Alec Otto v. Nano f/k/a Raiblocks f/k/a Hieusys LLC

Background

Alec Otto brought a proposed class action against Nano f/k/a RaiBlocks f/k/a Hieusys, LLC; Colin LeMahieu; Mica Busch; Zack Shapiro; Troy Retzer; B.G. Services SRL f/k/a BitGrail SRL f/k/a Webcoin Solutions; and Francesco “The Bomber” Firano. The claims concerned alleged securities fraud and related conduct involving defendants’ promotion of and statements about NANO cryptocurrency tokens, also called XRB or RaiBlocks.

The Nano Defendants moved to strike the seven-page expert report of David Weisberger. Weisberger had been asked to address whether information from the XRB development team influenced investors’ purchases, whether information asymmetry was affected by the relationship between the developers and BitGrail, and whether information allegedly withheld from investors was significant. His report also offered opinions concerning the requirements for class certification, including numerosity, commonality, typicality, identifying potential class members, and whether a class action would be superior to other methods of resolving the dispute.

Legal standard

Federal Rule of Evidence 702 permits expert testimony when the witness is qualified and the opinions are relevant and reliable. Under the Daubert standard, the party offering the expert testimony must show that the opinions rest on a reliable methodology. At the class-certification stage, the court performs a focused reliability review tied to whether the expert evidence helps determine whether the requirements for class certification are met; it does not make the final decision about the report’s admissibility for trial or a dispositive motion.

The court explained that reliable methodology may involve testing, peer review, consideration of an error rate, or general acceptance in the relevant scientific community. When those methods are unavailable because an issue is new or specialized, the expert still must rely on a dependable basis grounded in the knowledge and experience of the relevant field.

Court’s analysis

The Nano Defendants argued that the report was irrelevant and failed Rule 702 and Daubert’s reliability requirements. They pointed to Weisberger’s deposition testimony, which they said showed speculation, skepticism about online cryptocurrency information, unfamiliarity with the XRB platform, and a lack of knowledge about BitGrail’s records. They also relied on a report by Steven McNew criticizing Weisberger’s methodology.

Otto focused on the report’s discussion of the class-certification requirements. He argued that those opinions were relevant, that the methodology was sound given the rapidly changing nature of cryptocurrency, and that the court had broad discretion in applying Daubert.

The court found that Otto did not address the relevance of the report’s earlier sections. It concluded that those sections were not relevant to the pending class-certification motion and were appropriately stricken, while noting that it was not encouraging parties to file motions for that purpose merely because an expert report contained background material.

More importantly, the court found that the report did not identify a generally accepted methodology for its class-certification opinions. The court characterized Weisberger’s opinions as highly speculative and unsupported by facts in the record. The report did not estimate how many people were affected and instead used general phrases such as “many” and “a great many.” The court also found that Weisberger relied heavily on Reddit and Twitter postings without identifying data or a survey showing that cryptocurrency users or XRB holders used those sources for information. His deposition testimony also reflected that he viewed such online information skeptically.

The court further found that Weisberger lacked specific experience with the XRB cryptocurrency platform and did not explain why his general cryptocurrency experience could reliably support conclusions about XRB. The court stated that the report showed insufficient knowledge about XRB and about the records maintained by XRB holders or BitGrail. It concluded that the report merely repeated publicly available information and social-media content without a reliable methodology.

Disposition

The court GRANTED the Nano Defendants’ motion to strike the report of David Weisberger. Because Otto relied on the report to support his second motion for class certification, the court ordered him to file a notice within five business days stating whether he intended to proceed with or withdraw that motion. The order terminated Docket Number 179. The court did not decide the underlying securities-fraud claims or the pending class-certification motion in this order.