Henning on Cuban and the SEC

From The Wall Street Journal Law Blog (one of my favorite reads, by the way) comes this: a guest post by Peter Henning, a law professor from Wayne State University, discussing the battle between Dallas Mavericks' owner Mark Cuban and the SEC. Henning makes some great points about the ability of a billionaire to fight off questionable SEC charges -- where a defendent with less $$ might have a hard time. But he also makes some great points about the impact of an SEC investigation on reputation, and why Cuban doesn't really seem to care about either reputation or potential remedies:

Defendants in civil fraud actions often have to worry about the reputational effect of the case, and potential remedies that could be imposed. An individual may be barred from the securities industry or prohibited from serving as an officer or director of a public company if there is a violation. That happened to Martha Stewart when she settled the insider trading case the SEC filed against her. Thus, many SEC cases settle, always without an admission or denial of liability, to mitigate the potential harm from an adverse judgment.

Cuban seems to be in a different position in this regard. He already has a reputation as a bit of a rabble-rouser – just ask NBA Commissioner David Stern – so a decision finding him liable for securities fraud would not be all that harmful. He is not an officer or director of a public company, so the SEC isn’t even seeking a bar from service in those positions if it wins. While the amount involved in the case, about $750,000, is pocket change to Cuban, the incentive to settle the case to avoid harmful publicity and future career damage doesn’t seem to be much of an issue.

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Odd as it may sound, Cuban might be able to portray himself as the victim here of a government vendetta. He has a knack for generating good publicity in a bad situation, such as his stint working in a Dairy Queen after assailing the head of the NBA referees in 2002 as someone he wouldn’t hire to manage one of its restaurants. That comment cost him a $500,000 fine from the NBA, which isn’t much less than what the SEC is seeking as disgorgement in the insider trading case. I can’t wait to see how Cuban presents himself this time.

The full post is here.

I agree, by the way, with everything Henning writes, and he appears to have a good grasp on the interplay between legal and reputation matters. Perhaps I'll ask him to guest-post here some day...

In the meantime, it's worth considering whether more defendants should adopt the Cuban playbook when facing government investigation.