Will Mark Cuban Prove to be a Thorn in the SECís Side?
This is a discussion on Will Mark Cuban Prove to be a Thorn in the SECís Side? within the Law News forum, part of the FORUM INFORMATION category; The NBA finals may be over, but Wayne State law professor and Law Blog contributor Peter Henning still has the ...
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|Jun 17th, 2009, 01:30 PM||#1|
Join Date: Mar 2008
Will Mark Cuban Prove to be a Thorn in the SECís Side?
The NBA finals may be over, but Wayne State law professor and Law Blog contributor Peter Henning still has the “Association” on the brain — at least one of its most visible and outspoken team owners, Mark Cuban, who owns the Dallas Mavericks. Cuban was charged by the SEC last fall for insider-trading relating to purchases and sales of shares of Mamma.com. Not only has Cuban maintained he did nothing wrong, but he’s played hardball with the SEC. Last month, he sued the SEC, claiming the agency is unlawfully withholding documents in the probe.
Click here for Henning’s other LB posts; here, here and here for other LB posts on the Cuban situation.
When the SEC brings a civil enforcement action, it usually enjoys a number of advantages that allows it to be successful in many of its cases. But when the opponent is a billionaire who likes nothing more than a battle, those advantages may evaporate. That may well be the case with the Commission’s insider trading suit against Dallas Mavericks owner Mark Cuban, who Forbes estimates to be worth over $2 billion.
Last month, Cuban filed suit against the SEC over its alleged failure to comply with his Freedom of Information Act requests filed after the Commission sued him in November 2008 for insider trading. The FOIA complaint shows that Cuban’s lawyers are digging for dirt on the staff, such as information generated by any internal investigation of the six SEC attorneys listed on the insider trading complaint.
Cuban’s strategy may well be a scorched earth approach: trying to make life as miserable as possible for the SEC attorneys litigating against him. The FOIA request does not appear to have much if anything to do with the underlying insider trading case, which is a fairly simple one revolving around whether Cuban agreed to maintain the confidentiality of information about a PIPE transaction and then selling his shares to avoid a loss.
Taking on a defendant like Cuban presents some real challenges to the SEC. The Commission often has greater resources than its opponent, and does not have to worry the costs of its case – staff members get paid regardless of what they’re working on. But given Cuban’s resources, he can easily match anything the SEC throws at him, and the FOIA suit shows that he’s willing to go the extra mile to fight the case by turning it into a real street brawl.
Defendants in civil fraud actions often have to worry about the reputational effect of the case, and potential remedies that could be imposed. An individual may be barred from the securities industry or prohibited from serving as an officer or director of a public company if there is a violation. That happened to Martha Stewart when she settled the insider trading case the SEC filed against her. Thus, many SEC cases settle, always without an admission or denial of liability, to mitigate the potential harm from an adverse judgment.
Cuban seems to be in a different position in this regard. He already has a reputation as a bit of a rabble-rouser – just ask NBA Commissioner David Stern – so a decision finding him liable for securities fraud would not be all that harmful. He is not an officer or director of a public company, so the SEC isn’t even seeking a bar from service in those positions if it wins. While the amount involved in the case, about $750,000, is pocket change to Cuban, the incentive to settle the case to avoid harmful publicity and future career damage doesn’t seem to be much of an issue.
The government often has an advantage because of its built-in credibility when it accuses someone of violating the law. The recent hits to the SEC’s reputation, however, may lessen that advantage. Cuban’s FOIA complaint seeks information that could be used to build an “outrageous government conduct” defense. While that claim usually doesn’t work, fresh in the minds of many are the SEC’s absence from the Bernie Madoff fraud and recent reports of potential SEC staff misconduct in trading stocks.
Odd as it may sound, Cuban might be able to portray himself as the victim here of a government vendetta. He has a knack for generating good publicity in a bad situation, such as his stint working in a Dairy Queen after assailing the head of the NBA referees in 2002 as someone he wouldn’t hire to manage one of its restaurants. That comment cost him a $500,000 fine from the NBA, which isn’t much less than what the SEC is seeking as disgorgement in the insider trading case. I can’t wait to see how Cuban presents himself this time.
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