by Lynne Huntting

It was the end of a long week in Oakland District Court for the civil jury trial of Kevin Kalkhoven and three other former executives of JDS Uniphase of Milpitas CA.

The defendants are alleged to have committed securities and exchange commission violations. Most of Friday morning was spent on Dr. Scott Hakala, plaintiffs witness.

Under cross examination of Dr. Hakala by James Bennett, lead attorney for three of the four plaintiffs and JDSU, Dr. Hakala was asked about using a different methodology for determining inflation damages. Thursday his figures were based on percentage damages. Bennett asked Dr. Hakala what the inflation damages would be for KEVIN KALKHOVEN if calculated on a dollar-drop methodology. Dr. Hakala testified that on a total proceeds from insider selling of $589,667.387.00, the inflation damages would be $179,999,475.00.

Michael Shepard, lead attorney for Kalkhoven, also cross examined Dr. Hakala, focusing on questioning Hakala's methodology in his statistical analysis, including what news was included in relevant events and the 'backwardisation' method. As part of his opinion, rendered as an expert witness, Dr. Hakala concluded there was inflation of the JDSU stocks on April 25 and 26, 2000. Dr. Hakala said statistically the way he selected events relevant to the study was statistically superior to Dr. ARTHUR WYATT, a yet to be called defense witness.

The testimony was complex and came with demonstratives and exhibits. The jury members had handbooks for some of the material.

Dr. Hakala said there were only two allegedly false statements attributed to Kalkhoven before his retirement from JDSU on 18 May 2000. Dr. Hakala contended he was able to show how the JDSU stock rose and fell based on statements which later proved to be false. Original report showed how stock was overvalued.

Then it was time for redirect examination by the Plaintiffs attorney, Mark Arisohn. There was much discussion of Dr. Hakala's methodology. The witness said "statistical modelling is both art and science. What events to choose or not choose (to be included in relevant events) is judgment." There was also detailed testimony on methodology for determining damages.

Dr. Hakala said there are very complex models for such determinations. Damages are based on what assumptions are made on stock markets. Computations should use percentages rather than dollars in computing the inflation of stocks at any given time.

There is dispute between Plaintiffs and Defendants with awarding damages for insider trading damages using dollar computations. Dr. Hakala's figures for Kalkhoven had total proceeds from insider selling at $589,667,387.00, with inflation damages of $179,999,475.00.

Once Dr. Hakala's testimony was concluded and he was excused, it was time for the Defense to put on its case. The first attorney was Dr. Arthur Wyatt, called by Steward Plunkett, one of the defense legal team for three of the four former JDSU executives and JDSU.

Dr. Wyatt has been a CPA for 57 years, long time professor and now emeritus, with many years in between working on and off for Arthur Anderson for 22 years. Dr. Wyatt was Chairman of the Accounting Principles Group and Chairman of the Accounting Standards Committee of FASB - Financial Accounting Standards Board, and provided guidance to the SEC. SEC guidance requires GAAP principles to be followed. Dr. Wyatt was the United States representative on the International Committee for International Accounting Standards Board. The SEC wants those standards to become the worldwide standards.

Dr. Wyatt also was a consultant to the SEC on several cases. Dr. Wyatt has been an expert witness or litigation consultation on thirty or so matters, and has written two text books and published seventy or more articles. He is a member of the Accounting Hall of Fame, inducted in 1998.

Dr. Wyatt uses another methodology, GAAP - generally accepted accounting principles, which is issued by the FASB - Financial Accounting Standards Board. Dr. Wyatt testified that companies follow GAAP when preparing financial statements. He reviewed the allegations, especially concerning goodwill and inventory, to determine if the accounting was done in accordance with GAAP, as well as reviewing all the extensive discovery evidence. Dr. Wyatt had been in attendance in court for the past several days and had reviewed the transcripts from those days.

Dr. Wyatt's opinion regarding inventory is that previous witness testimony was "seriously flawed and absolutely unacceptable and not in accordance with GAAP." As for goodwill, Dr. Wyatt said there was no basis for write off of goodwill by JDSU until the end of the third fiscal quarter end of 2001.

Dr. Wyatt said he has put in 150 hours so far in the case and there will probably be upwards of 70 more hours.

Friday's testimony from Dr. Wyatt did not conclude at day's end, and as he had expected to testify Thursday instead of Friday, he had a scheduling conflict which would prevent him returning Monday. After much discussion, outside the presence of the jury, it was determined that Dr. Wyatt would return the follow Friday to conclude his testimony and be available for cross examination and redirect.

During the entire proceedings Kalkhoven was attentive and taking notes. As soon as the jury left the court room, so did Kalkhoven.

The trial continues this week, with the key defense witness continuing on Friday - the first day of the Champ Car seasons' finale race in Mexico City.

Last time I checked, Kalkhoven didn't know whether or not he would be in Mexico for the race.

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