Last week the SEC announced that it intended to appeal the dismissal of insider trading charges against Mark Cuban. Cuban is accused of having sold his stake in Mamma.com after the company’s chief executive officer informed him that the company planned to issue additional shares in the company.  This move reportedly saved Cuban around $750,000. 

 In order to gain some insight on the SEC’s motivation for pursuing the Cuban case further, 24/7 Wall St. conducted an interview with Peter J. Anderson, a member of Sutherland Asbill & Brennan’s litigating practice.  Anderson has extensive experience representing clients against SEC charges.  This includes the representation of one of the four Arthur Anderson partners involved in the Enron case.  In this interview Anderson argues that the SEC “should have been happy to take the judge’s decision and just move on to their next case”, but that Cuban’s suit for reimbursement of legal fees renewed the wrath of the regulator. 

 

24/7 Wall St.: Both Mark Cuban’s defense and a lot of people discussing the case feel he’s being singled out because he’s famous.  Do you think that’s accurate?

Anderson: It is not uncommon for the SEC to seek high-profile defendants as a way of making an example to the investment community at large.  The fact that he’s mark Cuban and he’s a well renowned sports figure and investor, I don’t think that was a driver in terms of the SEC’s decision.   I think another person similarly situated, had the SEC made the decision to charge and they did, would normally be charged.  The fact that it was Cuban was icing on the cake for the SEC because he is a somewhat notorious public figure.  But at the end of the day given the same set of circumstances once they’ve made the decision that they’re going to pursue this theory, no I don’t think it made a difference. 

24/7 Wall St.: Alright, why is it you think the government it can win this appeal?

Anderson: Well since I’m always on the other side of the government in these cases I can’t speak to why I think the government thinks it will win this appeal.  I do think that one of the drivers, and I’ve seen this before in cases that I’ve prevailed at the administrative law-judge level where we filed an equal access to justice act petition to get a return of our fees and expenses, the government has reacted very negatively and has taken the opportunity to try to appeal from the decision in response to that.  This appeal may be a visceral reaction on the SEC staff’s part to the fact that Cuban was audacious enough to believe he was going to get his fees and his expenses covered, or at least a portion of them covered by demonstrating there was no basis for any claim to be raised in the case.  I think that’s really part of what drove the SEC to decide to appeal the dismissal.  Keep in mind that the SEC did get out of the court a pretty favorable validation that insider trading did not have to be based on a breach of fiduciary duty. So it wasn’t as if the decision in the case was all that harmful the SEC’s agenda on insider trading.

24/7 Wall St.:  Basically what you’re saying is that there is a change that the SEC not going to be bringing any new questions to the table. Its just a reaction to Cuban’s request that they pay its legal fees? 

Anderson:  It’s hard to say.  I think that it is a case that in a perfect world the SEC’s view is when it comes to the amount of information that an investor has with respect to the prospects of a particular company that is should be less is more or at least equal to everybody else in making a decision as to whether or not to buy or sell.   They do not believe anybody should have any special information that might influence a decision one way or another.  I’m not sure that the law supports that, but I think that their idea is there needs to be an absolute flat world when in fact; when we all know it has a bit of a curve to it.  It may be that that is what they will try to advance again in this appeal, saying that because Cuban had knowledge of the pipe transaction that was going to occur that that was more information, whether it was material or non-material put aside, it was just more information than what the average investor knew at the time.  And he traded in advance of that becoming public and therefore they’re saying that because of that he was guilty of insider trading, without any specific fiduciary duty on his part.  

24/7 Wall St.:  Do you think that the SEC is viewing this in isolation or do you think that they might be pursing this more because they’ve been hitting brick walls elsewhere, like in the Bank of American case.  Are they looking for some high-profile victory here or are they just looking to push back against his request?

Anderson:  To better state your question for me to answer, do I think it was a situation where they were looking for this as a coordinated effort to either boost moral or improve their prestige it light of Bank of American?  No, I don’t think it was a concerted effort.   I think the look at this separately.  The BOA situation is completely different.  It has nothing to do with insider trading.   I think that they took Cuban’s request for his attorney’s fees and costs and didn’t react well to that, clearly, but from where I sat it seemed to me that the SEC got a pretty good ruling out of the lower court and should have been happy with the reaffirmation that at least in that court’s opinion insider trading need not be based on a breach of fiduciary duty.

24/7 Wall St.: So in your opinion even though Cuban ended up walking away from the previous trial it was sort of a victory for the SEC?

Anderson:  Let me put it this way:  It wasn’t a route by Cuban in the game.  I think that Cuban probably did have the better of the arguments. But the SEC certainly didn’t lose any precedent that they had been operating under for some time.  If the judge had come out and said “you know what you really need to have a breach of fiduciary duty in order to establish insider trading” it would vitiate the whole line of cases that had come before it and you would have ended up in a new world order.  I think they should of, frankly I think they should have let the lower court’s decision just sit and be happy to move on.  They chose not to do that, so we’ll see where it goes.

24/7 Wall St.:  You think perhaps in a vacuum, had Cuban not come back at them, that the would have walked away happily?  

Anderson: Again, I can’t speak for the SEC because I’m usually on the other side.  They should have been happy to take the judge’s decision and just move on to their next case.  I don’t make decisions for them, and most of the time I don’t’ agree with them but I do think that the people who understand the history behind the insider trading precedent will say while they did lose the Cuban case on its very limited and straight-forward facts, it did not lose the legal precedent behind a lot of their successful cases, which is that they need not establish a breach of fiduciary duty in order to establish insider trading given other circumstances. 

 24/7 Wall St.: Thank you.

Garrett W. McIntyre

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