Lack of BV credential triggers a Daubert challenge

In a bankruptcy case in South Carolina, the defendants moved to exclude evidence of an expert, which included his exhibits and valuation report. Citing no education nor certification on business valuation nor membership in any BV organizations, the defendants asserted the expert was not qualified to give an expert opinion on business valuation under Rule 702 (the federal rule of evidence regarding expert witnesses).

The expert had been a CPA since 1985, and his license was in good standing. He also had a B.S. in accounting and was a member of the AICPA. His CV, which was provided to the defendants, “provides information regarding his educational history, professional experience (including over 400 business valuations), professional designation as a CPA, and presentations.”

Not excluded: “Courts have … agreed that any gaps in an expert’s knowledge generally go to the weight of the witness’s testimony, not its admissibility,” the court wrote. Based on evidence from the expert’s various disclosures about his background, the court determined that he was qualified as an expert witness by his skill, knowledge, experience, training, and/or education.

There were other issues in this case, where both sides sought to exclude each other’s valuation experts. Both motions were granted in part and denied in part. The case is Vieira v. Think Tank Logistics, LLC (In re Levesque), 2023 Bankr. LEXIS 2113; 653 B.R. 127, and a case analysis and full court opinion are on the BVLaw platform.

Watch out for ‘black box’ compensation apps

During his session on reasonable compensation at the Forensic and Valuation Conference hosted by the Virginia State Society of CPAs, Neil Beaton (Alvarez and Marsal) discussed the various compensation benchmarking surveys and subscription databases. Be careful, he cautioned, because some of these are “black boxes” that use algorithms to generate data that could be challenged (he had a case where that was an issue). ERI was one that was mentioned that does not give the recipe for its “secret sauce.” Therefore, make sure you know what’s underlying the data—and use multiple sources in case one gets disqualified. He also suggested examining proxy statements from public companies for compensation data.

Updates to two closed-end fund reports are available

Closed-end fund (CEF) data are commonly used to derive discounts for lack of control (DLOC) for closely held holding companies invested in marketable securities. Updated versions (to June 2023) of two sources of CEF data, prepared by Bruce A. Johnson and James R. Park (Partnership Profiles), are now available:

1. 2023 Closed-End Fund Report: Fixed Income Securities. Use this report to compare privately held family limited partnerships (FLPs) and LLCs that hold money market funds, certificates of deposit, government bonds, municipal bonds, corporate bonds, or other fixed income investments; and
2. 2023 Closed-End Fund Report: Stocks and Equity Investments. Use this report to compare privately held FLPs that hold common stock, preferred stock, mutual funds, REITs, or other corporate equity investments.

Price: $295 each.

Global BV News

Next edition of IVS expected January 2024

Alexander Aronsohn, technical director at the International Valuation Standards Council (IVSC) told the audience at the 2023 ASA International Conference that there were 116 responses (i.e., comment letters) to the exposure draft for the updates to the International Valuation Standards (IVS). The public comment period ended this past July 28, and an updated version of IVS is expected to be published in January 2024 with an effective date of July 2024. The exposure draft included IVS updates that address various factors, such as ongoing changes in global markets and valuation practices, increasing use of technology and data sources, growing demand for clarity in valuation processes, and the need to address new types of assets and liabilities, including environmental, social, and governance (ESG) factors.