As we have previously mentioned, the developments in the SEC's insider trading case against Mark Cuban have been worth watching closely, particularly because Mr. Cuban is one of the rare individual defendants who has the financial ability to mount a defense in such litigation against the SEC, and his counsel has raised numerous interesting defenses and issues that could impact cases in the future, especially in the area of discovery. He has filed several motions attempting to obtain copies of the notes and summaries of SEC personnel who conducted interviews during certain Commission investigations. On June 6, 2012, Mr. Cuban filed his third Motion to Compel in the case, requesting that the Court: (1) reconsider a prior ruling regarding the production of SEC interview notes and summaries taken in the course of investigating Mr. Cuban; (2) compel the production of SEC’s interview notes and summaries from interviews taken in the course of the investigation: and (3) compel the production of certain exhibits to the SEC Office of Inspector General Report into potential SEC misconduct during the investigation of Mr. Cuban.

The SEC brought an insider trading case against Mr. Cuban in November 2008, alleging that, prior to the public announcement of's PIPE offering, Mr. Cuban, who was aware of the planned offering, sold his entire stake in the company, avoiding what the SEC claims was potentially a $750,000 loss. SEC v. Cuban No. 3-08-cv-2050 (N.D. Tex. filed Nov. 17, 2008). The Court initially dismissed the case on the grounds that the SEC did not adequately allege that Mr. Cuban owed a fiduciary or similar duty of trust and confidence, as discussed here. However, the Fifth Circuit Court of Appeals reversed and remanded the case to the District Court. SEC v. Cuban, No. 09-10996, slip op. (5th Cir. Sept. 21, 2010).

In late August, 2011, Mr. Cuban filed a motion to compel seeking the production of the non-privileged portions of the SEC's investigative file (including the notes of the Enforcement attorneys taken during the investigations regarding Mr. Cuban and, as well as the production of a privilege log of all documents it withheld from production. As discussed here, Mr. Cuban 's arguments regarding why he was entitled to production of documents from the investigation included:

  • he was entitled to the non-privileged portions of the investigative file from the SEC’s investigation evidencing the relationship between the investigation and the investigation into Mr. Cuban because they would be relevant to (1) the credibility of the witnesses (and their possible bias in favor of the SEC) and (2) Mr. Cuban’s scienter with respect to his sale of stock; and
  • he was entitled to the factual portions of the interview notes and summaries from the SEC’s interviews of witnesses taken in the course of the investigation because the statements made by witnesses earlier in the course of this matter since the statements may have changed over time and Mr. Cuban has a compelling need to determine precisely how the "story" of certain witnesses may have evolved.

In late September, Mr. Cuban filed an amended brief in support of the motion to compel.

As discussed here, in a February 10, 2012 Memorandum Opinion and Order, Chief Judge Sidney Fitzwater ruled that the SEC would be required to produce: (1) all nonprivileged portions of its investigative file for the SEC’s separate investigation into; and (2) all documents pertaining to the relationship between the investigation and the investigation into Mr. Cuban. Mr. Cuban had argued that such documents would be relevant to the credibility of the witnesses (and their possible bias in favor of the SEC), and Judge Fitzwater agreed. However, the Judge pointed out that the SEC would be entitled to withhold documents from those files if they were privileged or covered by the work-product doctrine. Judge Fitzwater denied Mr. Cuban's motion to compel production of documents relating to the involvement of the three other individuals (Irving, Ian or Michael Kott with, holding that the documents would not be discoverable as to the issue of Mr. Cuban's scienter. The Court also denied his request that the SEC produce all factual portions of the SEC’s notes and interview summaries from the witness interviews conducted in the course of its investigation. The SEC argued that the documents were protected under the work product doctrine.

On June 6, 2012, Mr. Cuban filed a new motion, raising two issues. In one issue, he asks the Court to reconsider its February 10, 2012 ruling and asks the Court again to compel the production of SEC’s interview notes and summaries from interviews taken in the course of the investigation. In support of his argument, Mr. Cuban asserts that he has new evidence – copies of notes of the SEC's interview of Mr. Cuban in 2004. Mr. Cuban argues:

The SEC frequently has sought to discredit Mr. Cuban’s testimony and theory of the case on the basis that Mr. Cuban cannot remember certain matters and lacks documentary evidence. These recently produced SEC interview notes, however, fully support Mr. Cuban’s testimony, and they were created just two days after his sale of stock. Most importantly, and in direct contradiction to positions taken by the SEC in this litigation, they establish that Mr. Cuban immediately and voluntarily informed the SEC that (a) he spoke with the CEO of, Guy Fauré, on June 28, 2004; (b) he sold his shares after receiving information about the private placement; and (c) one of the primary reasons he sold his shares was his concern that a convicted stock swindler, Irving Kott, was involved with It is hard to imagine evidence that is more persuasive as to the fact that Mr. Cuban did not intend to commit a fraud by selling his stock – and it is exactly this evidence that the SEC has withheld for three years.

Mr. Cuban further argues that the "the notes serve as a prime example of why Mr. Cuban has substantial need for additional SEC interview notes and summaries." He points out that, because the events at issue were eight years ago, "the memories of the witnesses in this case are fading, key witnesses cannot fully recall critical events underlying this case, and these notes may be the best basis upon which to refresh their memories (or otherwise corroborate their statements)." He argues that he has a substantial need for the documents and asks the Court to order that the interview notes and summaries be produced.

As a second issue, Mr. Cuban has requested that the Commission produce certain exhibits from the Report prepared by the SEC's office of the Inspector General. In January 2009, Mr. Cuban filed a complaint with the SEC OIG, alleging that: (1) the Enforcement staff violated SEC policy when they notified Mr. Cuban that they intended to recommend insider trading charges against him before the investigation was substantially complete; (2) Enforcement staff showed a bias and predetermined agenda against Mr. Cuban and the investigation appeared to have been motivated by political bias; (3) Enforcement staff attempted to induce executives at to cooperate in the Cuban investigation by using the closure of an earlier investigation against it; and (4) a senior Enforcement official failed to properly report the misconduct of the another Enforcement attorney who was e-mailing Mr. Cuban from his SEC e-mail account during the ongoing investigation into Mr. Cuban's trading.

As discussed here, in September, 2011, the OIG released a Report stating that it "did not find sufficient evidence to substantiate any allegations of misconduct" by the SEC Division of Enforcement during its investigation of Mr. Cuban. The OIG found that Enforcement had conducted significant investigative work before the Wells notice was provided on May 23,2007 and that conducting additional investigative work, and even testimony, after the Wells notice is provided, is not per se prohibited by the SEC's Enforcement Manual or internal guidance and Enforcement does on occasion do so. The OIG did not find sufficient evidence to substantiate any of the other claims.

Mr. Cuban argues that the Court should order the production of ten documents that were attached to the OIG report and overrule certain boilerplate objections asserted by the Commission, including the deliberative process privilege, the law enforcement privilege, the attorney-client privilege, and the work-product doctrine.

Under the existing schedule, the deadline for filing Summary Judgment motions is in mid-July 2012 and the case is scheduled to go to trial in April 2012.