SEC Restructures Trial Unit in an Effort to Decrease Courtroom Losses

In the wake of recent losses in the courtroom, the Securities and Exchange Commission is changing up the way it gets ready for trial. The Wall Street Journal says that SEC Chairwoman Mary Jo White has retooled the agency’s trial unit. One of the reasons for the restructuring is so litigators and investigators can work more closely together.

The SEC’s victory rate has been dropping. The agency won just 55% of trials in the last four months, which a definite decline compared to the last three years when it had been winning over 75% of the time. Since October, however, juries and judges have ruled in favor of 10 out of 25 persons and firms in securities litigation against the SEC, and the government lost 5 of 11 trials. This is a definite downswing from the 12 months prior when just 5 of 34 defendants beat the regulator. Although the cases that the regulator lost were filed before White took over the helm, defense lawyers believe that the Commission’s current losing trend will compel more people to go up against it instead of settling.

The Commission’s trial unit has now been split into four groups so that this more closely mirrors the work of enforcement officials when they probe cases. Senior officials are also conducting practice openings for trials.

Some attorneys also believe that in the wake of the bigger sanctions the SEC may want for certain deals, the regulator may find it harder to convince certain individuals and firms to settle. Now that some defendants will only be able to settle if they admit to certain violations, a move that could result in even more lawsuits, this will likely compel some to go to court instead.

One high profile securities case that the SEC recently lost, and which certainly garnered a lot of attention, was the insider trading case against Mark Cuban, who owns the Dallas Mavericks. A federal jury turned down the agency’s claims that the billionaire took part in this illegal activity when he sold a stake in an Internet company to avoid losing $750,000. Jury members found that the information Cuban used wasn’t confidential and that he never promised not to trade on the data. That said, high-profile cases have not been the SEC’s only losses. In January, a jury rejected insider trading charges involving a railroad worker and his children.

After the worker deduced that a merger involving his employer was likely to happen, members of his family purchased call options and they profited approximately $1 billion. The Commission had tried to show that the employee engaged in insider trading even though he was never told about the deal. (He had guessed that one was pending because of the number of tours taking place at work.)

The regulator also has had challenges in court over accounting fraud cases, including one accusing two ex-water treatment company executives of inflating revenue and misleading an external auditor. A federal judge rejected the financial fraud charges against them.

Please contact our securities fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP today. We represent investors in court and in arbitration and have helped thousands recover lost investments via settlements and litigation.

SEC Takes Steps to Stem Courtroom Defeats, The Wall Street Journal, February 13, 2014

S.E.C.’s Losing Streak in Court Puts Agency in Spotlight, NY Times, February 10, 2014

SEC Loses as Mark Cuban Triumphs in Insider-Trading Trial, Bloomberg, October 17, 2013

More Blog Posts:
SEC Stops Texas Securities Scam Involving Oil and Gas Investments, Stockbroker Fraud Blog, January 6, 2014

SEC Goes After Alleged Ponzi Scammers, Stockbroker Fraud Blog, November 15, 2013

SEC Accuses Private Equity Manager of $9M Securities Fraud, Institutional Investor Securities Blog, January 30, 2014