Expert Analysis of Losses to Investor Victims of Criminal Securities Fraud

The Situation

On 14 September 2010, following a nine-month trial, a jury convicted David Brooks and Sandra Hatfield on all counts of securities fraud and conspiracy to commit securities, mail, and wire fraud. The US Attorney’s Office for the Eastern District of New York asked Dr. Jordan Milev to estimate losses caused to investors in the common stock of DHB Industries, Inc. as a result of the actions that formed the basis of the defendants’ convictions.

NERA's Role

Dr. Jordan Milev submitted a report to the Supervising US Probation Officer quantifying the amount of inflation and providing for a plan of allocation to calculate investor losses. His report also estimated, for purposes of sentencing, aggregate investor losses and the number of fraud victims.

The Result

The court issued an opinion adopting Dr. Milev’s event study methodology, stating that “[T]he Milev Report is sufficient to allow the Court to reasonably approximate investor losses.”  The ruling further stated that “the Court ... doubts that additional submissions would be more helpful than the Milev Report.” Dr. Milev submitted a supplemental report taking into account the court’s holding in the same opinion that two resignations by key company figures did not reveal concealment of the fraud. The court awarded restitution to investor victims based on Dr. Milev’s inflation calculation.