“The government’s job as a criminal prosecutor is not to obtain convictions, but ‘to do justice’….It should be required to follow the Brady rule in civil trials…but the SEC does not, even when it accuses a citizen of fraud.”, Mark Cuban and Thomas Melsheimer, WSJ, April 4, 2014
“The Brady rule would not simply mean that civil trials instituted by the federal government would be conducted on the basis of the whole truth. The best result would be that weak cases would not be brought in the first place. Not even the most stubborn and ambitious SEC lawyer would pursue a case when he knew in advance that evidence disproving the case must be turned over to the other side. The agency should embrace the concept ‘justice be done’ in all of its cases, not just some of them, and hold itself to the same principle of ‘accountability’ that is at the core of the agency’s promise to investors,” Mark Cuban and Thomas Melsheimer
Mark Cuban and Thomas Melsheimer: How the Feds Rig Their Prosecutions
In the Mark Cuban case, the SEC refused to turn over exculpatory evidence to the defense for three years.
MARK CUBAN And
THOMAS MELSHEIMERApril 3, 2014 6:36 p.m. ET
On March 21, 2014, Securities and Exchange Commission Chairwoman Mary Jo White was once again quoted praising her agency as “a strong and focused cop on the beat” that promotes fairness and accountability in the markets. The SEC often opens its trials by telling juries that every investor has to play by the same set of rules. But the agency won’t play by a rule that’s fundamental to due process. It’s called the Brady rule, and it keeps the government honest when it takes people or companies to court.
In a criminal trial, the federal government has long been obliged to promptly turn over to the defense any evidence that could show that the accused did not commit the offense of which he is accused. The Brady rule (announced in the 1963 Supreme Court case, Brady v. Maryland), prevents one-sided prosecutions in which the defendant is kept in the dark about information that might show that he is innocent.
The government’s job as criminal prosecutor is not to obtain convictions, but “to do justice,” according to the traditional legal maxim. It should be required to follow the Brady rule in civil trials as well. But the SEC does not, even when it accuses a citizen of fraud. Had the agency complied with this simple rule in its recent insider-trading case against one of us, Mark Cuban, it is unlikely that a lawsuit would even have been filed, let alone go to trial.
While there has been much mainstream media discussion of the case since the trial last autumn, there has been little focus on the SEC’s conduct in pursuing the case all those years, and its withholding of exculpatory evidence until the case was on the cusp of going to trial.
In 2004, long before the SEC set its sights on Mr. Cuban as a high-profile target, he voluntarily submitted to an hour-and-a-half telephone interview about his investment inMamma.com, the eventual subject of the SEC’s investigation. Two agency lawyers took extensive notes and preserved them in a file folder marked “Cuban.”
The notes recounted in detail Mr. Cuban’s interaction with Mamma.com executives, including Guy Faure, the CEO to whom the SEC alleged that Mr. Cuban made a promise to keep certain information about the company confidential and not trade its stock on the basis of the information. The notes corroborated the version of events that Mr. Cuban had insisted was the truth from the very beginning: No agreement was made with Mr. Faure or anyone else, and Mr. Cuban had disclosed to him an intent to sell the stock the very day they spoke.
These notes should have made it clear to any reasonable SEC lawyer that there was no case. How could the government claim deception when the alleged deceiver had told the company and the SEC everything upfront? Nothing had been hidden or concealed—a hallmark of innocence, not fraud.
The SEC had no affirmative obligation to turn the notes over to us until we specifically asked for them in May 2009. The SEC, however, resisted the disclosure of these notes for the next three years. Even up until the time Mr. Cuban took the stand, the SEC continued to fight to keep the notes from being shown to the jury by asking the judge to exclude them from evidence. Fortunately, the judge disagreed and the jury ultimately cleared Mr. Cuban of a charge of insider trading.
The SEC boasts that in the past three years it has filed more insider-trading actions than in any three-year period in the agency’s history. Ms. White recently stated that the agency will continue its “vigorous” enforcement program in 2014, following up on her earlier promise to unleash the SEC’s “full enforcement arsenal.”
An agency that has the ability to bring the full force of the federal government against a citizen in a fraud case should play by the same fair rules that have governed federal prosecutors for decades. It should be required to turn over, without awaiting a request, any evidence that could exculpate the defendant. It should announce now that it will follow the mandates of the Brady rule in all pending and future cases.
It is curious that the SEC has not done so. The agency’s internal rules effectively compel it to disclose exculpatory evidence to defendants in administrative proceedings where it has a huge “home court” advantage. But no such rule applies to its litigation, and the SEC for years has fought imposition of a Brady obligation.
The Brady rule would not simply mean that civil trials instituted by the federal government would be conducted on the basis of the whole truth. The best result would be that weak cases would not be brought in the first place. Not even the most stubborn or ambitious SEC lawyer would pursue a case when he knew, in advance, that evidence disproving his case must be turned over to the other side.
The agency should embrace the concept that “justice be done” in all of its cases, not just some of them, and hold itself to the same principle of “accountability” that is at the core of the agency’s promise to investors.
Mr. Cuban is the owner of the NBA’s Dallas Mavericks. Mr. Melsheimer is the managing principal of Fish & Richardson’s Dallas office and served as Mr. Cuban’s trial counsel in his SEC insider-trading case.Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com