I have not been a fan of the SEC – but on preliminary evidence I am forming a better opinion of Mary Schapiro than most. However as a tag-end of an era of grotesque incompetence the SEC has had the charges of insider trading it pushed against Mark Cuban thrown out of court.
The charges of insider trading against Mark Cuban were always stupid. I blogged about those charges here. I noted the (public) evidence was only that the CEO of a cash strapped company (Mamma.com) had phoned him and told him that he was cash strapped. Mark Cuban sold his shares. The SEC charged him with insider trading but did not present any evidence that he was an insider. I noted that:
To make him an insider he needs to have agreed to be an insider. He needs to have agreed with the CEO that he will take information confidentially. In other words the case hinges almost entirely on the contents of a phone call between the CEO of a failing dot.com and Mark Cuban – and the call is meant to have taken place in 2004. Nobody is going to credibly remember it. If it came to a criminal charge (which required absence of reasonable doubt) then you would have to acquit Cuban because at best this case will be two people saying “he said” and the other saying “no I did not” about a conversation years ago. As far as I know there is nothing in writing in which Mark Cuban agrees to be an insider (though something in writing is what is required). It is telling that there was no criminal charge filed with the civil charge. The criminal charge wouldn’t fly.
Well guess what – the Judge said that the SEC did not provide evidence that Mark Cuban had agreed to accept the information in confidence and hence did not provide evidence that he was an insider.
And that was obvious from the start. Unless the SEC had something in writing (which they did not) they were stuffed in this case and incompetent in bringing it.
The real issue now is how the SEC got this bad? I spot serious frauds at the rate of better than one per month – and they are rarely prosecuted. Madoff sat in front of the SEC’s face for years. However the SEC went on a wild-goose-chase against Mark Cuban on a case that was flimsy from a distance of 9000 miles (Atlanta to Sydney).
Getting trust in the financial system back is critical to economic recovery. With the SEC so far off its game that will be difficult. Mary Schapiro appears to be doing better than her predecessor. One day I hope to be blogging on SEC successes.