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A Not Very Expert Witness

Medico Legal

by Anthony Lipmann

Becoming an expert witness was not, in my case, a career choice. Instead, it was something that hunted me down in my riper years because my knowledge was in an unusual field. I am a metal merchant (think Steptoe & Son on steroids if you like) and it was my alleged expertise in the trade in rare earth oxides and metals that was required in a fraud case.

Although my educational degree was in literature, I had spent almost forty years in metal, supplying rare and unusual elements, low in volume and high in value, for a host of applications – from mobile phones to catalysts, and from specialty glass to single crystal turbine blades for jet engines. Surprising as the literature angle might seem, it was the fact I was comfortable with words, and wrote articles about the metals industry, that gave me the confidence to take on the role of expert witness.

Accepting risk was not something I was afraid of either. Back in the 1990s, I spent a couple of weeks of each month travelling the CIS purchasing metal scrap that was being dismantled from the crumbling Soviet Union. It was the peace dividend in metal; and a business that tended sometimes to involve unsavoury characters. To get through it, I always focused on the metal itself, its specification and what it could be used for. On one occasion, I bought the remains of a titanium distillery in Armenia that had been artfully disguised as a pig-sty. On another, I shipped titanium plates from Komsomolets Class nuclear submarines, with the curve of the hull still clearly visible, scrapped because the submariners had not been paid.

For me, being invited to be an expert witness in a rare earth metal fraud case was just another challenge - and I thought it might prove stimulating.

I should explain. The subject of rare earths, came to public attention, and to those without a blind bit of interest in the metals industry, via broadsheet reports that the U.S. was being held to ransom by the Chinese for the supply of certain elements in the periodic table essential to U.S. weapons programmes. Most of these items originated in China, so when a Chinese fishing trawler, Minjinyu 5197, rammed a Japanese coast guard patrol boat in disputed waters off the island of Senkaku in 2010 the touch paper for the rare earths war was lit. China, the USA believed, had orchestrated the incident as an excuse to weaponise the trade in rare earths, imposing export quotas on these elements which they monopolised.

These were the circumstances that lay behind the apparent public interest in unpronounceable elements such as Neodymium, Dysprosium and Praseodymium; essential to the manufacture of permanent magnets, required in applications in which it was imperative the item could not be demagnetised and thus disabled. But other rare earth elements, strictly speaking called Lanthanides, such as Cerium, Thulium, Lutetium, Gadolinium, Ytterbium, Holmium, Erbium, Terbium and Samarium were all affected too.

What had happened – and I was long enough in the tooth to know this – was that something which was essentially only relevant to the metal trade, had – as it were – gone viral. Those with no knowledge or ‘a little knowledge’ of elements and rare earths were much exercised. And it was this that proved such fertile ground for financial fraudsters. The story was that it could be lucrative for members of the public to invest in a group of elements that were being used as a geopolitical weapon in the rivalry between China, the USA and Japan.

To give you an idea of how far this theme developed, the Netflix soap opera, House of Cards, with Kevin Spacey as the U.S. President, had a rare earth plot line in it, involving Chinese influence on U.S. trade policy in return for a rare earth investment.

What happened in real life was that fraudsters used the publicity and hysteria around rare earths to give veracity to sales of rare earth investments to widows and orphans, guaranteeing astronomical returns, while using boiler room techniques, such as telephone sales, to reach the bewildered and unwitting.

Of course, while most metal merchants saw this coming, sadly those outside the trade only saw the story they were being sold. In the trade association of which I am a member, The Minor Metals Trade Association (www.mmta.co.uk), one of our rules is that we are not allowed to sell metals to investors. Minor metals are too illiquid, volatile and difficult enough to trade, even for those like me who have spent a life time in it. To consider that these items would be an investment instrument was simply irresponsible.

But a toxic mix of story, greed and naivety tends to provide opportunities for those with bad intentions to relieve the untutored of their money.

The starting pistol for the rare earth crisis had happened in 2008 with the publication of an apparently erudite report entitled Minerals, Critical Minerals and the U.S. Economy published by the National Academy of Sciences in Washington which claimed that the U.S. was vulnerable to China for 97.6% of its rare earth needs, and to the world for 100%.

On the back of this, and the fever it created, prices for some elements had risen by as much as 20 or 30 times. An element such as Neodymium which had been languishing at $20 per kg in 2007 had risen to $550 per kg by 2011. Governments scratched their collective heads wondering what needed to be done. I attended a metals conference in Washington in 2009 at which lobbyists appeared to stop little short of recommending bombing China. Xenophobia was in the air. As prices reached preposterous levels, I was invited to be witness before the Parliamentary Select Committee for Science and Technology which was investigating whether tax payers’ money should be spent to stockpile these items.

I knew things had gone badly wrong when, visiting my local barber in Walton-on-Thames, and under the razor blade, he asked me, ‘whether it would be a good idea for him to invest in rare earths?’

After the bubble burst following the run-up in prices, based on ever more wacky, ill-informed, and wild reports of the world running out of these elements, lo and behold the world did not end. In the interim, the Chinese had obtained high prices but still exported; and no wind turbine, aircraft engine, battery or weapons system was delayed or remained unbuilt due to a lack of rare earths.

By about 2012 the wind had gone out of the sails and prices had gone back to close to square one. An entire mine called Mountain Pass in the U.S., sold to investors on the basis that it was a rare earth mine outside China, had eaten a billion-dollar mountain of cash and gone into bankruptcy without delivering any significant output. Perfectly sensible companies had lost money and were nursing their wounds. Egg was liberally splattered across continents.

So, it was not a surprise when in 2016, I was telephoned by a firm of lawyers seeking an Expert Witness in a case of potential fraud. At first, I was excited about the matter as it appealed greatly to the ‘I told you so’ side of my personality. But, shortly after agreeing to the job I realised, to my discomfort, that I was not acting for the good and righteous who had invested in rare earths but to the accused.

While, as mentioned before, MMTA rules forbade members from selling metals to investors, there were no rules in the wider investment community to do the same. We had to stand by and watch as companies were founded as fast as mushrooms growing in a cellar, to offer groups of rare earth elements in themed units of ‘tech’, ‘green’, ‘electronics’, ‘batteries’, all dressed up for retail, like posies of cut financial flowers – but there was little that we could do. It was not illegal.

Those behind the schemes were often located offshore in sunny places such as Malta, Gibraltar or the British Virgin Islands, holding rare earths in stock in warehouses and issuing warrants to be marketed to widows and orphans, spinning the tall. Newspapers and magazines stoked the issue with lurid headlines which could all be paraphrased along the lines of ‘The Chinese are plotting our destruction by holding back Rare Earths’. No one appeared to question, if that was the case, how it was the investment vehicles were able to provide supply? The sales literature followed a similar banal pattern, claiming that rare earths were un-substitutable in various applications, and investors could anticipate handsome 20-50% returns.

Although, as I say, my interest had been piqued by the approach, and I was excited to be involved, knowing now that I was to act for what I regarded as the wrong side made me want to back out. Taking time to reflect, though – and I am glad that I did - I reasoned that an alleged murderer is entitled to a fair trial in the UK, so I accepted.

And this is the first lesson for anyone considering expert witnessing – you need to understand that your responsibility is to the court, the process and your knowledge – not to your personal view of the case.

What happened next, should then give further pause for thought to anyone thinking of becoming an expert witness without due preparation. The job was to read several hundred pages of court notes to a previous case as well as statements in the present one, and then to unpick the argument of the other side to hand to the barrister via the defending solicitor. This was not an easy job, and in fact I took at least one solid week away from my trading desk to think and study the case.

To assist me, I employed one of the bright young men who pass through our door on work experience. His name was Josh. Josh only had experience of the theatre but was entitled to feel this assignment was better than making the tea. So, we gathered together what I knew about rare earths from our office filing cabinets; prices and charts going back to the 1990s, production figures, market views, a host of worthy reports issued by consultants who had been employed during the bubble to advise governments, investors, traders, consumers – all with the aim of seeking defence arguments for the accused.

Putting it melodramatically, we felt as if we were on the Washington Post at the time of Watergate – but that was only in our heads.

At one point, we were trying to track down a phrase that I was certain I remembered from the National Academy of Sciences paper, citing that the USA depended upon China for 96% of all its rare earths. We just couldn’t find the quote anywhere, and I was beginning to doubt my memory, until Josh, after many hours of googling, found the exact sentence. It turned out that the search engine wouldn’t bring me the answer because the actual figure was ‘97.6’%! It was a eureka moment with much punching of the air. So, off went our 12-page report.

We had done our best; but, having read the transcript of Metropolitan Police interviews, and the statements from the widows and the bewildered who had been duped, I did not give much credence to our success.

In 2017, the case was heard and went on for a number of weeks, no doubt to the mind-numbing boredom of the jury. And then, a week or so after, I judged it would be all right to ring the solicitor, as I was curious to know how many years the defendant might have got. 

'He got off ’, the solicitor said.

Clutching at straws, I asked, ‘But was the defendant a little bit chastened at least?’ ‘Do you think perhaps he will mend his ways?’

‘No’, the solicitor said, ‘he has retired back to his home in the suburbs and will most likely do it all over again.’

Friends and family had surprised me, prior to the case, by asking ‘Why are you acting for the defence?’, as if an accused should only receive a defence in the event that society feels like it.

I now had a much harder question to answer. ‘What could I say (hypothetically) to all those who lost money?’

It was not an easy question.

The only answer that came to mind was ‘Get a better prosecuting lawyer’.

So, the second point to make to any potential expert witness out there is - remember this is the law and we live in a highly sophisticated country with due process. Judging between right and wrong is a question of evidence and argument. The greatest calling of the expert witness therefore really is to be an expert – even if your expertise appears, alas, to bring about what you may personally regard as the wrong result!

An earlier version of this piece, written specifically for the metal trade, was published on June 21st 2017

on www.lord-copper.com

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