Ninth Circuit Grapples with “Boiler Room” Expert Opinions

Where does lay opinion stop and expert opinion begin? While assessing convictions for wire and mail fraud associated with the defendants’ movie investment schemes, the Ninth Circuit considered this important question in United States v. Lloyd, 807 F.3d 1128 (9th Cir. 2015). Beyond its colorful facts, Lloyd is notable for the Ninth Circuit’s treatment and eventual exclusion of the opinion testimony of a former colleague of the defendants, finding the testimony beyond the permitted scope of Rule 701 of the Federal Rules of Evidence. Because the error in admitting the opinion was not harmless, the Ninth Circuit reversed the conviction in part.

Lloyd illustrates a common dilemma faced by litigants, where the underlying facts involve technical or complex subjects. The question becomes at what point does opinion testimony of a lay witness become expert testimony, subject to the attendant disclosure requirements mandated by the Federal Rules. Lloyd and other recent decisions illustrate the mostly gray dividing line between the two and counsels a conservative approach in high-tech, or otherwise complex, criminal and civil litigation settings.

Defendants’ Investment Schemes
Defendants were telemarketers charged with wire fraud, mail fraud, and the sale of unregistered securities. Working out of call centers—so-called “boiler rooms”—in Florida and California, they sold what they described as no risk, quick return investments in movie productions. The alleged investments were in “B” movies, including Forbidden Warrior, From Mexico with Love, and Red Water, all produced by Cinamour Entertainment. According to the opinion, while Cinamour did hire telemarketers to raise money for these projects, most of what the defendants collected from investors merely lined the pockets of boiler room employees. To solicit investments, “fronters” would cold call potential investors, and, reading from a script, describe the investment in glowing terms. If they received any interest, the call would be transferred to a “closer,” whose job was to get signed investment documents. One of the defendants, Nelson, worked first as a fronter, and later as a closer, in one of these boiler rooms located in California. Like other employees, he followed a script, convincing targets to part with their money by guaranteeing quick, profitable returns on their investments.

In 2011, Nelson, along with ten others, were indicted on charges of mail fraud, wire fraud, and securities fraud. Nelson’s defense centered around the contention that he actually believed the investments were going to the movie productions, and—despite evidence to the contrary—that the investments would eventually pay returns to his clients. These claims, if true, would negate the knowledge element of fraud.

Nelson’s claims, however, were undercut by the testimony of a former boiler room employee turned government witness, Allen Bruce Agler. Agler was no disinterested third party. Agler had worked with Nelson and his cohorts in related boiler rooms before. At trial...