A day after an appeals court revived the Securities and Exchange Commission's insider trading suit against Dallas Mavericks owner Mark Cuban, a federal judge in Washington today sharply criticized the agency over its handling of a public records request related to the investigation.
Judge Reggie Walton of the U.S. District Court for the District of Columbia called some of the SEC's responses to Cuban’s documents request “inadequate.” Walton rejected the SEC’s request for a three-year stay of the litigation. He set a hearing for Oct. 22 to determine how much additional time, if any, he will give the SEC to respond to Cuban’s records request, which involves the review of 107 boxes of documents.
The SEC, Walton said, should be prepared at the hearing to establish whether the investigation of Cuban is ongoing and address how much longer the agency thinks the investigation will last. The investigation of Cuban began in 2004. Click here for Walton's opinion.
Cuban filed suit over the documents in May 2009 in Washington federal district court, several months after the SEC accused him of insider trading in a complaint filed in Dallas in the U.S. District Court for the Northern District of Texas.
Yesterday, a three-judge panel of the U.S. Court of Appeals for the 5th Circuit reinstated the insider trading suit against Cuban. The government alleges that he used inside information when he sold his shares of Mamma.com Inc., which is now Copernic Inc., a Web search company.
In Washington, Cuban’s lawyers—including Dewey & LeBoeuf Washington partner Lyle Roberts—are demanding access to records that include potential internal SEC investigations of employee conduct and trades in Copernic securities by SEC employees.
“There is a compelling public interest in knowing whether the defendant conducts investigations free of misconduct by its employees and how alleged transgressions by its employees are addressed,” Walton wrote in his 49-page opinion. “The disclosure sought by the plaintiff would assuredly ‘shed light on an agency's performance of its statutory duties and its compliance with the law.’”
Walton declined at this point to review the records in chambers, saying he can’t decide whether to release the records because the SEC’s description of the documents in dispute is “woefully inadequate.”
The court, Walton said, “cannot permit an agency to transfer the burden of conducting the review of these records to the Court by providing inadequate descriptions of the records; that is the defendant's responsibility.”
In an interview, Roberts called the SEC's handling of the FOIA request an "outrageous exercise" in the agency's obligations under the law.
At a certain point the SEC needs to decide what it is doing here because Cuban is going to take a stand on principle and cannot be bullied into a settlement. Given the other issues the SEC is dealing with I wonder if its limited resources ought to be spent in this case since the whole Cuban situation comes down to a he said/she said issue. I think the SEC would do better to make its regulations and rules clear as to what the Company should have told Cuban in the first place in terms of limiting his trading activity when they floated the idea of the debt deal by him.
Posted by: Hitechlawyer | September 24, 2010 at 10:55 AM