When he’s not hounding referees at Dallas Mavericks games or doling out money to would-be entrepreneurs on “Shark Tank,” Mark Cuban has made a hobby of offering often biting criticism of the Securities and Exchange Commission.
In 2013, the billionaire was cleared of charges levied by the agency that he had traded on non-public information to avoid a $750,000 loss on a Canadian Internet company, Mamma.com. Cuban walked out of a Dallas courtroom victorious after a jury took just three hours to clear him of insider trading. But the battle, which had dragged on for years and cost him millions of dollars in legal fees, left Cuban fuming and critical of the agency.
Most recently, Cuban has taken his grudge against the agency to the Supreme Court. Cuban is supporting a growing challenge to the way the SEC handles some cases. Instead of sending the cases to federal court, the SEC puts them before an administrative judge whom defense attorneys have complained could be biased in favor of the agency.
In friend-of-the-court briefs filed in three federal cases, Cuban describes himself as qualified to weigh in on the issue because he was a “victim” of SEC overreach. “Mark Cuban is a successful businessman and investor who defeated an attempt by the [SEC] to sanction him as an ‘insider trader’ based on an incorrect legal theory and defective facts,” Cuban’s attorneys argued in a brief filed with the high court last week.
Here is a recent email exchange with Cuban on his criticism of the SEC. It has been lightly edited.
It’s been three years since your SEC case. Why not just move on?
Because when it comes to insider trading, they are incompetent.
Do you or anyone think the market is safer today than it was 15 years ago? Feel free to invest in a survey to find out. When I give speeches, I always ask who thinks the market is safer. One percent at most raise their hands. Same when I ask who trusts the markets today.
Why has the number of public companies been cut in half?
Why can’t investors who want to do the right thing call the SEC and ask a question and get a definitive answer? Instead, they are sent to a Web page that has an image of a fax from 1980.
Why won’t they clarify insider-trading laws so that investors who want to follow the law have a clear understanding of what is or isn’t against the law?
They intentionally keep things vague because it means more jobs when they leave the public sector.
In one interview, you blamed the SEC for the lack of IPOs, citing over-regulation. Can you give examples of this excessive regulation?
There is no clarity for CEOs on what insider trading is or isn’t. The SEC can bring a case against anyone by creating their own interpretation of insider-trading precedent. Why would a CEO or anyone in a public company want to subject themselves to a risk they can’t understand or isn’t clear to anyone ?
If you look at [financial-reform legislation Sarbanes-Oxley or Dodd-Frank] they are both a response to the SEC not doing their job.
Enron, Worldcom, [Bernie] Madoff, [R. Allen] Stanford, the subprime meltdown, etc. In each of these cases and others, there were articles written and short-sellers who profited because the frauds or lack of risk identification were readily identifiable. Except the SEC refused to take action. Or they weren’t smart enough to see what was happening.
It’s the same now with the many flash crashes. Does anyone believe that the 2010 flash crash was caused by a guy in London acting by himself ? What about the recent October and August flash crashes? Who caused them, and why has the SEC said nothing, months and a year-plus later?
The SEC’s lack of action has resulted in lawmakers having to try to cover every possible instance of what bad actors might do rather than trusting the SEC to identify fraud.
That impacts the cost of going and staying public.
Do you feel that the problems you have identified at the SEC are the fault of current management (SEC Chair Mary Jo White), or is it something more systemic?
It’s both. She is a lawyer who is trying to deal with business and technology issues that are clearly over her head. She clearly is trying but unable to understand either.
Which has led to dramatic over-lawyering.
There is zero evidence that I can find that any action she has taken with respect to insider trading or market structure has led to an increase in capital formation, trust in markets or an increase in investor participation. It’s been the exact opposite. Fewer IPOs, less trust and less participation.
She refuses to do any research that shows that anything she is doing is having any impact at all. Instead, she releases annually the worthless stats of the number of cases and amount of money in fines or money returned to the SEC.
What she is doing is not working.
[The SEC has repeatedly declined to comment on Cuban’s criticisms of the agency but has defended its record on handling cases.]
On the issue of administrative law judges, the SEC Office of Inspector General says that it found no evidence that the process is biased in favor of the SEC. Do you take any solace in this?
That’s laughable. Why not look to impartial analysis ?
When will you be satisfied? What needs to change at the SEC for you to walk away from this battle?
When people have confidence in the markets.
When small companies are excited to go public again.
When there are bright-line insider-trading rules that are easy to understand.
When anyone can call the SEC and get clarification about any rule before they make a trade.
When we have confidence there won’t be any more flash crashes or worse.
When everyone accused by the SEC can get a trial by jury.
When the SEC adheres to the Brady Rule, where they are required to produce exculpatory evidence.
That will be a good starting point.