The Expert View: Economist testifies in mining conspiracy case
In 2010, an explosion at Upper Big Branch in West Virginia killed 29 miners. Former CEO of Massey Energy, Don Blankenship, was charged with conspiracy to violate mining industry safety standards. He is also charged with lying to investigators after the Upper Big Branch explosion.
Frank Torchio, economic expert and president of Forensic Economics Inc., testified in front of a jury to provide his opinions about the economic impact of the alleged conspiracy (and explosion) on Massey Energy stock prices, and to explain his economic and statistical analysis in this case.
Torchio told jurors that if there had been a conspiracy, that the documents Blankenship provided to the SEC would have been important to Massey Energy investors.
In his testimony he also discussed event studies analysis, a technique to analyze how stocks respond to new information, explaining that “the market is hungry for any information about a particular company.”
The expert also presented the calculations from his analysis, which considered general market movements and tangential industry events. Torchio added that a standard deviation in Massey Energy stock would be 2 percent, and that anything above or below 4 percent would be statistically significant.
Torchio highlighted a nine percent drop in Massey Energy stock prices after NPR reported an FBI investigation at the company for criminal negligence.
During cross examination, the defense attorney Eric Delinsky attempted to challenge and discredit Torchio, arguing that news of the criminal charges had no significant impact on stocks since they went up to a price higher than before the drops.
The attorney attempted to paint the expert as less-than-objective, noting that he bills the U.S. Attorney’s Office $500 per hour, with a total bill approaching $30,000 for his work on the case over the past year. Delinsky said “if your opinions didn’t support the government’s theory, you wouldn’t be here.”
