In a report released last week, the SEC's Office of Inspector General ("OIG") stated that it "did not find sufficient evidence to substantiate any allegations of misconduct" by the SEC Division of Enforcement during its investigation of Mark Cuban. The OIG's Report (which is dated August 22, 2011, but not available until last week and is available here) is one of several investigations that were underway (as previously discussed here).

Following an investigation by the Division of Enforcement, the SEC brought an insider trading case against Mark Cuban in November 2008, alleging that, prior to the public announcement of Mamma.com'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). Mr. Cuban, one of the rare defendants who has the financial ability to mount a defense in such litigation, has vigorously defended himself, as discussed here.

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 Mamma.com 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.

With respect to the first issue – where Mr. Cuban contended that the SEC intended to recommend charges before the investigation was complete – Mr. Cuban alleged that the investigation was not substantially completed until at least five months after the Wells notice (indicating that Enforcement was recommending charges) was provided. However, the OIG Report 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.

Although the OIG did not find any wrongdoing in the Mr. Cuban's case, some commentators, such as Tom Gorman of SECActions.com, have been critical for conducting this investigation regarding while the litigation against Mr. Cuban was still pending.

The OIG Report is one of several in recent weeks. A prior report (discussed here) found that the SEC's former General Counsel had a conflict of interest when he participated in matters relating to Bernie Madoff because he had a personal financial interest by virtue of his inheritance of the proceeds of a Madoff account. As discussed here, in testimony before Congress on these issues, former General Counsel David Becker was highly critical of the Inspector General. The OIG also issued a report (available here) regarding the financial package offered Henry Hu to head a new division, finding that the arrangement with him was contrary to guidance from the Office of Personnel Management and SEC practice, ultimately costing the SEC approximately $100,000 more than it should have under that guidance and practice.

As for Mr. Cuban, he continues his aggressive defense in the case brought by the SEC – including the recent filing of a second motion to compel against the SEC (the supporting brief is available here) seeking the production of the non-privileged portions of the SEC's investigative file from (including the notes of the Enforcement attorneys taken during the investigations regarding Mr. Cuban and Mamma.com).