Massachusetts Federal Judge Nixes Part of Securities Expert Witness’s Testimony in Ghana Banking Fraud Case

Case:

Patricia M. Keppler v. RBS Citizens, No 12–10768–FDS, U.S. District Court, Massachusetts; June 24, 2014

Background:

Patricia Keppler asserts that she was a victim of a “romance fraud” involving one or more people in Ghana. They persuaded her to allow the use of her bank accounts to launder and transfer funds through her home-equity line of credit account beginning in 2010. The Ghanaians, whom Keppler said she did not know, transferred money stolen from a Citibank account into Keppler’s home equity line of credit account. Fifteen transfers were made totaling $289,732. Then, using the automated telephone banking system, the money was transferred into Keppler’s checking account. She then made wire transfers from her checking account to an account in Ghana totaling $165,000.

When the Citibank customer reported the unauthorized transactions, Citizens suspected fraud and blocked further transactions. Citizens reversed the payments and sent funds back to Citibank; however the transfers to Ghana could not be reversed. Facing approximately $219,000 in losses, Citizens charged the loss to Keppler, adding it to the principal of her mortgage loan.

In a six-count complaint, Keppler sued her bank, RBS Citizens, N.A., alleging that it illegally charged her for losses because the transfers were unauthorized. Furthermore, Citizens did not move quickly to identify the fraud. Citizens contends that Keppler is responsible for the transfers because she gave her personal identifying and banking information to the perpetrators.

Securities Expert Witness:

Marie Kerr, founder of Shamrock Consulting Group, has more than 30 years of experience designing and developing systems for monitoring electronic banking transactions to detect fraud and financial crime.

Kerr opined that Citizens failed to comply with the Electronic Payments Association (NACHA) operating rules and should not have allowed the 15 transfers to occur. Further, Citizens’ authentication procedures for verifying the identity of an individual who is transferring money into a home equity account over the telephone were commercially unreasonable. Moreover, Citizens’ fraud detection, risk mitigation, and regulatory compliance procedures were insufficient, she said.

Citizens moved to exclude Kerr’s testimony under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc. (509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 [1993]).

Admissibility of Securities Expert Witness:

In a memorandum opinion, Judge F. Dennis Saylor IV for the U.S. District Court for the District of Massachusetts found Kerr qualified to testify about Citizens’ compliance with the NACHA rules. Her lack of formal training does not require the exclusion of her testimony if she has experience that allows her to identify which rules apply and how they operate, the judge said.

“Thus, even if her professional focus is on preventing money laundering and other types of fraud, her experience in implementing and working with systems that handle ACH and other electronic payment transactions-while perhaps thin-is sufficient to provide a basis for expert testimony,” the judge held.

Kerr’s conclusion that Citizens was at fault for allowing the transactions, as a matter of NACHA rule interpretation, can be subjected to vigorous cross-examination at trial, the judge said.

Regarding Kerr’s opinion on the commercial reasonableness of Citizens’ authentication procedures, Keppler failed to show that the testimony is relevant to some claim or defense asserted in the case, the judge said. The opinion must be struck.

Similarly, the judge said Kerr’s opinion on the sufficiency of Citizens’ fraud detection systems is inadmissible because “it is entirely unclear what legal theory plaintiff is employing in order to establish liability on the part of the bank, and how the proposed testimony fits within that theory. Plaintiff cannot simply offer testimony that the bank should have had better systems for detecting fraud without some indication as to why that testimony is relevant to some legally cognizable claim (or in response to a legally cognizable defense).”