The SEC and the DOJ still don’t get it

The Supreme Court of the United States just recently, correctly decided not to review the US vs Newman Insider Trading case.  In response to this decision, there was a well written commentary on the decision here on Bloomberg by Matthew Levine.

Given my interest at the near 2 year anniversary of my destroying the SEC in the ridiculous case they brought against me, (you can read more here and here  ) , I chose to send the author an email with some of the pieces I thought were missing (some edits from that email have been made)

It covers what I think is absolutely missing when it comes to Insider Trading and why the failings of regulators have far greater consequences on our economy then we realize.



Your article was very fair. But it missed the ultimate point. If you want to make it fair and equal for everyone, all regulators have to do is 2 things

1.  Publish the rules as the DOJ and SEC see them 
The challenge for any investor of any size is that they don’t know the rules and have no place to find them  No one knows what insider trading is. You had to qualify all your comments as a result
Which also means regulators can charge anyone with anything and over power defendants with tax payer money
If the goal is to make markets fair, publish guidelines , obviously not laws, that anyone can look at to know if they are following the guidelines or not   

Lawbreakers who have broken the law should know they have broken the law.  I doubt that people at the end of a tippee chain know they have broken any laws or even have considered it.  How could they ?

2.  Let people call and ask questions like. “Is this alright to do. Yes or no “
I called the SEC and asked to ask a question. THey referred me to a website page that was a scan of a fax from 1980
I actually video taped this process.  Search my name and sec on YouTube   It’s ridiculous.  They will charge,  but they won’t help people avoid breaking the law.  How is that fair ?
Bottom line , if the goal of regulators is to make the markets fair, trusted and a place where companies can raise capital, their approach to bringing cases against uncertain laws is the worst way to accomplish those goals 

As a result they miss the big events and their failures lead to broad regulation that has cut the number of public companies in half  and led to a serious distrust of financial markets. It’s not insider trading that has created distrust. It’s the failure of regulators to miss the macro events 

Enron gave us  Sarbanes Oxley
2008 crisis gave us Dodd frank
and of course they missed Madoff and Sanford Ponzi schemes
And who knows what’s yet to come from algos
The problems are their own fault


All of the above leads to a simple question. Do you think the markets are safer today than they were 20 years ago ?

26 thoughts on “The SEC and the DOJ still don’t get it

  1. Mark,Just idea. U do with it what u want. Build site to collect funds, no cut, on fantasy leagues no fees.  Season long leagues 4 to 8 months of intrest off just holding the money.  Us money of ads on the site. Just an idea.  If its an idea worth anything i just need a down payment for a house. 

    Happy Connecting. Sent from my Sprint Samsung Galaxy S® 5

    Comment by Jason Trant -

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    Comment by netidasmita -

  3. Hey M I think the markets are safer today, but the slender gain in safety is very alarming for a country that was built by innovators. We will always have risks and according to which economist you ask you can get a hundred different answers. I agree that there should be a system in place to let people call and ask about the legality of transactions funded by the money that will be saved by not needing to wildly prosecute individuals. The individuals that they prosecute often have the financial standing to afford the best legal teams. I see the solution being the equivalent of sex ed for investments. Kids are being taught safe sex in classrooms across America to make safer decisions in the future while actually providing a return on investment. So why does the SEC not have a system in place that can approve transactions in a timely manner? They will ultimately be able to focus on committing their resources to prosecuting those who defy the rules with malice. The SEC shouldn’t worry about losing their day jobs either, someone will always try to beat the system, but lets find a way to keep those chasing the american dream to avoid stepping on land mines along the way.

    Comment by enigmaot -

  4. I think it would be a funny protest is bloggers just claim extravagant gifting by the companies behind anything they talk about.

    Comment by Aziz Aziz El -

  5. i agree mostly must make info public and fair check this for more details

    Comment by Philip Paine -

  6. thanks you

    Comment by Bilgi Devim -

  7. Don’t be so tough on the government mark!

    Comment by AndrewHillmanDallas -

  8. A whistle-blower complaint was filed with the SEC regarding Citigroup seven months ago and even though all kinds of documentation was given to them, the SEC has done nothing. Here’s a short summary of the whistle-blowers story

    Comment by walkingforheart (@walkingforheart) -

  9. If you want questions answered regarding securities, consult your state Securities Dept or Dept of Financial Institutions. The SEC is well known to NOT be “user friendly.” 🙂

    Comment by Mark Anderson (@bigkahuna644) -

  10. Thanks for the article. More problems (or fun and games) at the CME futures market coming to light with this court case targeting high frequency trading reported by Bloomberg.

    Comment by Martin Rimes -

  11. Make the SEC guidelines/regulations for investing in PLAIN ENGLISH just as they require from public companies.

    Comment by moxivation (@Moxi_va_tion) -

  12. Hi Mr Cuban, Several years ago you referenced a book about corporate earnings manipulation in one of your posts. I believe it was titled something along the lines of “Making the Number” but I can’t remember the exact title or author. Could you tell me what is the correct name of this book and who is the author? I’d like to read more about this topic Thank you….Go Mavs! Brian Phipps

    Date: Tue, 6 Oct 2015 23:39:55 +0000 To:

    Comment by Brian Phipps -

  13. My comment disappeared. Please let me know why.

    Comment by moxivation (@Moxi_va_tion) -

  14. Enron was in 2001. MCI/Worlcom followed in 2002, so many actually think MCI/Worldcom was the tipping point that gave us SOX (which got us no where!), but otherwise you are 100% correct!

    Comment by Mark Pennington -

  15. ‘Let people call and ask questions like. “Is this alright to do. Yes or no “’

    Never going to happen. Have you ever called the IRS along those lines? I don’t, I either read or call my accountant. I would never rely on the IRS. Additionally, on it’s face, that doesn’t create a paper trail. It’s a non starter to have any type of legal type communications (which someone wants to rely on) by phone. Plus that makes the impractical assumption that the SEC (or any government agency) can have enough people qualified to answer these types of questions. How do you parse a phone conversation (even if taped) and multiple questions and points and nuance? You can’t. I am guessing that it would also be possible to even social engineer a government employee into agreeing to any number of things based on the way the questions are structured.

    Lastly, one of the reasons (not the only reason) for not “publishing the laws” is probably to create a fear in people of doing anything even close to what might be considered insider trading. Hard to take a chance if you don’t know what you don’t know. So if you to carefully define what insider trading is, people will then have just information to game the system and you could, in a way, create more insider trading. Do I think this is why they haven’t done this? No I don’t. But it would be one of the unintended consequences of publishing a FAQ on the subject. People would perhaps have a roadmap to get around the rules.

    Comment by Larrys - LE (@erlich) -

  16. I feel the laws are so obfuscated so that folks within the sec/doj can cherry pick who they want to go after. If they’re concrete and clear as day, then they have egg on their face whenever they fail to go after someone who has so very clearly broken the law.

    Comment by Jim Wang -

  17. Hello Mr. Cuban, I currently have an online business with not much traffic. who or what would you suggest to increase online sales. Thank you, Naomi from Charlotte

    Comment by naomipeterson1 -

  18. Mark, if you really think the SEC is in the game to provide guidance to companies and investors, you are wrong – sorry buddy. The truth is that no company or person can expect to be free from regulatory culpability unless they consult an expert lawyer from a large firm that has sway with the government body (ies) in question and follow his or her instructions to the letter – and maybe not even then, There are simply too many laws, regulations, sub-regulations and resulting myriad of interpretations. It has ceased to be about “what you knew and when you knew it” and has morphed into “guilty until proven innocent, should the defendant actually have financial resources sufficient to mount a reliable defense”. Trouble is that the innocent often do not have these resources but the guilty can often pay out of pocket, as a direct result of the alleged wrongdoing i.e., they have made a killing over the years the SEC took to catch up with them, have stashed it off-shore and can spend $5 million or more thumbing their noses at the rules – cost of doing business. Retail investors lose, the accused retires to the Bahamas and the law-firm partners get their Christmas bonuses. The SEC and other regulatory bodies must also determine how they are going to spend their own finite resources. Being a potentially big financial target means you have the option to, and should, spend a little money creating a first line of defense. Good observations however, since an inadvertent run-in with any faceless government regulatory body can ruin companies, families and the lives of innocent children.

    Comment by Murray Schultz (@mws70) -

  19. Pingback: Mark Cuban: The SEC and the DOJ still don’t get it

  20. Mark, you fought the good fight, and thank you for your action. The essence of Due Process of Law is “notification” that a situation exists. Without that, no situation has occurred, where an unknown law or policy has been broken by some happenstance of omission, or commission. In their decision did the Court provide any guidance to Congress to fashion a remedy for the regulatory agency to 1. show the need for the agency to exist, and 2. if so, how to otherwise be effective. As it stands the SEC appears to be an arbitrary and capricious domestic enemy to the Constitution. This is dangerous because it goes to the confidence and trust that a government must have to exist.

    Comment by fareed247 -

  21. Thanks Mark.
    There was also a recent case with the FTC and Bayer that was just unsealed on October 1st. This is a blog post of the analysis of the case involving Bayer and the FTC ( Among other things, the FTC was requiring Bayer to provide data that no other company was required to provide. The Court overwhelming accepted the arguments asserted by Bayer, and rejected those of the government. The court ruled in favor of Bayer and the ability for other defendants to cite this case could be beneficial.

    Comment by Dave Levine -

  22. The SEC is made up of lawyers interested in getting large cash settlements. By using generic language and past cases as precedent, there is nothing in writing in the USC, for investors to ingest and understand. Everything is buried in minutiae and legalese. The SEC isn’t interested in fair or foul, they just want to hit it out of the park.

    Comment by Jim Welke (@JimWelke) -

  23. Interesting perspective. How about a non-profit established to provide information to help individuals reconcile their actions with existing laws? It would need funding, of course, but there must be someone willing to fund such a service.

    Comment by Billy Reuben (@BillyReuben1) -

  24. If you think that’s bad, look at the rules governing daily fantasy sports. The folks who have access to the data are actually encouraged to play on their competitor’s sites. YIKES!

    Comment by Don Perrien -

  25. You can always apply mathematical laws (e.g., Benford) to figure these things out. But when you’re going up against established institutions that exist to expand their powers via regulatory reach, why bother? Washington has had cranes on the skyline for the past 30 years, and there is seemingly no end to it.

    Comment by Mark Conway (@Alpha_Py) -

  26. Mark, I couldn’t agree with you more about how the regulators are out of control. I’m in the mortgage banking industry as a tech vendor and the amount of regulations we deal with is insane but also the vague language and the ability for them to do everything and anything with no consequences to them is just un-American. One of the positives I do see is companies starting to push back and sueing the regulators which is there right. The biggest pain is that the regulators make something up as to why they think you broke the law based on some weird interpretation, you don’t agree, you sue them, they drop the case and then move on. Meanwhile the company spends millions on these cases and the regulator spends taxpayers money with little or no accountability. I’d love to see some of these companies starting to fire back against these regulators and let them know that American business will not be pushed around and will not be regulated based on interpretation of the law.

    Comment by Brian Coester -

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