the stock price to

change.

· · ·Q.· ·Do you have a factual dispute that

information was disclosed about the Washington

DFI to the -- to the market -- withdrawn.

· · ·Do you have a factual dispute that

information was disclosed about the Washington

DFI report to the market during this time frame?

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

· · ·A.· ·During this time frame, that's a very

general statement.· I mean, I could -- if you

have a specific document or disclosure that you

want me to look at, I'll be happy to.

· · ·Q.· ·Well, the time frame is April 18, 2002

through August 27, 2002.· That's the time frame

in the paragraph.· You can see that.· Right?

· · ·A.· ·I do see that.

Page 198

· · ·Q.· ·Okay.· So do you have a factual dispute

that information was disclosed about the

Washington DFI report to the market during the

April 18, 2002 through August 27, 2002 time

frame?

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

· · ·A.· ·Yeah.· That's a very broad time frame.

So I -- the documents say what they say.· I do

have a factual dispute that there's been leakage

in the way that he's using it that's causing the

stock price to change in a way that justifies his

model.

· · ·Q.· ·And under your definition of

"fraud-related," is the information that's

discussed in Paragraph 16 fraud-related?

· · ·A.· ·Okay.· So I have -- so one of the

documents is August 27th, 2002, the Bellingham

Herald.· And I do have a discussion of that in my

report.

· · ·That's one of the specific disclosure days

that he has.· But it's not statistically

significant.· So I do have a discussion of

that -- of that date, in particular.

· · ·Q.· ·I didn't ask if you have a discussion

of the date.· I asked under your definition of

Page 199

"fraud-related," is any of the information

discussed in Paragraph 16 fraud-related?

· · ·A.· ·It's not fraud-related in the sense

that it's a corrective disclosure or there's an

economic basis, rather than just assertion

that -- that this -- these documents are causing

a price reaction.· He's just assuming leakage to

find leakage.

· · ·Q.· ·Is it fraud-related in any other sense?

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

· · ·A.· ·That's the relevant sense for assessing

his inflation band.· There would have to be new

information where there's a basis for saying that

the stock price reaction is not explained by the

industry and market, and that traders or the

market is reacting to that new information.

· · ·Q.· ·My question was:· Is it fraud-related

in any other sense?

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

· · ·A.· ·So I gave you the sense in which I'm

using it for purposes of assessing Professor

Fischel's inflation bands.

· · ·Q.· ·And I'm asking you in any other sense,

is this information, in your opinion,

fraud-related?

Page 200

· · · · · MR. FITZGERALD:· I'm objecting to form.

· · ·A.· ·I -- for purposes of my report, gave

you the complete answer.

· · ·Q.· ·So for purposes of your report, this

information in Paragraph 16 is, in no sense,

fraud-related.· Correct?

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

Asked and answered.

· · ·A.· ·So, again, there's no basis to say that

this information is corrective information or

that this is information that is moving the

market.

· · ·So putting aside, you know -- so, for

example, August 18th is not a date that

Professor Fischel, himself, is willing to ascribe

or -- April 18th is not a date that

Professor Fischel himself is reasonably confident

caused a price reaction.

· · · · · (Discussion off the record.)

· · ·Q.· ·Did you ever attempt to quantify the

impact of leakage in this case, if any?

· · ·A.· ·I did carefully review the economic

evidence and the appropriateness of using a

leakage model or the appropriateness of Professor

Fischel's leakage model.· I did find leakage on

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October 10th.· And that met the criteria -- the

objective scientific criteria for associating a

price change with leakage.

· · ·Q.· ·So October 10th -- the price change on

October 10th is your quantification of the impact

of leakage in this case?

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

· · ·A.· ·Well, what I'm saying is October 10th

is an example of a date on which there is

leakage.· There's a statistically significant

price reaction.· There's strong evidence that the

market is reacting to information about the

settlement.· But those conditions were not met

over the -- you know, for Professor Fischel's

so-called leakage period.· It's just an assertion

that all these stock price changes over such a

long period of time are just the result of the

market learning new information.· There's no

basis for it.

· · ·Q.· ·What you're calling the leakage on

October 10th caused the stock price to increase.

Right?

· · ·A.· ·I believe so.

· · ·Q.· ·And there was a statistically

significant positive residual return on that

Page 202

date?

· · ·A.· ·Correct.

· · ·Q.· ·So the only evidence that you found of

leakage related to the fraud was information that

caused the stock price to increase.· Right?

· · ·A.· ·That's the only date -- I do find a

number of days where there's a statistically

negative residual for days identified as -- as

corrective disclosures or specific disclosures.

But you're correct that besides that date, the

factual predicates for associating stock returns

changes with leakage is -- is lacking.· It's just

an assertion.

· · ·Q.· ·In your -- one of your prior answers --

and I'm not quoting you directly, I'm just

referring you to the answer.· You said that you

reviewed the economic evidence carefully and the

appropriateness of using a leakage model, and

October 10th was the only date that met the

criteria, the objective scientific criteria for

associating a price change with leakage.

· · ·Do you remember that testimony?

· · ·A.· ·Yes.

· · ·Q.· ·Okay.· What was the objective

scientific criteria for associating a price

Page 203

change with leakage that you used?

· · ·A.· ·On October 10th?

· · ·Q.· ·No.· As a general matter, what is the

objective scientific criteria for associating

price change with leakage, in your opinion?

· · ·A.· ·So the criteria I used to identify

October 10th is that the stock price change on

that day is not explainable by market and

industry.· It's not explainable by non-fraud

information.· And that there's a -- there's

evidence -- actual evidence that the market is

reacting to new information on that day that's

not -- that isn't non-fraud.

· · ·Q.· ·So is that the objective criteria that

you require to find leakage?

· · ·A.· ·That's certainly the -- yes.· I would

say, just to be clear, the criteria would be

there would have to be a basis for saying the

stock price changes are caused by new information

that the market is getting that's causing the

stock price changes, that's not explainable by

non-fraud information, including, but not limited

to industry and market.

· · ·Now, in this case, it's very easy, because

at the end of the day, the so-called leakage

Page 204

model is just based on the assertion that the

movement in the stock prices are being caused by

new information reaching the market.· But there's

no economic basis for that.

· · ·Q.· ·So part of the criteria is that there

has to be a basis for saying the stock price

changes are caused by new information.· For

October 10th, you used a statistically

significant residual return.· Right?· That was

the basis?

· · ·A.· ·Well, I mentioned a couple of things

for October 10th.

· · ·Q.· ·I want to focus on the part of the

criteria that requires a basis for saying stock

price changes are caused by new information that

the market is getting that's causing stock price

changes.· Okay?

· · ·A.· ·Understood.

· · ·Q.· ·How do you determine that the stock

price changes are caused by new information that

the market is getting that's causing the stock

price changes?

· · · · · MR. FITZGERALD:· Objection only to

form.

· · ·A.· ·So, again, it has to be new

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information, because we're talking about an

efficient market.· So, by definition, it would

have to be new information.· If it isn't new,

it's not news.

· · ·And so how would you attribute a stock price

movement not explained by the market and

industry, not otherwise explained by non-fraud

information to -- you know, to the market

learning something new?· You would have to have a

factual basis for that.

· · ·So for October 10th, my memory is that there

are documents that talk about rumors in the

marketplace on that day and the market reacting

to those rumors.

· · ·I'm characterizing the evidence on

October 10th in a general way.· And so there

might be some imprecision there.· But that

fairly -- you know, that's my memory of the

evidence on that day.

· · ·Q.· ·Under your criteria for leakage, is a

statistically significant stock price movement

required?

· · ·A.· ·It's certainly important evidence.· But

I would also want to -- I would want to consider

all the evidence together.· So if it's not

Page 206

statistically significant, I think it becomes

extraordinarily difficult to say it's not

explained by the industry and market.

· · ·So we discussed earlier today that

hypothetically, there could be information that

would not be picked up in the statistical test.

But you would have to have a rigorous basis for

saying that stock price movement, if it's not

statistically significant, is caused by something

other than the market and industry.

· · ·Q.· ·Can you give me an example of such a

rigorous basis?

· · ·A.· ·Sure.· So there's academic articles

that look at leakage in the sense of new

information changing market prices in the M&A

context.

· · ·So a question that you could ask is, there's

a merger announcement, an announcement of a

merger on a particular day, and you could look at

the stock run-up in the day or a couple of days

leading up to that announcement, and you could

ask the question that even if an individual day

is not statistically significant, maybe two or

three days is statistically significant.· And

it's a run-up to this announcement.

Page 207

· · ·And so that would be a situation where there

might be leakage, given that there's a specific

announcement.· There's a run-up.· You have

cumulative statistical significance for a handful

of days, and hopefully other evidence that this

is what's going on in the marketplace.

· · ·Q.· ·Take a look at your rebuttal report,

Paragraph 18.

· · · · · · · (Witness complies.)

· · ·Q.· ·You state in the first sentence that

none of the papers Professor Fischel cites that

discusses a single firm -- let me start over.

· · ·You say in Paragraph 18, "Indeed, none of

the papers Professor Fischel cites that discusses

single firm event studies advocates an event

window of the length of Professor Fischel's

228-trading-day leakage period window."· Do you

see that?

· · ·A.· ·I do.

· · ·Q.· ·And you've read the Cornell and Morgan

paper that Professor Fischel's model is based

upon.· Haven't you?

· · ·A.· ·Well, I disagree with the assumption in

your question.· His -- Professor Fischel's

so-called leakage model is not a faithful

Page 208

application of Cornell and Morgan.· But I have

read the article.

· · · · · · ·(Cornell and Morgan article in

· ·the "UCLA Law Review," June 1990 marked

· ·Exhibit 7.)

· · · · · MR. FITZGERALD:· I think I have a copy,

if you need one for someone else.

· · · · · MR. BROOKS:· He seems desperate to read

this, Mike.

· · · · · THE WITNESS:· Are you talking about me?

· · · · · MR. FITZGERALD:· No.· Mr. Dowd.

BY MR. BROOKS:

· · ·Q.· ·Okay.· This is Cornell and Morgan's

article "Using Finance Theory to Measure Damages

and Fraud on the Market Cases."· Correct?

· · ·A.· ·Yes.· That's right.

· · ·Q.· ·Okay.· And you're familiar with this

article.· Right?

· · ·A.· ·I am.

· · ·Q.· ·And Fischel cited this article, didn't

he?

· · ·A.· ·Yes.

· · ·Q.· ·Okay.· So go ahead and turn to Page 906

of the article.

· · · · · · · (Witness complies.)

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Page 209

· · ·A.· ·Yes.

· · ·Q.· ·And just take a look to familiarize

yourself with this page.

· · ·A.· ·You want me to read -- look at the

entire page?

· · ·Q.· ·Just the middle paragraph.

· · ·A.· ·Okay.

· · · · · · · (Witness complies.)

· · ·A.· ·I've read the middle paragraph.

· · ·Q.· ·Okay.· So they're discussing the

appropriate window to use in conducting a leakage

analysis.· Right?

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

· · ·A.· ·Well, it is talking about the window.

Yes.

· · ·Q.· ·And the window should begin far enough

in advance of the disclosure for the analysts to

be reasonably confident that no significant

information leakage has occurred, and notes that

the window can cover the entire class period.

Right?

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

· · ·A.· ·It doesn't say that.· It says it's a

limiting case in which the observation window is

expanded to cover the entire class period.

Page 210

· · ·Q.· ·How is that different, in your opinion,

from what I said?

· · ·A.· ·So I don't interpret this article to

say that you can, in the facts and circumstances

of this case, use a 228-day window, or that

it's -- I'll leave it at that.

· · ·Q.· ·But how is -- you said it was

incorrect, my statement that the article notes

that the window can cover the entire class

period.· Why is that incorrect?

· · ·A.· ·Oh, I was --

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

· · ·A.· ·I was just putting in the qualifier of

it's a limiting case.· So all I was trying to say

is the actual language in this paragraph is

talking about a limiting case.· And that's all --

that's all I meant.

· · ·Q.· ·And how is that different from the

article noting that the window can cover the

entire class period?

· · ·A.· ·Well, it's just that this is an

extreme -- you know, this is a limit of this

extension.· That's all I was trying to say.

· · ·Q.· ·The outer bounds are a window covering

the entire class period.· Right?

Page 211

· · ·A.· ·Well, it's talking in this paragraph

about a generic class period.

· · ·Q.· ·The entire generic class period,

though?

· · ·A.· ·Well, it's talking in the abstract

about a class period in talking about this

concept of -- of -- this section is -- you know,

the comparable index in the event study

approaches is the section.

· · ·Q.· ·And at the bottom of Page 906, Cornell

and Morgan wrote, "Conversely, in a case such as

WPPSS in which there is a continuous leakage of

information, it may be necessary to use the

comparable index approach."· Right?

· · ·A.· ·I agree that those are the words.

· · ·Q.· ·Okay.· That's the example that they

gave after saying the limiting case is to use the

entire class period.· Correct?

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

· · ·A.· ·It does come after that language.

· · ·Q.· ·Okay.· And you understand that the

class period in the WPPSS case was over three

years.· Don't you?

· · ·A.· ·Yes.· So it's March 2001 -- oh, I'm

sorry.· I thought -- I got confused.· I thought

Page 212

you were talking about the Household litigation.

Can you restate -- can you reread the question.

· · ·Q.· ·You understand that the class period in

WPPSS was more than four years long.· Isn't that

right?

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

· · ·A.· ·I remember it's more than a year.· But

it could be four years.· I just don't have a

clear recollection in this --

· · ·Q.· ·Okay.· Turn to Page 892.

· · ·A.· ·892?

· · ·Q.· ·Mm-hmm.

· · ·A.· ·Okay.

· · · · · · · (Witness complies.)

· · ·A.· ·Yes.· I'm there.

· · ·Q.· ·Okay.· Look at the middle paragraph.

· · · · · · · (Witness complies.)

· · ·A.· ·Yes.

· · ·Q.· ·Do you see the last sentence says

"Between March 1, 1977 and March 17, 1981,

WPPSS," and then it continues.· Do you see that?

· · ·A.· ·Yes.

· · ·Q.· ·So you see that it's more than four

years, the class period?

· · ·A.· ·So you're referring to March 1, 1977 to

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Page 213

March 17, 1981.· Yeah.· So assuming that's the

class.

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

ahead.

· · ·A.· ·So assuming that's the class period,

then I agree it's -- it's about four years.

· · · · · MR. FITZGERALD:· I don't want to

interrupt you, but when you get to a natural

break point...

· · · · · MR. BROOKS:· Okay.

· · ·Q.· ·And you agree that this article cites

the WPPSS case as a case where it may be

necessary to use the comparable index approach.

Right?

· · ·A.· ·It does say that.· But you're

leaving -- it's misleading to leave it at that,

because in Footnote 16 on Page 888, Cornell and

Morgan quite rightly, in my view, have a

qualifier where they say -- and I'll read from

the article, "Our primary concern is with

conceptual and legal issues rather than with

financial and statistical ones."

· · ·So I don't read this article to be

advocating that this -- to be addressing the

statistical issues inherent in using an event

Page 214

window so long.

· · ·And I would also note Footnote 41 and 42 and

47, where, you know, they're saying -- and I'm

going to paraphrase -- that this index approach

assumes that the parties agree on the proper

model --

· · · · · · ·(Phone interruption.)

· · ·A.· ·-- that this index approach is

appropriate where the experts agree on the model,

which is clearly not the case here.· Anyway...

· · ·Q.· ·Any other caveats?

· · ·A.· ·Yeah.· So Footnote 47, they also note

that -- and I'll just read from Footnote 47 --

"Over longer periods of time, though

misspecification errors accumulate and become

more important, thus proper specification of the

model is more important when using the comparable

index approach than when using the event study

approach."

· · ·So they caveat -- they have lots of -- they

have a very important qualifications [sic] on

their discussion.

· · ·Q.· ·You agree that Fischel did not use the

entire class period for his observation window.

Right?

Page 215

· · ·A.· ·I agree.

· · ·Q.· ·So his observation window is inside of

the limiting case that's discussed on Page 906.

Right?

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

· · ·A.· ·If you're asking me is four years

longer than 228 days, I agree with that.· I don't

agree that this is an appropriate -- citing to

this article is an appropriate basis for that,

given what I just said about the qualification --

you know, the -- that language that I just

pointed to.

· · · · · MR. BROOKS:· Okay.

· · · · · THE VIDEOGRAPHER:· Okay.· The time is

2:18.· We're off the record.

· · · · · · ·(A recess was taken.)

· · · · · · ·(Article entitled "The Loss

· ·Causation Requirement for Rule 10b-5 Causes

· ·of Action:· The Implications of Dura

· ·Pharmaceuticals, Inc. v. Broudo marked

· ·Exhibit 8.)

· · · · · THE VIDEOGRAPHER:· Okay.· We're back on

the record.· The time is 2:35.

BY MR. BROOKS:

· · ·Q.· ·You have Exhibit 8 in front of you.

Page 216

· · ·A.· ·I do.

· · ·Q.· ·And what is Exhibit 8?

· · ·A.· ·An article that I cowrote in "The

Business Lawyer."

· · ·Q.· ·This is the article that you referred

to earlier that the Seventh Circuit cited to.· Is

that right?

· · ·A.· ·Yes.

· · ·Q.· ·And it's titled "The Loss Causation

Requirement for Rule 10b-5 Causes of Action:· The

Implications of Dura Pharmaceuticals, Inc. vs.

Broudo."· Right?

· · ·A.· ·Yes.

· · ·Q.· ·Turn to Page 167.

· · · · · · · (Witness complies.)

· · ·Q.· ·There's a section there -- well, before

we go there, sorry, what was the purpose of the

article, generally?

· · ·A.· ·You know, it was really to talk about

Dura Pharmaceuticals in the context of loss

causation.· So I think this article was 2007, if

I remember, and I think Dura came out in '05.

· · ·Q.· ·Do you still stand by the article?

· · ·A.· ·Yes.

· · ·Q.· ·Is there anything you'd change in the

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Page 221

· · · · · · ·(Excerpt from Household

· ·International, Inc. Form 10-K for year ending

· ·December 31, 2001 marked Exhibit 9.)

· · · · · MR. FITZGERALD:· This is number?

· · · · · MR. BROOKS:· Number 9.

· · · · · MR. FITZGERALD:· Thanks.

BY MR. BROOKS:

· · ·Q.· ·I've handed you Exhibit 9, which is an

excerpt from Household's Form 10-K for the fiscal

year ended December 31, 2001.· Do you see that?

· · ·A.· ·I do.

· · ·Q.· ·Okay.· Turn to the second page of the

exhibit, which says Page 9 of 20 at the top.

· · ·A.· ·I'm there.

· · ·Q.· ·Okay.· Do you see there's a heading

"Competition"?

· · ·A.· ·I do.

· · ·Q.· ·Read that to yourself, if you would.

· · · · · · · (Witness complies.)

· · ·A.· ·I'm finished.

· · ·Q.· ·Okay.· So Household told the market

that the consumer finance services industry in

which it operates is highly fragmented and

intensely competitive.· Right?

· · ·A.· ·Yes.

Page 222

· · ·Q.· ·And continued, "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 institution

in the United States, Canada and the United

Kingdom."· Right?

· · ·A.· ·That's what it says.

· · ·Q.· ·Okay.· So these types of companies that

Household is telling the market it competes with

are the same types of companies that are in the

S&P financials index.· Right?

· · ·A.· ·I believe that's accurate.

· · ·Q.· ·And you don't disagree with this

statement about who Household competes with.

Right?

· · ·A.· ·Well, at a general level, I don't

disagree with that.

· · ·Q.· ·I mean, they're telling the market this

is who we compete with.· Correct?

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

· · ·A.· ·The document says we generally compete

with these institutions.· That's what the

document says.

· · ·Q.· ·And you're not saying that this

Page 223

document is false in any way?

· · ·A.· ·No.

· · ·Q.· ·Is it false by omission?

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

· · ·A.· ·I'm not saying this document is false

in any sense.· That's -- no.

· · ·Q.· ·Do you think they should have offered a

more specific group to tell investors to they

were competing with?

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

form.

· · ·A.· ·Well, it's outside my scope.· I would

assume the answer to that would depend on SEC

regulations in terms of what needs to be

disclosed and discussed in the 10-K.

· · ·Q.· ·Well, in order to not mislead

investors, should they have identified subprime

consumer finance companies here?

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

again.

· · ·A.· ·No.· I'm not -- I'm not provide

something an opinion, nor does my choice of

industry index lead to any conclusions about

whether a particular document or the 10-Ks is

misleading or not.· You know, I know, generally

Page 224

speaking, there's regulations about the 10-K so I

would assume one would look to those in

understanding the 10-K.· But I'm certainly not

providing the opinion that this is a

misrepresentation.

· · ·Q.· ·Is an appropriate source from which to

choose an index.· Right?· Or a comparables?

· · ·A.· ·You can certainly use -- one potential

choice is the firm's own financial filings.· And,

as I said, we both use S&P 500 financials.

· · ·Q.· ·And the goal, reading back from Exhibit

eight, is to find firms that are truly comparable

in terms of their line of business.· That's

right.· Isn't it?· Is?

· · ·A.· ·Correct.

· · ·Q.· ·Okay.· And these are the firms that

Household is saying are truly comparable in terms

of line of business.· Aren't they?

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

· · ·A.· ·You're mischaracterizing the document.

· · ·Q.· ·Which one?

· · ·A.· ·The Exhibit 8.

· · ·Q.· ·In what way?

· · ·A.· ·So you changed the wording.· The

wording here is "we generally compete," I'm

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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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Page 233

Credit Suisse First Boston Specialty Finance

Monthly article from which you pulled your index.

Correct?

· · ·A.· ·Yes.

· · ·Q.· ·Okay.

· · · · ·(Discussion off the record.).

· · · · · MR. BROOKS:· Do you want me to wait?

· · · · · MR. FITZGERALD:· What are you looking

for?· Fischel's surrebuttal?· What day is that?

· · · · · MR. BROOKS:· The last one.

· · · · · MR. FITZGERALD:· The last one.

· · · · · MR. FARINA:· Why don't we take a break.

· · · · · THE VIDEOGRAPHER:· Do you want to take

a break?

· · · · · MR. FARINA:· A short one.

· · · · · THE VIDEOGRAPHER:· The time is 2:59.

We're off the record.

· · · · · · ·(A recess was taken.)

· · · · · THE VIDEOGRAPHER:· Okay.· We are back

on the record.· The time is 3:06.

BY MR. BROOKS:

· · ·Q.· ·Okay.· So we're still looking at

Professor Fischel's surrebuttal report and

Exhibit 1, which is the Specialty Finance Monthly

from which you pulled your peer index.· Correct?

Page 234

· · ·A.· ·Yes.

· · ·Q.· ·And if you could turn to Exhibit 17.

· · ·A.· ·You mean Page 17?

· · ·Q.· ·Well, Exhibit 17 to --

· · ·A.· ·Oh, I see.

· · ·Q.· ·-- Exhibit 1.

· · ·A.· ·Oh, I see.· Yes.

· · ·Q.· ·This is the specialty finance universe

that you adopted.· Right?

· · ·A.· ·Yes.

· · ·Q.· ·Okay.· And it's comprised of credit

card companies, correct?

· · ·A.· ·Yes.

· · ·Q.· ·Diversified financials, right?

· · ·A.· ·Yes.

· · ·Q.· ·And auto finance.

· · ·A.· ·Yes.

· · ·Q.· ·And Household is identified as a

diversified financial company.· Right?

· · ·A.· ·As part of the subgroup.· Yes.

· · ·Q.· ·Okay.· And within the CSFB specialty

finance universe, you focused on subprime

companies as well.· Haven't you?

· · ·A.· ·I have, at points.· Yes.

· · ·Q.· ·And the subprime companies are not

Page 235

diversified financial companies, the ones you

focused on.· Right?

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

· · ·A.· ·Well, it's true that's not in the

diversified financials group here.· That's

correct.

BY MR. BROOKS:

· · ·Q.· ·In fact -- well, can you tell me from

looking at this which are the subprime companies?

· · ·A.· ·Well, okay, so my memory is Capital

One, CompuCredit, AmeriCredit, Metris and

Providian is my memory.

· · ·Q.· ·Okay.· So all either credit card

companies or auto finance companies.· Right?

· · ·A.· ·As identified here.· Yes.

· · ·Q.· ·When you say "as identified here," why

the qualifier?

· · ·A.· ·No.· I mean, this is -- I'm just

pointing out that it's not a qualifier.· It's

just that's the categories in this Exhibit 17.

· · ·Q.· ·I mean, you, yourself, have said that

the subprime companies are all either credit card

companies or auto finance companies.· Right?

· · ·A.· ·Correct.· I identified that, and I

think there's an Exhibit 2L where I talk about

Page 236

the subprime description of their business.

· · ·Q.· ·Exhibit 2K to your rebuttal report --

· · ·A.· ·Yes.

· · ·Q.· ·-- is that what you're referring to?

· · ·A.· ·Well -- well, I was also referring to

2L, as well, where there's a -- some more

information on that.

· · ·Q.· ·And is it your understanding that

Household's auto lending business was a subprime

business?

· · ·A.· ·No.· I'm not -- that's not my -- I

don't have a view on that.· My memory is that

Household generally, to some significant extent,

was focused on the record subprime and nonprime

customers.· But I don't have a view as to how

that breaks out across these categories.

· · ·Q.· ·So with respect to the credit card

business, you don't have a view on what portion

of that business was subprime versus prime credit

card lending?

· · ·A.· ·No.· I don't, beyond the general

observation that I just made.

· · ·Q.· ·And your testimony is that that's not

relevant somehow.· Is that right?

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

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Page 237

· · ·A.· ·I disagree with that characterization.

BY MR. BROOKS:

· · ·Q.· ·When you say -- so a question ago, I

asked you whether you had a view on what portion

of the credit card business was prime versus

subprime, and you said beyond the general

observation that you made, you don't have a view.

· · ·And what was the general observation?

· · ·A.· ·The general observation was the

description in the 10-K that -- or I believe it

was -- I shouldn't say that.· My memory is

that -- that the market viewed, and in

Household's disclosures, they talked about

subprime and nonprime customers.· And let me just

be -- to give a more complete answer --

· · · · · MR. FITZGERALD:· What are you looking

for?

· · ·A.· ·So Paragraph 5 of Professor Fischel's

report, which is Exhibit 5, he says, and I agree,

"across these segments," so he has segments,

which are consumer credit card services and

international -- I'm sorry.· I'll wait until

you're there.

BY MR. BROOKS:

· · ·Q.· ·No.· No.· Go ahead.

Page 238

· · ·A.· ·Then he states, "Across these segments,

Household generally served non-conforming and

nonprime subprime customers; i.e., those who have

limited credit histories, modest income, high

debt-to-income ratios, high loan-to-value ratios

or have experienced credit problems caused by

occasional delinquencies, prior charge-offs or

credit-related actions."

· · ·So that's the general observation that I was

making that is reflected here as well.

· · ·Q.· ·So you're saying that Fischel says that

in his report.· That's actually from Household's

disclosures.· Right?

· · ·A.· ·That's my understanding.· So just to be

clear, he is citing, in this paragraph, and I

also have in my initial report, which I should

also go to, a citation to the 2002 10-K. I

believe I have similar language in my report as

well.· But I agree with, you know, this

characterization.

· · ·Q.· ·You didn't perform any additional

investigation to see if that was true with

respect to auto or credit card.· Correct?

· · ·A.· ·I looked at the 10-K and how Household

characterized its customers.· And

Page 239

Professor Fischel is correct.

· · ·Q.· ·Did you look at what analysts said

about the credit card business and its subprime

components?

· · ·A.· ·I do remember seeing analyst reports

talking about credit cards and Household. I

don't specifically remember -- you know, there's

so many documents in this case -- about analyst

reports that talk about credit cards and

subprime, about Household.

· · ·Q.· ·Why did you choose -- earlier you said

you thought it was important to choose a

third-party's peer group selection.· What do you

mean by "third party"?

· · ·A.· ·Well, it was important for the purposes

that I'm using it.· I thought that was beneficial

to use, given what I'm using it for -- now I've

forgotten the question.· I apologize.

· · ·Q.· ·My question is, what did you mean by

"third party"?

· · ·A.· ·So all I meant by that was, you know, a

third party that's identified in a group, which

would include an analyst.

· · ·Q.· ·And you understand that even in your

own expert reports, you've cited analyst reports

Page 240

that have much different specialty finance

indexes, including Household.· Don't you?

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

· · ·A.· ·Well, there are analysts that have --

that do cite to other firms, but I would

characterize the analyst reports as often focused

on these companies.

· · ·So it is true that there are -- you can find

analyst reports that have a -- that have a

different mix of companies, but it's also true

that these companies are often referred to in the

analyst commentary in connection with Household

is how I would generally characterize it.

BY MR. BROOKS:

· · ·Q.· ·There was no analyst consensus on a

peer group for Household.· Was there?

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

consensus.· Beyond -- I would just refer back to

my earlier answer about -- that this particular

group of nine is consistent with the general

analyst commentary on Household.

· · · · · · ·(CIBC World Markets Industry

· ·Update entitled "Specialty Finance -

· ·Third-Quarter 2002 Preview" marked

· ·Exhibit 11.)

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Page 241

· · · · · THE WITNESS:· My report is coming

apart.

· · · · · MR. FITZGERALD:· Thank you.· This is

11?

· · · · · MR. BROOKS:· 11.

· · · · · · ·(Phone interruption.)

BY MR. BROOKS:

· · ·Q.· ·You have Exhibit 11 in front of you.

This is an October 3, 2002, CIBC Equity Research

Report titled "Specialty Finance - Third-Quarter

2002 Preview."· Correct?

· · ·A.· ·Yes.

· · ·Q.· ·And I can represent to you this is an

analyst report that you cited in your reports --

· · ·A.· ·Okay.

· · ·Q.· ·-- I believe in Footnote 69.

· · ·A.· ·Thank you.

· · ·Q.· ·Okay?· Turn to Exhibit 1, which is on

the third page -- the fourth page of this

exhibit.

· · · · · · · (Witness complies.)

· · ·A.· ·The fourth page?

· · ·Q.· ·Yup.

· · ·A.· ·Okay.

· · ·Q.· ·This is Exhibit 1.· CIBC World Markets

Page 242

Specialty Finance Universe Summary.· Right?

· · ·A.· ·Mm-hmm.· I see that.

· · ·Q.· ·And there are 22 companies here.

Right?

· · ·A.· ·Yes.

· · ·Q.· ·Okay.· That's more than twice the size

of the index you selected.· Correct?

· · ·A.· ·I agree that 22 is more than twice the

nine.

· · ·Q.· ·Did you consider selecting the CIBC

World Markets Specialty Finance universe?

· · ·A.· ·No.· I followed the approach I

described earlier.

· · ·Q.· ·You didn't look at any other analyst

reports --

· · ·A.· ·That's false.

· · ·Q.· ·-- in making the selection?

· · ·A.· ·So my review of the analyst -- my

general view of the analyst reports, in their

totality, is it's consistent with the nine that

I'm using.

· · ·I'm not saying that there aren't analyst

reports that reference other companies, but in my

judgment, it was consistent with the nine firms

that I've used.

Page 243

· · ·Q.· ·So your testimony is that the 22

companies here are consistent with the nine that

you used?

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

· · ·A.· ·That's a mischaracterization of my

testimony.

· · ·Q.· ·That's not your testimony?

· · ·A.· ·No.· My testimony was about the general

analyst commentary was consistent, in my

judgment, with the nine.· But again, I want to go

back to the -- how I went about selecting these

nine.· And I would also mention that

statistically, the statistics show that it's a

better model.

· · ·Q.· ·Better model than with the 22 here?

You tested that?

· · ·A.· ·That's not my testimony.· My testimony

is with -- relative to Professor Fischel's model.

· · ·Q.· ·With all the other adjustments you made

or not?

· · ·A.· ·Well, I was referring, in my answer,

to -- excuse me.· In Exhibit 6, the adjusted

R-squares.

· · ·Q.· ·So turning to the next page of this

report, Exhibit 11.

Page 244

· · ·A.· ·Page 5?

· · ·Q.· ·Page 6.· Sorry.

· · ·A.· ·Okay.· Page 6.

· · ·Q.· ·An analyst report, and the heading is

"New FFIEC guidelines could have far-reaching

implications for the credit card issuers."

Right?

· · ·A.· ·I see that.

· · ·Q.· ·And when you turn back, Household is

not among those credit card issuers, is it?

· · ·A.· ·I'm confused.· What should I be looking

at?

· · ·Q.· ·Turn back to Page 4.

· · ·A.· ·Okay.· Page 4?

· · ·Q.· ·And do you see Household is not among

the credit card issuers?

· · ·A.· ·Well, I see in this document that

there's four that are listed here on Page 4, and

that does not include Household.· I don't know

whether, in this different section of the report,

that they're referring to those four or to other

firms.· And I would need to review the document

to confirm that.

· · ·Q.· ·It does say "the credit card issuers,"

right, in the heading there?

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Page 249

companies.· Right?

· · ·A.· ·I would just have to go back.· I don't

remember if CIT has credit cards or not.

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

· · ·A.· ·Well, I agree that Capital One and

CompuCredit, Metris, and Providian have credit

card.

· · · · · · ·(A.G. Edwards report entitled

· ·"Specialty Finance Quarterly Fourth Quarter

· ·2001" marked Exhibit 12.)

· · · · · MR. FITZGERALD:· Thanks.· Exhibit 12, I

assume?

· · · · · MR. BROOKS:· Exhibit 12.

BY MR. BROOKS:

· · ·Q.· ·Exhibit 12 is another analyst report

that you cited.· It's a January 2nd, 2002

specialty finance quarterly for the fourth

quarter of 2001 from A.G. Edwards.· Do you see

that?

· · ·A.· ·I do.

· · ·Q.· ·And if you turn to Page 4 -- so turn to

Page 15, if you would.

· · ·A.· ·You want me to be on Page 15?

· · ·Q.· ·Yeah.

· · ·A.· ·Okay.

Page 250

· · ·Q.· ·Is this A.G. Edwards specialty finance

universe?

· · ·A.· ·I don't know.· I mean, is Exhibit 16

that says specialty finance valuation?

· · ·Q.· ·Did you consider this A.G. Edwards

analyst report in selecting your peer group?

· · ·A.· ·So I told you how I arrived at the

March 2001 analyst report.· I did -- as I

testified, it was consistent with what I saw on

other analyst reports.· So I reviewed a number.

But -- but -- so I really don't have anything to

add to that.

· · ·Q.· ·Go back to Page 4 of this document.

· · · · · · · (Witness complies.)

· · ·Q.· ·Do you see there are, in Figure 3, 14

companies, including Household?

· · ·A.· ·I see 14 companies.

· · ·Q.· ·Household is on there.· Right?

· · ·A.· ·Yes.

· · ·Q.· ·And they're listed as a diversified

financial company.· Correct?

· · ·A.· ·Yes.

· · ·Q.· ·And of your peer group, there are only

four, Capital One, MBNA, Providian and American

Express, in this particular group.· Correct?

Page 251

· · ·A.· ·Well, I see AmeriCredit.· So that's

another.· So I see one, two, three, four -- so by

my count, five.

· · · · · MR. BROOKS:· You can set that aside.

· · · · · · · (Witness complies.)

BY MR. BROOKS:

· · ·Q.· ·You understand that in Household's

investor relations reports, they used a peer

group that was different from yours.· Correct?

· · ·A.· ·I don't know the -- if they used the

words "peer group," but -- I'm not saying they

didn't.· I just don't remember the exact wording.

· · ·Q.· ·I show you what was previously marked

as Plaintiffs' Trial Exhibit 820.

· · · · · MR. FITZGERALD:· Thank you.· Do you

want to mark this with an exhibit number?

· · · · · MR. BROOKS:· No.

· · · · · MR. FITZGERALD:· Okay.· That's fine.

BY MR. BROOKS:

· · ·Q.· ·This is the investor relations report

from November to December, 2001.· Correct?

· · ·A.· ·Yes.

· · ·Q.· ·You recognize the form of this

document, don't you?

· · ·A.· ·I do.

Page 252

· · ·Q.· ·So turn to Page 5, which is Exhibit 1

in the report.

· · · · · · · (Witness complies.)

· · ·A.· ·Yes.

· · ·Q.· ·Do you see it says "Household

International Peer Group Stock Price Report"?

· · ·A.· ·I do.

· · ·Q.· ·Okay.· So they do refer to it as a peer

group.· Right?

· · ·A.· ·I agree.

· · ·Q.· ·And tell me -- take a look at the peer

group and tell me which, if any, of these

companies are in your peer group.

· · ·A.· ·Well, you're going to test my memory of

the ticker symbols.

· · · · · MR. FITZGERALD:· Do you mind if I --

· · ·A.· ·Yeah.· I just don't have a good enough

memory of the ticker symbols.· I'm guessing PVN

is Providian, but, you know, I would -- I could

be wrong.· I don't know.· I haven't memorized the

ticker symbols.

BY MR. BROOKS:

· · ·Q.· ·AXP is American Express.· Right?

· · ·A.· ·That sounds reasonable.

· · ·Q.· ·And COF is Capital One?

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· · ·A.· ·That sounds reasonable.

· · ·Q.· ·KRB is MBNA.· I can represent that to

you.

· · ·A.· ·Okay.· Fine.

· · ·Q.· ·And PVN is Providian.

· · ·A.· ·Okay.

· · ·Q.· ·So there are four that were in this

particular peer group.· Right?

· · ·A.· ·That appears to be correct.

· · ·Q.· ·And some of the companies that weren't

in the peer group are AIG --

· · ·A.· ·I'm sorry.· So could you just go

through -- I'm sorry.· So there's American --

okay.· And what was KRP again?

· · ·Q.· ·That is MBNA.· KRB.

· · ·A.· ·Okay.· So American Express, among

others, and MBNA are on here.

· · ·Q.· ·AIG is not in your peer group.· Right?

· · ·A.· ·That's correct.

· · ·Q.· ·Citigroup was not in your peer group,

was it?

· · ·A.· ·That's correct, although with a caveat.

I should -- it's not in my CSFB peer group.

That's true.· But, you know, I would say, and I

should have said this earlier, that I do have the

Page 254

S&P 500 financials in my peer group, as an

industry control as well.· And that might well

incorporate -- you know, reflect some of these

companies, such as Citigroup.

· · ·Q.· ·US Bank is not in your peer group?

· · ·A.· ·It's not in the CSFB peer group.· But

again, I would reference my earlier answer about

the S&P 500 industry index.

· · ·Q.· ·And Wells Fargo is not in your peer

group either.· Correct?

· · ·A.· ·It's not in my nine, but again I would

reference my earlier answer about the S&P 500

Financials Index.

· · ·Q.· ·Providian and Capital One outperformed

Household during the leakage period.· Are you

aware of that?

· · ·A.· ·So I believe Paragraph 60 of my report

has some of those figures.· So which two

companies were you talking about?· I'm sorry, if

you could repeat the question.

· · ·Q.· ·Providian and Capital One.

· · ·A.· ·So Capital One fell by 44 percent, and

Household fell by 54 percent.· So, yes, I agree

with that.· Providian, I don't know.· Or I don't

know, offhand.

Page 255

· · · · · · ·(Exhibit 2a, Exhibit 8a and 8B

· ·marked Exhibit 13.)

BY MR. BROOKS:

· · ·Q.· ·You read Professor James' reports.

Right?

· · ·A.· ·Yes.

· · ·Q.· ·And you relied on Professor James'

analysis for your analysis, didn't you?

· · ·A.· ·I did reference Chris James' report for

certain propositions.

· · ·Q.· ·Okay.· I'm going to hand you

Exhibit 13, which is three exhibits from

Professor James' rebuttal report, Exhibit 2A,

Exhibit 8A, and Exhibit 8B.

· · ·A.· ·Yes.

· · ·Q.· ·So you see that Professor James has

compared Household's stock price over the leakage

period to a few of the members of your peer

group.· Right?

· · ·A.· ·Well, in this Exhibit 2A, he's -- he

has the five subprime companies.

· · ·Q.· ·Okay.· And you --

· · ·A.· ·Subprime consumer finance companies.

· · ·Q.· ·You can see from this exhibit that

Household -- withdrawn.

Page 256

· · ·You can see from this Exhibit 2A that

Providian outperformed Household.· Right?

· · ·A.· ·That appears to be true.

· · ·Q.· ·Okay.· And you understand that American

Express outperformed Household over the leakage

period?

· · ·A.· ·That sounds right.

· · ·Q.· ·And you also understand that MBNA

outperformed Household over the leakage period?

· · ·A.· ·My best recollection is that's true.

· · ·Q.· ·Okay.· So all of the peers that are

identified in -- by Household that are also in

your peer group outperformed Household.· Didn't

they?

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

· · ·A.· ·I would have to go back to the list. I

mean, so Capital One outperformed in the sense of

falling a little bit less.· I agree with that.

Just based -- looking at my Paragraph 60.

· · ·Q.· ·You just said American Express did.

Right?

· · ·A.· ·That's my best recollection.· What was

the third one?

· · ·Q.· ·MBNA and Providian.

· · ·A.· ·Providian, looking at Exhibit 2A, looks

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like it out -- it did better, in terms of raw

returns.· And what was the last one?

· · ·Q.· ·MBNA, which you testified outperformed

Household.

· · ·A.· ·That was my best recollection.· I mean,

there's no need to go off my memory.· It's -- you

know, the stock returns are what they are.

· · ·Q.· ·So you'll agree that the four peers

that were included in the companies' investor

relations reports outperformed Household that

are -- it appears that are also in your group.

Right?

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

only.

· · ·A.· ·Well, when you're using the words

"outperform" or "underperform," these are just

looking at raw, unadjusted returns rather than

residuals.· So, yes, as I understand Exhibit 2A,

that was just looking at the raw returns.

· · ·Q.· ·Is it appropriate to look at the raw

returns?

· · ·A.· ·It depends on for what purpose you're

doing that.

· · ·Q.· ·To determine relative performance.

· · ·A.· ·Why are you looking at relative

Page 258

performance?· If you want to look at relative

abnormal performance, you would want to look at

residuals.

· · ·Q.· ·Okay.

· · ·A.· ·If that's the research question that

you have.

· · ·Q.· ·Turning to the next page of Exhibit 13,

you agree that Household was much, much bigger

than the subprime lenders in your peer group, at

least as you and Professor James have classified

them?

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

ahead.

· · ·A.· ·It is -- the assets as measured in

Exhibit 8A are bigger than the other -- than the

other five.· The five -- just to be clear, the

five subprime that form five out of the nine.

· · ·And I would incorporate in my answer my

Footnote 130 to my rebuttal report, where I note

that given the value weighting of my CSFB, that

American Express and MBNA are going to drive a

lot of what's going on.

· · ·So if you look at Page 43 of my rebuttal,

what I'm saying is American Express and MBNA are

81 and 83 percent of my value weighted index, and

Page 259

so to the extent that what was going on in the

market is concerns about subprime, my index will

be conservative, given the weighting on MBNA and

American Express.

· · ·Q.· ·Conservative in what sense?

· · ·A.· ·Conservative in the sense that there

could be subprime -- concerns in the marketplace

about subprime, and American Express and MBNA are

not subprime.· And they -- they constitute 81,

83 percent of the value weighted.

· · ·So it's going to be conservative relative to

the concerns in the marketplace, which were

obviously very concerned about subprime during

this period.

· · ·Q.· ·Your --

· · ·A.· ·And I would note -- one final note, and

then I'll stop, is as we discussed, American

Express and MBNA performed relatively well.· The

subprime five, which is being underweighted, so

to speak, in my index or have relatively -- you

know, 19 and 17 -- you know, are going to be a

minority of my weighting, I believe they had

declines around 46 percent during the disclosure

period.

· · ·Q.· ·Turning to 8B, Household's growth was

Page 260

much greater during 2002 than four of the

so-called subprime five in your peer group.

Right?

· · ·A.· ·Yes.· It's definitely greater,

according to Exhibit 8B.· And this is, just

reading the title of the exhibit, over 2002.

· · ·Q.· ·You understand that your peer group is

different than the peer group that defendants'

expert, Bajaj, testified was the appropriate peer

group at the last trial, don't you?

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

· · ·A.· ·That's consistent with my memory.

· · · · · MR. BROOKS:· I'd like to take a break.

· · · · · MR. FITZGERALD:· Sure.

· · · · · THE VIDEOGRAPHER:· The time is 3:43.

We're off the record.

· · · · · · ·(A recess was taken.)

· · · · · · ·(Second Rebuttal Report of

· ·Daniel R. Fischel marked Exhibit 14.)

· · · · · THE VIDEOGRAPHER:· Okay.· We're back on

the record.· The time is 3:54.

BY MR. BROOKS:

· · ·Q.· ·Okay.· You have Exhibit 14, which is

Professor Fischel's second rebuttal report?

· · ·A.· ·I do.

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· · ·Q.· ·Yeah.· Turn to the report.

· · ·A.· ·Oh, you want me to go to the report?

· · ·Q.· ·Yeah.

· · ·A.· ·Oh.· Sorry.

· · · · · · · (Witness complies.)

· · ·Q.· ·And take a look at Paragraph 11.

· · · · · · · (Witness complies.)

· · ·A.· ·Yes.· I see that.

· · ·Q.· ·And do you see at the bottom, where

Professor Fischel references Exhibit 2, which

shows that Household's stock fell 53 percent

while indexes --

· · ·A.· ·I'm sorry.· I'm not -- I don't mean to

interrupt.· But can you direct me again to where

you're --

· · ·Q.· ·Paragraph 11.

· · · · · MR. FITZGERALD:· Can I point?

· · ·A.· ·Okay.· I see that.

· · ·Q.· ·"Household's stock fell 53 percent

while the indexes of the firms identified by

Professors Ferrell and James declined 19 percent

and 16 percent respectively."

· · ·Do you see that?

· · ·A.· ·I do see that.

· · ·Q.· ·And you agree that your CSFB index

Page 262

declined by 19 percent.· Right?

· · ·A.· ·I have no reason to disagree.

· · ·Q.· ·And that's much less than Household's

stock fell.· Isn't it?

· · ·A.· ·I agree that 19 is less than 53.

· · ·Q.· ·And the CSFB index also outperformed

the S&P financials index, which fell 21 percent.

Right?

· · ·A.· ·I agree that 19 is less than 21.

· · ·Q.· ·You don't dispute Professor Fischel's

calculations in this report?

· · ·A.· ·I'm not endorsing all his calculations,

but I have no reason to take issue with these raw

return numbers.

· · ·Q.· ·Right.· These calculations that we're

discussing, the return numbers, you don't dispute

them.· Do you?

· · ·A.· ·I have no reason to dispute.· The

returns are what they are.· It's an objective

fact.

· · ·Q.· ·And take a look at Paragraph 12.

· · · · · · · (Witness complies.)

· · ·A.· ·Okay.

· · ·Q.· ·Let me know when you're ready to talk

about Paragraph 12.

Page 263

· · ·A.· ·You want me to read it?

· · ·Q.· ·Sure.

· · ·A.· ·Okay.

· · · · · · · (Witness complies.)

· · ·A.· ·Okay.· I read it.

· · ·Q.· ·Okay.· So incorporating the CSFB index

into the leakage model did not impact the results

of the leakage model.· Isn't that the right,

according to Professor Fischel?

· · ·A.· ·Well, according to Professor Fischel,

it would change the artificial inflation,

according to him, to 27.52 or 27.60, but, you

know, these are meaningless results.

· · ·Q.· ·Artificial inflation would go up.

Right?

· · ·A.· ·Well, he is saying that, in his

regression, using his faulty and flawed model and

the incorrect estimation window that he has this

output.

· · ·Q.· ·And you don't dispute the output with

the caveats that you just had in your last

answer.· Right?

· · ·A.· ·I dispute the output in the sense of

this is a meaningless result.

· · ·Q.· ·So turning back to your rebuttal

Page 264

report --

· · · · · · · (Witness complies.)

· · ·A.· ·Okay.

· · ·Q.· ·-- and Exhibit 2K.

· · ·A.· ·Yes.

· · ·Q.· ·These are the business lines of

companies with a subprime customer focus.· Right?

· · ·A.· ·Correct.

· · ·Q.· ·We looked at this a little bit before?

· · ·A.· ·Correct.

· · ·Q.· ·Why did you set these companies apart

from the rest of your peer group?

· · ·A.· ·Because, generally speaking, it was

clear from the market commentary, the analysts,

that there was significant concerns during the

disclosure period, starting in the fall of 2001

and going forward, about subprime exposure.· And

so given the market concerns about this -- this

type of exposure, it was worthwhile identifying

those subprime consumer finance companies within

CSFB 9.

· · ·Q.· ·And four of the five companies are

credit card companies.· Right?

· · ·A.· ·Correct.

· · ·Q.· ·Okay.· So turn to Exhibit 17 of

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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

Page 292

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

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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?

Page 294

· · ·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

Page 295

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.

Page 296

· · ·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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don't recall that exhibit.· I could be

misremembering.· But I don't recall that.

· · ·Q.· ·So turning back to Paragraph 62, what

is the non-fraud information that you claim is

company-specific in this paragraph?

· · ·A.· ·Concern -- you know, I would generally

characterize it as concerns about subprime.

· · ·Q.· ·Well, I'd like you to point to the

language.

· · ·A.· ·Sure.· So -- well, I would point to all

the language.· "Rotten economy has exposed their

borrower base to hard times.· Their borrower base

is significantly subprime and nonprime, as

Professor Fischel himself states.· And "the

growing deterioration" -- now I'm just reading

from the report.· "The growing deterioration in

subprime lending, it should be noted, has already

been -- has already laid low other former Chanos

shorts, including AmeriCredit, Conseco and

Providian."

· · ·Q.· ·What is --

· · ·A.· ·And then there's a Reuters report,

"Credit card stocks fall in Metris, subprime

worries."

· · ·Q.· ·What does growing deterioration in

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subprime lending mean?

· · ·A.· ·Well, I would just go back to the

article to get the full context.· But there's

concerns about subprime lending, is the way I

would interpret it.

· · ·Q.· ·That's how you interpret growing

deterioration, subprime lending is just general

concerns about subprime lending?

· · ·A.· ·No.· There's a couple of articles here

that are evidence, at least that -- in the

context of Fischel's model, Professor Fischel's

model, that his residual is capturing concerns in

the marketplace about subprime, about credit

cards.· But I think, you know, what appears to be

most important here is subprime.

· · ·Q.· ·So --

· · ·A.· ·But there's concern about credit cards

as well.

· · ·Q.· ·So your conclusion here is that this

information may have impacted Household's stock

price.· Right?

· · ·A.· ·In my initial report, it may have.· If

you go to paragraph 35 of my rebuttal, I point

out that what I identify here as "could have" is

now, in fact, as proved by the corrected model,

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that what he's capturing in his residual are the

subprime and credit card concerns, as evidenced

by the fact that once you control for that with a

better index, his statistically significant

residual goes away.· So what that means is that

his residual is capturing these non-fraud

factors.

· · ·Maybe I can be helpful here.· So

Paragraph 36 of my rebuttal -- and I'll just read

the language, and this is what I'm referring

to --

· · ·Q.· ·I don't need you to do that. I

understand what you're saying.

· · ·Turn to Paragraph 65 of your initial report.

· · · · · · · (Witness complies.)

· · ·A.· ·Okay.

· · ·Q.· ·Just let me know when you've read that.

· · ·A.· ·Okay.· I'm sorry.· Paragraph 65?

· · ·Q.· ·Sixty-five.

· · ·A.· ·Oh, okay.· Okay.· I've read it.

· · ·Q.· ·Okay.· This is February 6th, 2002,

which is another statistically significant

decline under Professor Fischel's model.· Right?

· · ·A.· ·Correct.

· · ·Q.· ·And in Paragraph 65, you cite an

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A.G. Edwards report, which is Exhibit 31, that

refers to industry credit quality concerns and

accounting concerns.· Right?

· · ·A.· ·Correct.

· · ·Q.· ·So do you agree that the accounting

concerns were fraud-related information?

· · ·A.· ·Well, again, we're going to get back to

our discussion about what "fraud-related" means.

· · ·So it's not fraud-related in the sense of

corrective information.· So if somebody -- if the

market hears about the litigation -- you know,

the lawsuit on November 15, 2001, and the market

keeps -- you know, market actors, analysts keep

saying, hey, there's this litigation and they

keep on saying that, repeatedly, that's not new

information that would account for stock price

declines.

· · ·Q.· ·Is it your opinion that the

accounting-related concerns addressed in the

A.G. Edwards report were company-specific

non-fraud concerns?

· · ·A.· ·No.· I don't agree with that, because

in my corrected model, there's no statistically

significant residual which shows that these

concerns --

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Page 301

· · ·Q.· ·I think you misheard my question.

· · ·A.· ·Okay.

· · ·Q.· ·My question is, is it your opinion that

the accounting-related concerns in

Paragraph 65 -- that you cite in Paragraph 65

were company-specific non-fraud concerns?

· · ·A.· ·In whose model?· In my model, they're

not company-specific, because there's no

statistically significant residual.

· · ·Q.· ·So in your model, accounting concerns

about Household are not company-specific?

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

· · ·A.· ·That's not what I'm saying.· I'm saying

in these paragraphs that there appears to be

concerns in the marketplace about the consumer

finance sector.

BY MR. BROOKS:

· · ·Q.· ·I'm asking you about a specific piece.

And I'll read it to be clear.· Because you said

that A.G. Edwards also issued a report on

February 6, 2002, stating that it "attributes

weakness in Household shares to industry credit

quality concerns and accounting-related concerns.

And that, to be sure, investor sentiment on the

consumer finance sector is poor today."

Page 302

· · ·A.· ·Yes.

· · ·Q.· ·You see that?

· · ·A.· ·I do.

· · ·Q.· ·You voluntarily chose to include that

in your report?

· · ·A.· ·Correct.

· · ·Q.· ·Okay.· Is it your opinion that the

accounting-related concerns in Paragraph 65 are

non-fraud-related, company-specific concerns?

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

· · ·A.· ·Not in my model.

BY MR. BROOKS:

· · ·Q.· ·What else would it be?

· · ·A.· ·And I would also -- in my earlier

answer, there's no reason to believe that market

actors repeating the same concern is new

corrective information that could possibly

explain stock price changes.

· · ·Q.· ·So are industry credit quality

concerns, as referenced here on the A.G. Edwards

report, company-specific, non-fraud concerns --

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

BY MR. BROOKS:

· · ·Q.· ·-- in your opinion?

· · ·A.· ·In whose model?· In Fischel's model,

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yes, it would be captured by the residual.· In my

model, with a better specified model, these

industry concerns are actually captured by the

model.

· · ·Q.· ·So in your --

· · ·A.· ·So it's proof what he is saying is

caused by corrective information, as evidenced by

his residual, is, in fact, industry concerns once

you have a better specified model.

· · ·Q.· ·So the content of the information

doesn't matter whatsoever to your opinion.· It's

just what the model says?

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

BY MR. BROOKS:

· · ·Q.· ·Is that fair?

· · ·A.· ·No.· That's not fair.

· · ·Q.· ·Are you aware that in your report you

cite -- and I'm talking about your initial

report --

· · ·A.· ·Okay.

· · ·Q.· ·-- you cite a number of articles that

don't even mention Household and say that they

are company-specific, non-fraud information?

· · ·A.· ·I do cite -- I do remember citing to

some that don't specifically mention Household.

Page 304

But beyond that, you would have to point me to

specific references in my report.

· · ·Q.· ·In any of your prior expert

engagements, have you attributed stock price

declines to a company based on disclosures that

don't even discuss the company?

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

· · ·A.· ·I mean, I would have to look back. I

mean, there's nothing surprising about that.· In

fact, Professor Fischel does that himself.· That

is, there could be information in the model that

is not -- there could be information --

information in the context of the model that is

not properly being controlled for.

· · · · · MR. BROOKS:· Why don't we take a break.

· · · · · THE VIDEOGRAPHER:· The time is 4:54.

We're off the record.

· · · · · · ·(A recess was taken.)

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

record.· The time is 5:08.

· · · · · MR. BROOKS:· I'm done, subject to any

further examination.

· · · · · MR. FITZGERALD:· Thank you.

· · · · · · · ·CROSS-EXAMINATION

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Page 305

BY MR. FITZGERALD:

· · ·Q.· ·So, Professor Ferrell, at some point

during your testimony today, you referred to a

couple of ad hoc adjustments that

Professor Fischel made.· Do you recall the

substance of that testimony?

· · ·A.· ·Yes.

· · ·Q.· ·What were you referring to?

· · ·A.· ·I was referring to his ad hoc so-called

leakage cap and his ad hoc so-called cap M

adjustment.

· · ·Q.· ·Okay.· And why do you call the cap M

adjustment that he described so-called?

· · ·A.· ·Because the explanation and the

justification he gave for it in his deposition

made no sense.· It's not the capital asset

pricing model that's, as he says, the most

established in the academic literature.· It's --

and it's not -- and it doesn't actually represent

the context in which that article is doing it.

So it's not cap M.· And the explanation for why

he's doing it made no sense.

· · · · · MR. FITZGERALD:· Okay.· I have nothing

further.

· · · · · MR. BROOKS:· Nothing further.

Page 306

· · · · · MR. FITZGERALD:· Okay.· Thank you.

· · · · · THE VIDEOGRAPHER:· Okay.· The time is

5:09.· We're off the record.

· · · (Deposition concluded at 5:09 p.m.)

Page 307

· · · · · DECLARATION UNDER PENALTY OF PERJURY

Case Name: Lawrence E. Jaffe Pension Plan

· · · · · ·vs. Household International, Inc.

Date of Deposition: 02/27/2016

Job No.: 10022056

· · · · · · · I, FRANK FERRELL, III, hereby certify

under penalty of perjury under the laws of the State of

________________ that the foregoing is true and correct.

· · · · · · · Executed this ______ day of

__________________, 2016, at ____________________.

· · · · · · · · · · · _________________________________

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

NOTARIZATION (If Required)

State of ________________

County of _______________

Subscribed and sworn to (or affirmed) before me on

this _____ day of ____________, 20__,

by________________________,· · proved to me on the

basis of satisfactory evidence to be the person

who appeared before me.

Signature: ______________________________ (Seal)

Page 308

· · · · · · ·C E R T I F I C A T E

COMMONWEALTH OF MASSACHUSETTS

SUFFOLK, SS.

· · · · I, Janet M. McHugh, a Registered Merit

Reporter and a Notary Public within and for the

Commonwealth of Massachusetts do hereby certify:

· · · · THAT FRANK ALLEN FERRELL, III, the

witness whose testimony is hereinbefore set

forth, was duly sworn by me and that such

testimony is a true and accurate record of my

stenotype notes taken in the foregoing matter, to

the best of my knowledge, skill and ability.

· · · · I further certify that I am not

related to any parties to this action by blood or

marriage; and that I am in no way interested in

the outcome of this matter.

· · · · IN WITNESS WHEREOF, I have hereunto set

my hand this 28th day of February, 2016.

· · · · · · · · · · · · · · · ___________________

· · · · · · · · · · · · · · · JANET M. SAMBATARO

· · · · · · · · · · · · · · · Notary Public

My Commission Expires:

July 16, 2021

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