Direct examination of Marvin Goodfriend

📄 Direct examination of Marvin Goodfriend — Friday, February 7, 1997

Address:

C:\DEPT103\CIVIL\1997\FEB\7\DIRECT-EXAMINATION-OF-MARVIN-G.DOC

TRIAL

▲ Day 56 of 57

◀ Marvin Goodfriend sworn in Cross-examination of Marvin Goodfriend ▶

Witness: Marvin Goodfriend
Examiner: Robert Baker
Called by: Defense • Date: Friday, February 7, 1997 • Utterances: 75

Robert Baker called Marvin Goodfriend, OJ Simpson's CPA of 15 years, to contest the plaintiffs' financial expert's valuation of Simpson's net worth. Goodfriend disputed two specific errors in opposing expert Freeman's tax calculations and testified that when proper tax liabilities from asset liquidation are included, Simpson had a negative net worth of $856,000 before the $8.5 million verdict — and negative $9.3 million after.

# 1 Q:

Mr. Goodfriend, what is your occupation?

# 2 A:

I am certified public accountant.

# 3 Q:

Tell us your educational background.

# 4 A:

I'm a graduate of the University of Pennsylvania where I majored in accounting, and I received my CPA degree over 30 years ago.

# 5 Q:

And have you practiced accounting for the last 30 years?

# 6 A:

Yes.

# 7 Q:

And including tax accounting?

# 8 A:

Excuse me?

# 9 Q:

Including tax accounting?

# 10 A:

Yes.

# 11 Q:

And how long have you been an accountant for Mr. Simpson?

# 12 A:

Approximately 15 years.

# 13 Q:

Okay. And throughout that period of time, have you prepared financial statements for him and reviewed the financial information for Mr. Taft?

# 14 A:

Yes.

# 15 Q:

And have you prepared tax returns and that sort of thing?

# 16 A:

Yes.

# 17 Q:

All right. Now, let me ask you -- first, let me get the exhibit out of here.

# 18 (Counsel displays board entitled Summary of Orenthal Simpson's Financial Condition as of December , 1996.)

# 19 (BY MR. BAKER) I know it's difficult to see there, so let me give you -- I think I had a copy here a minute ago. Yeah, let me give you a copy of that page so you can look at it. It will be a little more convenient for you. Here. (Mr. Baker hands document to the witness.)

# 20 Q:

(BY MR. BAKER) Now, to be a CPA do you have to pass an accounting exam?

# 21 A:

Yes.

# 22 Q:

Do you have to take professional courses and continuing accounting education courses?

# 23 A:

Yes.

# 24 Q:

Is it the parameter of a CPA to speculate?

# 25 A:

No.

# 26 Q:

Tell the ladies and gentlemen of the jury whether or not you believe a $25 million value of name and likeness should be included on Mr. Simpson's financial condition?

# 27 A:

I'm not totally qualified in that area. That has to do with generally accepted accounting principle area and I do not have any great expertise. What I do know is that placing any value on future revenue streams where there are no contracts is totally speculative.

# 28 Q:

Are speculative numbers supposed to be included in a financial condition or a summary of net worth?

# 29 A:

In my opinion, no.

# 30 Q:

To your knowledge, there is not one contract or one signed piece of paper that back up a present value income stream for the next 25 years of $25 million?

# 31 A:

Not to my knowledge.

# 32 Q:

All right.

# 33 MR. BAKER:

Now, may I see 2424 and 2413, please. (Clerk hands exhibits to counsel.)

# 34 MR. BAKER:

Let me give you a copy of 2413 so you can see it. (Exhibit 2413 displayed on Elmo.)

# 35 MR. BAKER:

It's even a little hard to see on the Elmo monitor. This was prepared by Mr. Freeman. This is 2413, I believe.

# 36 Q:

(BY MR. BAKER) Now, on 2424, which is the statement of net worth of Mr. Simpson on December 31, 1996, did you assist in the preparation of that document?

# 37 A:

Yes, I did.

# 38 Q:

And 2424 is Mr. Taft's and your statement of financial net worth of Mr. Simpson as of December 31, 1996?

# 39 A:

I didn't prepare the financial statement. I assisted in the preparation of the tax consequences.

# 40 Q:

And that's what I want to discuss for a moment. Now, if items of Mr. Simpson are liquidated, does that trigger any tax consequences?

# 41 A:

Yes, very substantial.

# 42 Q:

All right. Now, let's go to the vested pension plans, the 4,121,000 that is in the two combined pension plans. If that is liquidated, sir, what is the tax rate?

# 43 A:

If it were to be fully and immediately liquidated now, there would be a 10 percent federal premature distribution penalty, a two and a half percent State of California premature distribution penalty, totaling 12 and a half, plus federal and state income taxes of close to 50 percent.

KEY QUOTE

# 44 Q:

And is that where the 62.50 percent comes up, that is, your estimation that he would be penalized to the tune of 62 and a half percent for liquidating any monies in the pension plan?

# 45 A:

That is my estimate if it were fully and immediately liquidated.

# 46 Q:

Now, on May Medical Associates, -- Mr. Freeman has said there's a negative basis attributable to prior partner and says that you have over-estimated the taxes by $294,000. Do you agree with that?

# 47 A:

No, I do not.

# 48 Q:

What is wrong with his computations?

# 49 A:

There are two things incorrect with his computation. No. 1, the negative basis in the property as of December 31, '95, was 1,938,945, not the figure that he is using of 1,685,476. In addition, for some reason he is making an incorrect assumption that only 50 percent of that belongs to Mr. Simpson. That came from Mr. Simpson's K-1 form from the partnership and it indicates his entire interest.

# 50 Q:

And so is there any deferred tax liability overstatement of $294,000 in your calculation, sir?

# 51 A:

Absolutely not.

# 52 MR. BAKER:

Will you move that up, please, Steve.

# 53 Q:

(BY MR. BAKER) Relative to the deferred tax benefit from attorney's fees, if, in fact, those are allowable expense items, there would have to be income to offset that, correct?

# 54 A:

Correct.

# 55 Q:

And do you believe there's a deferred tax benefit of $1,310,229 for the attorney fees that Mr. Simpson owes of approximately 2.9 million?

# 56 A:

No, I do not.

# 57 Q:

Why not?

# 58 A:

No. 1, because an assumption is being made that all of those fees are tax deductible. I believe that's an incorrect assumption. No. 2, to get a tax benefit he would have to be able to generate income.

# 59 Q:

And that hasn't been the case based upon your review of Mr. Taft's accounting data?

# 60 A:

Correct.

# 61 Q:

Now, when you reviewed the data on the financial condition of Mr. Simpson for 12/31/96 and figured out the taxes he would be owing, those taxes were approximately what, sir?

# 62 A:

On that December 31, '96 statement 4,121, 508.

# 63 Q:

Those would be the taxes triggered by a liquidation of assets, correct?

# 64 A:

Correct.

# 65 Q:

Those are monies that would be due and owing, those are liabilities that he would have to pay, true?

# 66 A:

Correct.

# 67 Q:

And have you noticed that on this board, that plaintiffs' seem to have left -- well, in this piece, anyway, they've left that out.

# 68 MR. BAKER:

I guess -- is that on the second sheet, Peter?

# 69 MR. GELBLUM:

Yes.

# 70 MR. BAKER:

Okay. Let me get the second sheet.

# 71 Q:

(BY MR. BAKER) Now, with the tax liability of 4,121,000, Mr. Simpson, before the judgment of 8.5 or the verdict of 8.5 million, would have a negative net worth of $856,000?

# 72 A:

Correct.

# 73 Q:

And with the payment or -- strike that. Including the verdict that was rendered by this jury on Tuesday of 8.5 million, he'd have a negative net worth of $9.3 million?

# 74 A:

Correct.

# 75 MR. BAKER:

I don't have anything further.

Temperature

procedural

Key Quotes (4)

Marvin Goodfriend

placing any value on future revenue streams where there are no contracts is totally speculative.

Directly attacks the plaintiffs' $25 million name-and-likeness valuation as having no contractual basis.

Marvin Goodfriend

If it were to be fully and immediately liquidated now, there would be a 10 percent federal premature distribution penalty, a two and a half percent State of California premature distribution penalty, totaling 12 and a half, plus federal and state income taxes of close to 50 percent.

Establishes the 62.5% tax burden that dramatically reduces the apparent value of pension assets.

Marvin Goodfriend

Absolutely not.

Flatly rejects Freeman's claim that Goodfriend overstated taxes by $294,000.

Marvin Goodfriend

he'd have a negative net worth of $9.3 million

The bottom-line number Baker built the entire examination toward — Simpson is insolvent after the verdict.

Evidence (3)

Exhibit 2424

Statement of net worth of OJ Simpson as of December 31, 1996

discussed

Exhibit 2413

Financial document prepared by plaintiffs' expert Freeman, displayed on Elmo monitor

discussed, challenged

Informal

Summary board: 'Summary of Orenthal Simpson's Financial Condition as of December 1996'

displayed to jury

Notable Exchanges (2)

Robert Baker•Marvin Goodfriend

Baker walks Goodfriend through two specific computational errors in Freeman's analysis: wrong negative basis figure ($1,938,945 vs. $1,685,476) and an incorrect assumption that only 50% of May Medical Associates belonged to Simpson.

strategic

Robert Baker•Marvin Goodfriend

Baker elicits that the deferred tax benefit of $1.3M for attorney fees is doubly flawed — not all fees are deductible, and there's no income to offset them against.

methodical

Credibility Attacks (2)

⚔ Plaintiffs' expert Freeman

factual error / competing expert

Goodfriend identifies two specific errors in Freeman's tax calculations — wrong negative basis figure and incorrect 50% ownership assumption — to rebut Freeman's claim that Goodfriend overstated deferred taxes by $294,000.

⚔ Plaintiffs' expert Freeman

methodological challenge

Goodfriend testifies that Freeman's $25 million name-and-likeness valuation is speculative because there are no contracts supporting any future income stream.

Objections

None recorded

Proceeding 8917 • 75 utterances • Defense witness

Civil Trial

Department 103