SEC Shouldn’t “Let it Be”

In times of economic troubles,
Cuban’s lawyers come to the SEC,
Speaking words of wisdom,
Let it be.

The Beatles Securities Docket

At least twice now I’ve seen what I consider to be an odd comment made about the SEC’s decision to sue Mark Cuban for insider trading: essentially, that in the current economic crisis, the SEC has so many other things it needs to devote resources to that it should not be pursuing the case.

The first place I saw this was somewhat understandable as it came from someone paid to say such things on Cuban’s behalf — his lawyer.  His lawyer told the WSJ that “We’re shocked. We find it incredible that given all the important issues that the SEC has to address with regard to today’s economy they’ve sought to bring a $750,000 case relating to a he-said she-said about one trade against a person whose integrity has never been questioned before with regard to the securities markets.”

The second place I saw this was far less expected as it came from a columnist with the NY Times, who used the case as the centerpiece for a column today entitled “The Decline and Fall of the SEC.”  The column argued that the case illustrates “how far the Securities and Exchange Commission has descended into irrelevance” because the case is not particularly strong or important and

it also now means that this undermanned agency, which is supposed to be the investor’s ally in Washington, is now going to devote serious resources trying to extract a few million dollars from a billionaire and force him to say “I’m sorry.”

Meanwhile, there is Bear Stearns, Lehman Brothers and Merrill Lynch, just for starters, all of which would seem to merit some serious investigation. There are ratings agencies that gave triple A ratings to junk. There are mortgage-backed securities salesmen who peddled toxic assets to municipalities all over the country.

I think the suggestion that in the current economic crisis the SEC shouldn’t worry about, or does not have the manpower to bring, insider trading cases like the one against Cuban is off-base.  Insider trading cases are simple cases that require the on-and-off work of only a few of the Enforcement Division’s approximately 1,200 people, at most.  Indeed, the SEC brought approximately 60 different insider trading cases in its 2008 fiscal year alone.  Moreover, as the NY Times column points out, the Cuban case is a particularly basic case requiring just an 8-page complaint.

The merits of the SEC’s case against Cuban remain to be seen.  I believe that contrary to the opinions discussed above, however, choosing to bring such cases at this point in time is neither “incredible” nor evidence of the SEC’s “descent into irrelevance.”  To the contrary, the Cuban case is the type of high-impact case that can help the SEC spread its message that preventing and enforcing insider trading continues to be, despite competing priorities and challenging times, an important part of its mission.

— Bruce Carton