My First SEC Trial Transcript Has Some Real Comedy and a Message to Mary Jo White – SEC vs Schvacho –

I couldn’t have asked for a better case to kick off loading SEC vs …. trial transcripts on this blog. But before I get into it, let me add some disclosures.

I am not a lawyer. So take anything I say that might be construed as legal “advice” with pounds of salt.  I’m not attempting to give legal advice, but I do feel like i learned a thing or two in my almost 10 years of dealing with the SEC.

My understanding of insider trading law is that in order for it to be insider trading, there must be some violation of trust. In other words, if someone walked up to you and said “Im the CEO of this public company and I’m about to make the biggest cash sale in the history of the company and we will blow away all wall street numbers and you should buy the stock”. That is without question material, non-public information. But if you trade on the information, is it insider trading ? The answer as best I understand the law is NO. It is not insider trading. Why ? Because the CEO did not ask you to keep the information confidential. Nor did he ask you not to trade on the information. You have no responsibility to him. You can trade and tell the world about his deal if you would like.

The CEO may be in trouble for any number of reasons, but the person receiving the information will not be. Trading on insider information is not illegal. Nor is receiving insider information illegal.  It becomes illegal insider trading when you tell that CEO that you not only agree to keep that information to yourself, but you also agree not to trade on it (And for those of you keeping score at home, in my case the CEO never asked me to keep the information confidential. He sent me an email after we talked saying i was free to give information about the deal to anyone that i chose to, and that they were free to call the investment banker for the deal (who as a practice did not ask or require a confidentiality agreement) to get as much information about the deal as they wanted. The SEC chose to ignore these facts)

In any event, I bring this up because NO ONE truly understands what is legal and what is not legal when it comes to insider trading. This SEC has made the conscious decision (a huge mistake IMHO) to regulate through litigation. IN other words, they love the confusion around insider trading laws. They realize that when you combine this legal confusion with the authority and unlimited resources of the SEC, it is incredibly easy for them to bully and intimidate individuals and companies into settling their cases. Which in turn creates the box scores that SEC attorneys use to get their next job. Of course none of this helps protect the markets or improves investor confidence in the markets or improves capital formation , but no one at the SEC seems to really care about these issues.

But I digress.

In this case, SEC vs Schvacho,  the SEC has no facts on their side. Not a single one. The judge says so and the SEC agrees.  What the SEC is trying to do, and again I caution that I am not a lawyer, is expand the definition of what constitutes a duty of trust under SEC 10b5-2.  In the crazy , convoluted world of the SEC , where adding confusion to insider trading laws is a good thing, in this case they want to be able to say that if you talk to a friend who works at a company and buy stock in that company, even if both parties say you never discussed business and both parties say under oath that no material , non public information was discussed, delivered or received, that both parties must be lying. They must have discussed material inside information  and that because they are good friends, that friendship creates a duty of trust. Which in turns means any trading was insider trading.

That is what this case appears to be all about. (Securities lawyers , feel free to jump in and add your thoughts )

So now lets get to the trial transcripts.  The SEC lawyers are Joshua Mayes and  Paul Kim .

1. This is from the Judge (P4 L10) –“And I would note, as I said before, that it’s unfortunate that this issue has come up, and while Mary Jo White wants to try more cases, I hope that she impresses upon especially counsel in her agency that the goal here is for a just result and not just  for a result.”

2. Then the judge had to explain how Federal Rules worked in his courtroom (Page 22/Line 24)

Well, you are showing one page. The way that you do this under the Federal Rules, of course, is to have him identify that he testified under oath and that  that’s the transcript of his testimony —
MR. MAYES: Yes, Your Honor.
THE COURT: — rather than just showing him a page of it.

MR. MAYES: Sure.

THE COURT: While your staff is sorting this out,  can we go on to something else?

And of course in every case there is SEC induced comedy. (Page 98)

3. Here comes the comedy

THE COURT: How about the Manpower CFO’s?

And I will tell you, Mr. Kim, one more time you walk up and whisper something, I am going to nail you to your chair.

MR. KIM: My apology, Your Honor. I should have asked for permission.

MR. MAYES: I’m sorry?
THE COURT: That’s what happens, because he’s not  listening to my question, he’s listening to you whispering in his ear.  Did anybody ever go to the Manpower CFO and ask him what time the call was or get his phone records?

4. And finally, this is the SEC I’ve come to know and love in my dealings with them:(Page 100/line5)

Q. So you believe it was a tax sale?
A. Yes. It was getting later in the year and I was losing  money in it and I needed a write-off.
Q. Mr. Schvacho, you said before that you hadn’t been  investing since 2008. So you didn’t have any trading profits  to take a loss against, did you?
A. It doesn’t matter. I mean, if I’m losing money in the  stock, it’s still a loss that I can write off against other  income.
THE COURT: That is true, isn’t it?
MR. MAYES: I don’t know.
THE COURT: Well, you should know if you are going to ask that question, because you said it was a loss to be offset against a trading gain.
MR. MAYES: That was my understanding was that  capital losses got offset against capital gains.
THE COURT: Can’t you have a capital gain other than a stock gain?
MR. MAYES: That’s true, Your Honor.
Q. Did you have any capital gains, Mr. —
THE COURT: Look, I’m not going to help you with  your interrogation. But, young man, if you ever ask a  question and represent that it has to be a loss applied  against only a stock gain, you be very careful about the representations you are making to a witness or to me.
MR. MAYES: I apologize, Your Honor. I understood  it to be a capital loss had to be offset against a capital  gain. That’s still how I understand it, Your Honor. Maybe  I misunderstood.
THE COURT: Well, you need to be a little more  practiced in the law.  And I will tell you, that offends me, that you reach an assumption that’s consistent with your theory rather than eliciting information from which I can make a decision, not you.
MR. MAYES: I apologize, Your Honor.

I want to make one point before you get to the transcripts. I realize that its not just SEC lawyers that make mistakes and get heat from a judge. All trial lawyers Im sure have experienced the same . But I firmly believe that any lawyer working for a  US Government Agency must be held to a higher standard.  Whether civil or criminal,when a lawyer doesn’t do their homework, or wings it, or takes chances, or doesn’t care about justice, they risk the life, livelihood, reputation and more of the person(s) they are accusing. I can look back at the job Christian Schultz and Jan Folena did and appreciate the comedy because I won. Had I not won , then their actions and misdeeds would be a burden that I would have to live with, as would my family, for the rest of our lives. That is unfair. That is unjust. That is why I am posting these transcripts.

I want everyone who does a search for anything related to these cases, lawyers or individuals to have a sense of what they may be facing.

And I want the powers that be at the SEC to see that some of us are paying attention and recognize that there is nothing about this case that has anything to do with confidence, fairness or capital formation in or from equity markets. This is purely a self aggrandizement with the goal of expanding the number of cases they can try and increasing the  future earnings of SEC lawyers.

You can read the actual transcripts attached below.

part 1  Sec Vs Schvacho Nov 18th

part 2 201320131119schvacho

64 thoughts on “My First SEC Trial Transcript Has Some Real Comedy and a Message to Mary Jo White – SEC vs Schvacho –

  1. SEC lawyers are therefore more like Wall Street law firm partners, who have only tried a few cases, than, say, Assistant U.S. Attorneys, who may have tried hundreds of cases.

    Comment by gmailproblems -

  2. Like most stories, the truth most likely exists somewhere between Cuban’s side and the SEC side. Just how life works. Given the ego of both the SEC and Cuban, you’re not likely to hear either side admit that. My take on this whole situation is that it is somewhere along the lines of Martha Stewart. Some friend A of Marks told him something about company B which he then in turn chose to use said information to avoid a significant loss.

    Look, none of us like to lose money, doesn’t matter if you have thousands, millions or billions. In fact, I believe the more you have, the more paranoid about losing it you become. Which would essentially make Mark Cuban one HUGE paranoid mother fucker. Most likely, any one of us in a similar situation would have done the same thing. Here’s the rub though –

    Mark makes this out to be a poor me, the SEC are a bunch of bullies and perhaps they are. But, according to the letter of the law, he most likely make a transaction that did fall under the ‘insider trading’ umbrella. This isn’t so much of an argument of did he do anything wrong as much as did he break the law…..meaning he have laws that make no sense and they should be changed. Example, I drive on an interstate where the speed limit is 55. It’s a 6 lane highway where NO ONE drives 55. At a minimum people are doing 70 and up. Theoretically every person is breaking the law and everyone of them could get a ticket but they don’t. The cops know the speed limit is ridiculous on that road so they typically only ticket someone going 80+ BUT they certainly have the option to bust someone if they are going 70.

    Mark avoided a significant loss using information that was not made publicly available. In those terms, that is against the law. Should it be? Different argument. Did mark do anything wrong? Debatable. Would I have done the exact same thing being in the exact same situation? Probably. Was what Mark did against the law? Yep. Fortunately for him a jury found him not guilty. Does that mean he didn’t do it? Nope. It means that a jury did not find or believe the evidence enough to convict. Neither did the OJ jury.

    Comment by secscammer -

    • If you are a federal agency you don’t look to destroy or harm anybody on the basis of “grounds in between”.
      This is not an ego issue. This is a federal agency using overbreadth and badfaith, and trying to use the Court system, and the Court of Public Opinion, as an old-fashioned guillory. Cuban won. Very simple.
      Need another example of SEC actions which they cannot defend…and admit as much? go to

      Comment by Mark Feathers -

  3. let me know if you are actively moderating and reviewing posts prior to publishing. have message.

    Comment by brandops -

  4. very insightful for a non-attorney…. Attempts to judicially legislate only make the law more confusing. That’s a problem when ignorance is not a defense…..

    Comment by edpalermo13 -

  5. Round II in SEC v. Mark Feathers now available at

    Comment by Mark Feathers -

  6. The problem is that the SEC needs to take on high profile targets when it litigates, because it does so poorly in actually enforcing the laws on a day to day basis. For several years, I was a senior trial attorney for one of the financial regulators. The SEC and the DOJ don’t go after many of what I would call the “real” bad guys — for example, essentially the entire financial industry who just made up the CDO/CMO market. Why? (1) They are considered too big to prosecute. They have loads of political pull and can argue that hurting them hurts everyone. This is BS. This is believed because of (2) Guys like “me” can’t have evil intent. Government prosecutors and regulators are from the same schools and share many of the same values and outlooks as those they regulate. Thus, they believe the idea that “people like us” cannot have the requisite intent. But individuals who “bet” on mergers and takeovers are greedy suckers, who will do anything for a dime. Of course, all this is BS. Proving willful blindness isn’t that hard (I’ve done it) and we know that lots of smart people just make stuff up or ignore reality when they are making money. For example, quants can establish what the risk is on a particular investment, assuming lots of stuff is the way they assume it is. But if you say, assume that people are kinda dumb, panicky and that lots of people aren’t that smart and make bad bets, then the models are s***. Anyone with a brain knows all these things. But the government doesn’t want to go after them — they couldn’t really be so bad, they were trying to do right and look at the “innovation.”

    So you have a dual system of prosecution. Real criminals don’t get prosecuted, civilly or criminally. The government — which is leery of prosecuting these pillars of society — wants to prove that it is prosecuting people. So they go after big, celebrity fish whose trading blows up some screen. And they leave guys who run obvious multi-billion dollar ponzi schemes (but who are part of the crowd) alone.

    Comment by mschirmer2013 -

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  9. Mark, I’m a big fan and securities lawyer. I’m also a perennial critic of the SEC and its focus on the little fish and celebrities while being deathly afraid of charging senior officials who were involved in the fraudulent practices that took down the economy in 2008. However, I have to point out that your view of insider trading is wrong. If somebody tips you on a piece of material nonpublic information and you trade on it, liability doesn’t turn on whether that person told you “keep the information confidential” and “don’t trade on it.” The crucial inquiry is whether you were aware that the source of the information owed a duty of confidentiality to the source of the information (i.e., corporation). If you have a friend that is a CFO and he tells you what earnings are going to be in advance of public disclosure, you obviously know that he has a duty of confidentiality to that company. Doesn’t matter if he tells you not to trade. Can you imagine if your friend could tip you off so long as he/she didn’t say the magic words “don’t trade this is confidential”? That would be unworkable. Nobody would ever say those words. Now, that said, if you hear a total stranger at dinner tipping off someone about earnings and you trade, no illegal act. Because you have no idea whether the source is breaching a duty to the source. He could be a speculator. That is the distinction that you are missing in your analysis. Ask your lawyers, they will agree with me. And by the way, it doesn’t mean the SEC isn’t exactly how you describe them. They are. But that doesn’t mean you are correct about insider trading. And this is coming from someone who respects your career and insights on most things (but wants you to lose when you play my NBA team). Cheers.

    Comment by Johnny Galt (@Howard_Roark415) -

    • Well stated thoughts. However, let’s bring the focus back to the fact that SEC attorneys lie, and they will do it on the stand. There is minimal, if any, repercussion to them. How can fact and truth ever be ascertained when an agency who brings a legal action will lie, bully, and do whatever it takes to win their cause (whatever that may be – who knows?). This is just the white collar equivalent of a cop planting evidence and lying on the stand. Individuals at SEC, and SEC itself, must be held accountable.

      Need exactly of irrefutable lies, false statements, and material omissions of SEC employed against a little company stripped of its ability to engage counsel like yourself? Go to:

      Comment by Mark Feathers -

    • With respect, this description of the law is not correct. If a bystander hears the CEO of a company mention confidential merger discussions, and knows this is the CEO of the company, he can lawfully trade on that information assuming he has no confidential relationship to the CEO or duty of confidentiality to the company. It is not enough that the CEO may have breached his duty to the company by discussing the matter where it could be overheard (he arguably did), but the recipient of the information must breach a duty of confidentiality as well. This is effectively the Chiarella case, where the printer’s employee certainly knew the information he was seeing was confidential, but the evidence failed to show his use of the information breached any duty of confidentiality (and therefore failed to support the charge that he acted fraudulently). The confusion on issues of this nature is an example of how arcane securities insider trading law is, which undermines the ability of people to determine what they may and may not do.

      Comment by secobserver -

  10. You were found not-guilt by a jury. Good for you. The SEC doesn’t just go after people willy-nilly because they have nothing to do or they want to go after “a name”. If they went after you, something was there. Your attorney just convinced a group of dolts otherwise.

    Comment by Mark Cubano -

    • Yes, the SEC DOES goes after people willy nilly. SEC has had 7 or 8 decades to perfect its style. After every win, or every loss, teams of SEC execs reflect on their losses, and how to avoid such future losses. They work hard on having rules re-written, or to have them left deliberately obscure. And they do lie. Can defendants get away with lies? No, because this only makes their situation worse. However, SEC employees, on the other hand, have little or no culpability or downside to lying. They engage in serious lies, and they do it as often as they believe they can get away with it, and even more then they know they can get away with, because their is no downside to their lying. Need to know more, or like to see more examples? Go to

      Comment by Mark Feathers -

  11. I would have liked to have seen comparisons and contrasts to what Martha Stewart was charged with and how your case was either similar or different to hers.

    Comment by alexlogic -

  12. Mark, the history of SEC enforcement attempts in the insider trading area reflects the reality that for many years the SEC has not accepted the scope of insider law as determined by the courts. For decades, the SEC’s view has been that fair markets require equal access to information. Never mind that conceptually this is inconsistent with how markets function, and are supposed to function. Economists explain that the way a fair stock market functions to reach a fair price for each security is that when the market price moves in a way that is inconsistent with value, arbitrageurs will step in to take advantage of the mispricing, whether it be too high or too low. They do this, in theory, and in my experience in reality, by having greater knowledge about the security by means of many forms of “research.” That research can even include trying to observe (including overhear) company performance metrics that may suggest the security is mispriced. Of course, not all investors are equally able to do this kind of thing — most of us don’t have the wherewithal or inclination, for example, to hire people to park outside of the widget plant to count the number of trucks going in and out, but some hedge funds do things exactly like that to get an information edge. For years, the SEC has treated that as a bad thing because it supposedly makes access to information unequal. But economists understand this to be a good thing because it allows markets to price accurately.

    Ever since the beginning of SEC insider trading enforcement efforts (going back more than 50 years), the SEC has pushed the view that intentionally taking advantage of nonpublic information should be unlawful. That view has been rejected multiple times by the courts (including the Chiarella and Dirks cases in the Supreme Court). The judicial view has recognized that even unseemly or impolite conduct (like listening in on other folks’ conversations at a football game) is not, and should not be, unlawful, but the SEC has always pressed for the other view because of the misguided notion that only totally equal access to information yields a fair securities marketplace. The arcane and somewhat bizarre rules the SEC presses for in its litigated cases flow from this — the enforcement folks are wedded to pushing the rules as far towards equality of information as they possibly can, even when the courts repeatedly tell them that the concept of fraud inherent in section 10(b) and Rule 10b-5 is inconsistent with that view.

    The result is, as you correctly note, a set of rules that is incomprehensible to the average person, and is sharply debated even among securities lawyers. In fact, when securities lawyers are asked for advice on insider trading issues, they often don’t have a clear answer and advise clients based on the danger of an enforcement action by the SEC, NOT the actual content of the law. On many occasions, investors or hedge funds will refrain from trading not because they are told it would be unlawful but because they are told the SEC will commence an investigation, may thereby cause major expenses, and may well proceed in a way that impairs reputations without any regard for whether anything was done wrong.

    You are also correct that the SEC likes it this way. Whenever it has considered drawing more clear lines on what is and is not insider trading, it declines to do so because of the bizarre view that making it clear what is lawful and not lawful will encourage investors to tred on the edge of legality. But isn’t that what the law is for? Especially the law in an area where mushiness and gray areas create real risks of that people’s lives can be ruined without fair notice that their conduct was illegal? (And, as you note, if such a person lacks resources to do battle with the Government, there is no realistic way to develop and present a defense.) The SEC also avoids making a clear statement on the law of insider trading because it would be required to do so within the scope of what the courts have decided section 10(b) actually prohibits, and it consistently has disagreed with that since, essentially, 1934.

    Comment by secobserver -

  13. Not sure if this was posted, but looks like the SEC got dumped on and lost this one… A win for the good guys!

    Comment by Herschel Horton -

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  15. I agree with Jay H above mentioned comment, although I disagree w/the Maverick re: corruption being an acceptable part of the SEC’s practices! Justice shouldn’t be able to be bought it should be what we all strive for in our modern society

    Comment by aeast1225 -

  16. You’re usually spot on and well thought out when you talk, but you have an incorrect understanding of illegal insider trading. It is not wrong to come into possession of insider information, i.e. the CEO tells you material, non-public information, but it is wrong to trade on it. Your trust with the CEO is irrelevant; you cannot use material, non-public information to profit or avoid losses because it undermines confidence in financial markets and is unfair to other investors. From the SEC website:

    Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.

    Examples of insider trading cases that have been brought by the SEC are cases against:
    Friends, business associates, family members, and other “tippees” of such officers, directors, and employees, who traded the securities after receiving such information;

    I don’t disagree with your views of the SEC.

    Comment by Andrew Buzan -

    • you might want to read the summaries of my case and the transcript i just posted. You dont have it right.

      And the cases the SEC brings are part of the problem

      Comment by markcuban -

    • ahem, I would need to not let that comment go unaddressed or without challenge. if a person such as Mark Cuban spends $12 million on a cracker jack legal team on issues of insider trading, and had to sleep, eat, and breathe all about the issue, and against their voluntary choice for a decade, it might be fair to venture that a person such as Mark Cuban may have more than passing knowledge of what is right and what is wrong, technical aspects, etc.

      Comment by Mark Feathers -

  17. I bet money that it was a politician that thumbs downed my comments aww dis you hit up a bad line of coke?

    Comment by hypocrisyrealized -

  18. So, this is a classic case of a regulator (which is ineffective in its duties much of the time, at great cost to tax payers and the investment community) seeking to defame a personality in order to create a public example, by offering a biased and potentially damaging opinion based on a very loose interpretation of a nebulous regulation. Initially they had blanket support from retail investors and the community at large but, as it has become apparent that they use the shotgun approach to ensnare anyone in their path, credibility and support have done a u-turn. Only when a person such as Mr. Cuban (who is equally aggressive in his defense, intellectually energetic and capable financially) stands up and challenges the raw assumptions, do we see the weakness of the pedestal on which this regulator and its employees stand. The burden of proof comes at great cost; not to the regulator but to the accused. This is a travesty of due process and most often closes the case in favor of the SEC, as 80% of its victims cannot, financially, mount a reasonable defense. Therefore they are wiped out one way or another. This, as Mr. Cuban says, is a lifetime penalty for victims, their families and their associates. In general, the SEC hasn’t earned its relative power via intelligent enforcement of basic rules. It has, instead, sot to change the playing field such that almost any action taken by any participant in the investment markets could be offside in one fashion or another, depending on which side of the bed the local enforcement office got up on. Instilling fear is the weakest and most destructive regulatory path since it affects both economic motivation and productivity, not to mention overhead and compliance costs. Nice work Mr. Cuban.

    Comment by Murray Schultz -

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  21. Anyone following this story about Mark Cuban and the Gov. must surely realize that they are doing this because of his tremendous success in the Financial and Entertainment World.On a liter note:Mr. Cuban; You still looking for an ass kicking family fun Game Show? I am a Format TV writer.
    TWITTER @ConvoDrop
    Writer of TV Format Shows,Listening In for something New.,

    Comment by mike lee -

  22. Yeah I disagree here:

    “But I firmly believe that any lawyer working for a US Government Agency must be held to a higher standard. Whether civil or criminal,when a lawyer doesn’t do their homework, or wings it, or takes chances, or doesn’t care about justice, they risk the life, livelihood, reputation and more of the person(s) they are accusing. I can look back at the job Christian Schultz and Jan Folena did and appreciate the comedy because I won. Had I not won , then their actions and misdeeds would be a burden that I would have to live with, as would my family, for the rest of our lives. That is unfair. That is unjust. That is why I am posting these transcripts.”

    First, no, they should not be held to a higher standard. When we start paying them more, then we can hold them to a higher standard. Let’s not live in fantasy and say the best and brightest lawyers are turning down big offers and career paths to work for relative peanuts at the SEC.

    Second, give me a break about reputation etc. I try to take a lesson from Buffett when he was dealing with Salomon Bros. The game isn’t to know where the line is and to stay within a foot of the line. It’s knowing that in the long run, better to stay 100 feet from the line. The duty to manage your reputation is yours alone. Don’t blame the SEC because you opened yourself up to their hijinks.

    Just 2 cents from a fan!

    Comment by LC -

    • i was so squeaky clean in my dealings with i volunteered to talk to the SEC and the FBI. I kept and turned over everything I had. I published everything I had. What the SEC ignored were the facts. I wasnt within a country mile of “the line”. But the SEC didnt care.

      I stand by what i said.

      Comment by markcuban -

      • Having nothing to hide, I also provided full access for SEC to all my investment funds’ books and records. Months later, having nothing to use against me, SEC’s Enforcement CPA’s made up their own “pro forma” figures for my companies which were grossly inaccurate. This is all true. I’d be in Court tomorrow with SEC tomorrow if I were making this up. I won’t be, however, because it’s all a fact. SEC later told the court that their CPA’s had made “good faith mistakes”. Right. See more at

        Comment by Mark Feathers -

  23. Kids needing surgery aside – the problem is the average Joe is not sophisticated enough to understand the nuances of this kind of case. They simply see that somebody well-connected got the scoop before anyone else and made a score, and in some cases the retail investor was left holding the bag while the inside man sold out before the hammer fell. I don’t disagree with your assessment of the SEC, but from the gallery, it smacks of unfairness. It’s really why the home-gamer should stick to index funds.

    Comment by joehefferon -

  24. SEC and the larger LEGAL system in General is broken BAD

    In today’s world, doing the right thing seems more and more like it does not matter. If someone wants something, whether it’s your company or your ass, they will use litigation to make you wrong and squeeze the win from your soul. From a government perspective, they don’t run like a business so there is absolutely no cost accountability, which is very scary to the defendant.

    The fact that lawyers say that creating confusion helps a case, simply points to the unethical practices within the legal system machine. All the lies are designed to benefit the systems to keep the machine going. With the authority and unlimited resources of the SEC, it is incredibly easy for them to bully and intimidate individuals and companies into settling their cases. This also goes for Big Money that likes to screw the little entrepreneurs that create the big ideas. Big Money and the SEC use the same tactics and what is truly sad, these legal Bullying Tactics are now a Legal Plaintiff Business Model practiced by many litigation firms around the globe.

    Thank god, there are some that can financially fight the EVIL and create some precedence that may help the smaller guys that are being bullied through fallacious plaintiff lawsuits around the USA. Unfortunately, for the others that cannot afford to fight, they and their families get bullied and squeezed to the death.

    Unfortunately, the legal game is almost a Zero Sum game, where money wins and everyone else loses. However, there is one exception…the lawyers always win, which of course is the design of the system.

    We need to get back to the good old days where ones’ word meant something and knowing what’s expected and where you stand became part of each individual’s accountability system to the others within the relationship.

    I think the old timers had it right…

    Comment by David Berg -

  25. Mark

    I’m no lawyer either, but I agree with your characterization of the insider trading law. You may recall I emailed you about my views on this when the SEC first came down on you.

    The only reason insider trading is illegal is because it’s too hard to catch insiders who are manipulating stock prices. In an ideal world, insider trading would be completely legal but fraudulently manipulating stock prices would not. Then, management (and investors) could wake up each morning confident that the price of the firm’s stock accurately represented what was really going on with the firm. Price is down? Management can call around and figure out who thinks they know what and act immediately to deal with the situation. Say an accountant thinks they found something that, once it’s made public, will cause the price of the stock to drop, calls his or her broker, and trades on it. (Let’s ignore for a moment the fact that no matter what the accountant found, the likelihood that not only he or she will actually be able to accurately predict exactly how the stock price is going to react to the information but also will actually beat all of the other accountants and interested parties in trading on it is a huge, huge stretch.) This is information that the management of the company needs.

    In other words, if insider trading is legal I will be better able to run my company and I, the other managers, and the trading public can be assured that the price of the stock always represents ALL information about the company. That’s a real win for the firm and for the trading public which would not only make stock prices meaningful but eliminate a lot of expensive and needless litigation, reverse the entire insider trading legal landscape which currently treats managers as guilty until proven innocent, completely change other wasteful firm dynamics such as quarterly earnings announcement games, and make insider fraud even more difficult to commit (if you are going to commit fraud you better be sure that it is completely undetectable or someone will trade on it). The only downside is that it would make the SEC’s job with regard to catching actual fraud (which is going on anyway, BTW) a bit harder.

    I applaud you for taking on this issue and bringing some of the egregious, overarching, and comedic behavior of the feds to light. (And when you are done with this one, how about taking on the antitrust arena?)

    Comment by J. Lee Booker -

  26. “For it to be insider trading, there has to be some level of fraud. In this case, the fraud has to be that the owner of the news asked the recipient to keep it confidential and not trade. If the recipient says yes and then tells someone or trades on it, then he has committed a fraud on the person who gave the info. Thats insider trader”

    “If you hear something or are told something, no matter what it is, you are not limited in any way unless you have committed to someone/company that you will not convey and/or trade on that information”

    Understandable for a company investor. But in the case of a hedge fund manager or advisor who just received this information (w/o the CEO disclosing – hey this is confidential/don’t trade on this), wouldn’t their fiduciary duty serve as that commitment?

    Comment by hurcane13 -

    • what fiduciary responsibility does a hedge fund manager have to a company insider ? His responsibility is to his investors. Should the hedge fund manager ignore the information that could cost his investors a portion of their life savings ?

      no. Thats why I cant wait to see what happens with the martoma case. Unless martoma told the doctors that disclosed the test information to him that he would keep it confidential and not trade on it, then they should find him not guilty. Martoma was doing the right thing. Working hard to protect his investors

      The sec wants it to seem that only Stevie Cohen was making money from all this. But he had individuals that were counting on his fund managers to work hard, and legally, to create wealth. But again, unless martoma promised to keep the information confidential and not trade on it, i dont see why they are going after him

      Any lawyers want to comment ? Im not a lawyer, nor an experti n that case. Wnat am i missing ?

      Comment by markcuban -

  27. I enjoyed the reading, thanks!

    Comment by Teresa -

  28. post:

    Jay Haley


    Comment by Jay haley -

  29. Obviously we just found the next hit reality show.

    Comment by Amino Mate -

  30. I am looking forward to more of these posts. I followed your case and, having read the details of what actually happened, was glad to see you win. The typical reaction I hear when discussing high-profile financial crimes cases like yours is something along the lines of “how could that very wealthy person be so greedy/dumb/arrogant/reckless?” Certainly that sometimes is the case, but often there’s a much more complicated narrative that gets ignored. Unfortunately, the SEC basically has unlimited benefit of the doubt in the court of public opinion. Shining light on the ambiguity surrounding the actual law and the motives of some of the people involved introduces some healthy skepticism in an area that sorely needs some.

    Comment by Winston Crowley -

  31. @markcuban–apology last “wall bomb” but this stuff makes me livid.

    I bet if you walked into the SEC asked “What’s a Quant?” they would just blindly stare–like a dog–tilting their head..HUH..never heard “QT”..what..where? How old is it?

    The*GOON SQUAD* that Mary Jo White and her mouth breathing $#@%^$#

    I’ve seen resume’s of Quants (nope, not a recruiter), one guy was a PhD from M.I.T. and freakin worked on the NUCLEAR REACTOR on campus (ie. in case you don’t know “Quant”–it’s an Analyst that helps to predict “Quantitative” data/Algorithms for (high frequency–which is an Understatement) but just MADDENING blazing speed…for trading.

    Dude was “OFF THE CHAIN” intelligent–Physics/Mathematical this that..just off the chain…”nope” not the guy…..and seeing how this is also 2007–when saw this, even though I mention a *SCHOOL* name, haven’t breached the wall saying where he was at the time,etc.etc.

    Go ahead. Pick up the Phone–call the SEC–tell them you’re a 12th grader working on a school project so dumb it down for you….I’ll bet you $1000;$1 they STILL can’t tell you.

    THEY SURELY would not know the Velocity of an Unladen swallow be it African or European!!

    Comment by Mike Jones -

  32. His comments are SO UNBELIEVABLE—were he not on Camera….I’d swear it was a “Sound alike”. I’m blown away not only is he “honest” ABOUT HOW MUCH HE LIES…. he said YOU have to, to work against and “take out” the other guy (as if playing a video game of “Battle Ship”).

    He’s got HEDGE MONEY–Like REAL MARKET MOVING MONEY—he also calls the SEC bunch of idiots.You could not *ASK* for better evidence—STRAIGHT FROM *HIS* mouth…where’s the SEC?????

    Comment by Mike Jones -

  33. I read that line of your blog out of context. apologies. but referencing your example- if the CEO disclosed this information to any joe schmo I get where you are coming from, but if the info is disclosed to a professional trader or professional investor, how would it not be insider trading?

    Comment by hurcane13 -

    • you have to look at the flip side of it. Lets say that instead of saying it was a great sale, what if he said “we just lost our biggest customer and are at risk of going out of business”.
      Lets say the person who heard it was getting ready to sell his stock because his kid needs an operation . By your logic, he is stuck with the stock and cant sell

      which in turn would cause companies who are struggling but afraid of their stock going down to talk to their biggest shareholders and always give them news, handcuffing them from selling. Thats not fair

      For it to be insider trading, there has to be some level of fraud. In this case, the fraud has to be that the owner of the news asked the recipient to keep it confidential and not trade. If the recipient says yes and then tells someone or trades on it, then he has committed a fraud on the person who gave the info. Thats insider trader.

      If you hear something or are told something, no matter what it is, you are not limited in any way unless you have committed to someone/company that you will not convey and/or trade on that information.

      Comment by markcuban -

  34. Why is it you have to pass a drug test to work for mcdonalds but not to be president? legalize weed already!

    Comment by hypocrisyrealized -

  35. End quote after public official. damn you tablet!

    Comment by hypocrisyrealized -

  36. Hahaha typical government “intelligence”. I watched a documentary where the host asked a senator why it is people many politicians believe the world is only 6000 years old contrary to concrete scientific evidence that proves otherwise. The senator who i believe was Chris Christy or whatever, responded, ” you dont have to pass an i.q. test to be a public official. Scary. It is common
    knowledge that many politians use cocaine and a variety of other drugs and then make decisions on our behalf while high out of their minds.

    Comment by hypocrisyrealized -

  37. Mark, your understanding of the law is correct. There is no real insider trading statute besides the rarely used §16 (which needs some pretty obvious facts of insider trading), so the SEC uses a general antifraud statute (§10(b) and Rule 10b-5) to police insider trading, which if you think about it doesn’t make too much sense. Fraud and trading on nonpublic information are two entirely separate types of conduct. However, Congress purposely left these statutes undefined and malleable in deference to the SEC’s judgment – that’s why there are no bright line rules, and that’s why the SEC prefers it this way. It allows it to stretch out statutory language to give itself a chance in any trial.

    Comment by Kenny -

  38. As a practicing state and federal litigator, I have seen government and private attorneys mess up basic things regularly (and have occasionally missed or forgot a rule myself). But keep in mind that SEC lawyers are supposed to be “subject matter experts” on securities and exchange laws foremost, before they are experts on trial procedure. SEC lawyers are therefore more like Wall Street law firm partners, who have only tried a few cases, than, say, Assistant U.S. Attorneys, who may have tried hundreds of cases.

    Comment by dubya3000 -

  39. I highly recommend Fooling some of the people all the time by David Einhorn. The SEC doesn’t care about corruption even if you point it out, actually, more than likely they will come after the whistle blower.

    Comment by John Jacobs -

  40. Like to know more about the African Honey Badger? It don’t give up. Go to

    Comment by Mark Feathers -

  41. Like to see a blatant example of a federal equity receiver – Thomas Seaman – using hearsay for a federal agency for which he has not authority to speak on behalf of, and while he holds tens of millions of dollars capital under his management by way of appointment in which he benefitted by SEC’s false licensing representation? Go to

    Comment by Mark Feathers -

  42. Like to see bullet proof examples of the lies, gross misprepresentations, illusory, and material omissions that are exactly the kind of tactics SEC uses which Mark Cuban makes reference to? Go to

    Comment by Mark Feathers -

  43. Like to see a violation by SEC’s Enforcement Division of the 4th Amendment to the Bill of Rights of the US Constitution? False seizure by way of false pretense. SEC’s Enforcement CPA, Roger Boudreau, used, knowingly, false statements to overstate an investment funds’ member returns by 54%, and use this as a false basis to call them a “ponzi-like” scheme, and cause their seizure through SEC fraud and false pretense. SEC and their CPA’s explained this as “good faith mistakes”. BY AN SEC CPA WITH MORE THAN TWO DECADES OF ACCOUNTING EXPERIENCE. Right.

    go to

    Comment by Mark Feathers -

  44. I don’t think the SEC litigates too much

    I think they litigate selectively

    High profile, no political juice Indict !

    Low profile, no political juice Put out of business

    Any profile, lots of political juice, fine the organization, no admission of guilt ( speeding ticket )

    Jay Haley


    Comment by Jay haley -

  45. Like to see any example of a federal equity receiver and SEC’s enforcement division hiding a small business owner’s personal equity injection of one-half million $ into his own company, and lying to a federal district court judge that the owner never invested in his own company? Go to

    Comment by Mark Feathers -

  46. Like to see a follow up comment to falsely calling a receiver a “licensed CPA” by SEC lying again to the California State Bar that he is a “licensed CFA”. THERE IS NO SUCH LICENSE IN THE UNITED STATES AS “LICENSED CFA”. Go to

    Comment by Mark Feathers -

  47. Like to see an example of a federal equity receiver appointed through SEC’s false statement to a federal district Court and judge that he was a licensed CPA? go to

    Comment by Mark Feathers -

  48. Need hard facts of SEC Enforcement Division acts of bad faith & fraud? Go to

    Comment by Mark Feathers -

  49. “My understanding of insider trading law is that in order for it to be insider trading, there must be some violation of trust”….wrong understanding. sounds like you are trying to find a loophole

    Comment by hurcane13 -

  50. Your ego and ignorance is truly astonishing.

    Comment by Christopher Ingrassia -

Comments are closed.