Legal News

Mark Cuban Says SEC Tampered With Witness, Made Fun of Him

By Amir Efrati

The Securities Exchange Commission just might wish it had never messed with Mark Cuban, the outspoken entrepreneur and Dallas Mavericks owner.

Cuban (pictured) endured front-page humiliation when the SEC charged him with insider trading in 2008 for selling shares of Mamma.com four years earlier. Cuban vehemently denied wrongdoing and immediately struck back here and here.

In relatively short order, Cuban’s legal team at Dewey & LeBoeuf got the civil charges dismissed last year by a federal judge who wrote that even if the facts alleged by the agency were true, the agency didn’t have a viable legal claim. For prior posts on the matter, click here, here and here.

Cuban then went on the offensive. First, a judge approved his attempt to learn whether the SEC acted in “bad faith” when bringing the charges.

Following that, Cuban’s team got some documents from the agency.

Now, in a motion filed today by Dewey’s Stephen Best, Cuban is trying to force the SEC to turn over even more.

As part of the filing, Cuban included an exhibit list that included:

* An email of images sent by Joan McKown, chief counsel of the SEC’s enforcement division, that show Cuban in an unflattering light. In one image (pictured), he clutches a pile of cash against his chest. (The image was used as a promotional photo for a 2004 television show called The Benefactor, in which Cuban gave away $1 million of his own money.)

The email was sent in February 2007, after the SEC had begun an informal inquiry into Cuban’s trades. Wrote McKown: “Now I feel fully informed. The picture with the money is particularly helpful and certainly speaks a 1,000 words (if not more).”

The recipients of that email: Linda Thomsen, then the chief of the SEC’s enforcement division, and Scott Friestad, who helped supervise the Cuban matter. Thomsen’s reply: “charming”.

Several days later, the inquiry became a formal investigation.

* A recent affidavit by Christopher Aguilar, the former general counsel of a broker-dealer that did work for Mamma.com.

Aguilar wrote that Julie Riewe, an SEC attorney on the Cuban case, said she preferred that he not allow an employee of the broker-dealer to speak to Cuban’s lawyers in August 2007, when the insider-trading investigation was under way. Aguilar wrote she added that “I could do what I wanted.” (In 2004, the broker-dealer employee had a conversation with Cuban before Cuban traded his Mamma.com shares.)

Aguilar wrote that he later told Cuban’s lawyers he thought the request by Riewe was a “tamp down,” or “a government official’s suggestion to an attorney not to make a witness available to counsel of an individual who is the subject or target of an SEC investigation….” Aguilar eventually allowed the employee to speak to Cuban’s lawyers.

If the judge rules the SEC acted in bad faith, he could force the agency to pay Cuban’s legal fees and suffer other sanctions. The ruling could also render moot the appeal the SEC has filed before the 5th Circuit Court of Appeals that seeks to resuscitate its case.

John Heine, a spokesman for the SEC, said in a statement: "The allegations of bias in the Cuban brief have no merit and are unrelated to our charges against him for illegal insider trading.”

We’ve also reached out to Thomsen, who is now at Davis Polk, and will let you know if we hear back.

Full post as published by Law Blog - WSJ.com on March 30, 2010 (boomark / email).