Roger writing the LAWmag
19
Nov 2008

Legal Advice to Mark Cuban: Ferme Ta Geule.

SECIn the United States District Court, Dallas Division, action 3-08CV2050-D, Mark Cuban, the outspoken owner of the National Basketball Association team, the Dallas Mavericks, is charged with insider trading.

The allegation is that he took advantage of insider information regarding Montreal-based mamma.com before it was made public, and quickly sold his 6% share of the company. According to the Dallas Morning News, this maneuver saved him $750,000.

At the US Securities and Exchange Commission (SEC)’s option, assuming the appropriate facts, the regulatory action may be by way of civil litigation or criminal prosecution, or both. In Cuban’s case, SEC has chosen the civil route.

But Mark Cuban, 50, must have a death wish as he, rather than follow the standard tried-and-true procedure of silence, has chosen to publicly deride the SEC.

With absolutely nothing to gain and everything to lose by doing so, Cuban's testosterone got the best of him and he issued this statement:

"... the Commission chose to bring this case based upon its enforcement staff's win-at-any-cost ambitions. The (SEC) staff's process was result-oriented, facts be damned."

Young lawyers are often thrilled and delighted to discover how their daily work is so interesting to the press.

Every active barrister, on at least a monthly basis, has a case worthy of the local front page.

But a young lawyer who aspires to being a great lawyer, knows that press and justice are not natural partners.

Once in a while, a lawyer can use the press to assist his client’s situation. The rule of thumb, though, and strictly enforced by most bar associations and law society rules of conduct, is that a lawyer must not discuss an active case with the press.

Rule 3.6 of the American Bar Association Rules of Conduct provide:

Mark Cuban

"A lawyer who is participating or has participated in the investigation or litigation of a matter shall not make an extrajudicial statement that the lawyer knows or reasonably should know will be disseminated by means of public communication and will have a substantial likelihood of materially prejudicing an adjudicative proceeding in the matter.

"Notwithstanding (the above), a lawyer may make a statement that a reasonable lawyer would believe is required to protect a client from the substantial undue prejudicial effect of recent publicity not initiated by the lawyer or the lawyer's client."

Before any lawyer talks to the press about her case, she has to obtain the clients permission. That means explaining to the client why disclosure to the press would assist the particular dispute.

Many lawyers rush off and talk to the press before consulting with the client thus committing an egregious violation of the rules of conduct. They assume that if ever taken to task, they can retroactively explain to their client and to their law society why they so acted.

Assuming a client’s informed consent, the exception, and not the rule, is to use the press. In one of my cases, the press have already reported on the story before my 99-year old client retained me. She was being evicted from an apartment building for alleged repair work on the apartment building. The headline read "99 Year Old Faces Eviction".

In that case, I had little choice but to feed the press hoping that the negative publicity would persuade the landlord to back off, as it did.

But that is the exception.

Not the rule.

Where a matter or a dispute is in litigation or where litigation is inevitable, talking to the press can never help a client and therefore represents an unnecessary risk.

In litigation, there is a fine line between winning and losing and while talking to the press may boost a lawyer's ego, for the client, it will be like scratching eczema. It will feel good at the time but soon, the piper will have to be paid, usually in burnt bridges to, for example, amicable discussion that might later spark an out-of-court settlement.

When a journalist says that a lawyer "did not return phone calls", the impression left with other lawyers is not of a disorganized professional, but of competence.

What makes Cubans remarks all the more curious is that he has well-known counsel, Paul Coggins and Ralph Ferrara who had the wherewithal, to quote from the Dallas Morning News, to not "return phone calls seeking comment".

But the damage was done.

Cuban's dart to SEC was within a press release of Ferrara’s law firm, Dewey & Leboeuf of New York, that the provocative quote from Cuban was issued.

This, of course, will get Ferrara’s name in the news but what will it do for his client?

Ultimately, it will be up to a judge to decide whether or not Cuban’s actions constitute insider trading.

But to discredit SEC in public with "win at any cost ambition ... facts be damned" will simply motivate this deep pocket, government enforcement agency which has reeled in fish far fatter and far richer than the wealthy Mark Cuban.

Worse, the judicial officer hearing the case will likely of had significant exposure to SEC lawyers. Cuban’s brash and cocky attitude and defiance of SEC will likely run contrary to the judge’s personal relationship with SEC attorneys who frequently appear before him.

In addition, proof of Cuban's cocky attitude and defiance of SEC and, by extension, the  insider trading laws SEC enforces, appears at first glance to be directly relevant to the case SEC has to prove against Cuban.

One can just imagine the SEC lawyers at their desks goading Cuban on:

"Scratch, Mark scratch! You know you want it!"

It boggles the legal mind to read Cuban’s comments.

It should be taught to all law students how not to conduct litigation.

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