Question

This author argues that the SEC's power has become too far-reaching. Do you agree? and why?

"Mark Cuban is a Dallas-based entrepreneur, investor and owner of the NBA’s Dallas Mavericks. Thomas Melsheimer is the managing principal of Fish & Richardson’s Dallas office and served as Mr. Cuban’s trial counsel in his SEC insider trading case. When it comes to insider trading, the Securities and Exchange Commission is very clear: Everyone must play by the same rules. But the government agency charged with enforcing a level playing field does not play itself on one that is fair and level. In the fiscal year that ended Sept. 30, the SEC brought an increasing number of insider trading enforcement actions — 235 cases, representing a 10 percent increase from the previous year — in front of its own “in-house” judges, instead of in federal district courts with their accompanying jury system. These in-house proceedings, which provide far less discovery than does litigation in federal courts and do not operate under the traditional rules of evidence, provide an undeniable “insider” advantage to the SEC. How big is the SEC’s home-court advantage? The agency won 100 percent of the cases brought before in-house courts over the last year. Compare that record with the SEC’s win rate of 61 percent for cases brought in federal court, and it’s obvious why the SEC prefers its own version of “insider trading.” Federal courts provide more than just the common sense of a jury. They provide independent federal judges tasked with interpreting the relevant statutes and developing the common law. The SEC’s in-house courts, on the other hand, provide judges on the SEC payroll. No one can seriously argue that they will be as balanced as independent federal judges. Nobody knows this better than we do. The SEC spent seven years litigating an insider trading case against one of us — Mark Cuban — that it ultimately lost in front of a jury. As the rules of discovery in federal court revealed, this was a case that should never have been brought. Some of the key evidence in our case was testimony by the chief executive of Mamma.com, whose company stock the SEC alleged was traded on insider information. Being able to take his deposition and explore potential inconsistencies in his testimony, including apparent changes in his story after the SEC dropped an investigation against his company, was critical to our defense. In an SEC home-court proceeding, we wouldn’t have had the right to take the deposition and to discover inconsistent testimony. And would a judge on the SEC payroll have been as persuaded as the jury was that the testimony was tainted by undue SEC influence? That hardly seems likely. Our case is hardly unique. Nelson Obus, founder of a small investment fund Wynnefield Capital, spent 12 years fighting a similar battle with the SEC. He and his colleagues were exonerated in May, but only after all the facts were brought before a jury. At the end of the case, Obus criticized the SEC for engaging in a “12-year campaign of regulatory overreach.” Some media have noted that the SEC’s maneuvering to decide more cases in-house coincided with the agency losing a number of high-profile insider trading cases in federal court, beginning with our case in October 2013. In November , federal Judge Jed Rakoff, a frequent SEC critic, called the SEC to task for its “chutzpah’’ in taking this approach. But the critiques are not merely verbal ones. In October, two targets of SEC in-house proceedings challenged the practice in court, arguing that administrative proceedings violate their constitutional due process rights. Other insider trading cases challenging the practice are pending in the appellate courts. It is highly unlikely, however, that these challenges will succeed. The law, as developed by the very federal judges the SEC seeks to avoid with its in-house filings, is very deferential to agency decisions on how to enforce the laws under its jurisdiction. That is why it’s essential for Congress to step in. There is no reason for investors accused of insider trading to be deprived of the ability to have the allegations against them decided by a judge and jury. The powers given to the SEC in the 2010 Dodd-Frank legislation should be amended to prohibit the SEC’s use of in-house courts for that purpose."

Answer 1

Ans.) The SEC is powerful organization in USA, as it is independent agency. SEC is responsible for enforcing the federal securities laws and regulations, proposing securities rules, and regulating the security industries, the stock and options exchange and other activities. Now, in terms of Insider Trading, the security exchange commission is very clear: Everyone must follow the same rules. They are very strict against anything that is not good in insider trading. But for the Insider Trading they are charged for unfair and irrelevant. As many of the companies were charged wrongly by this Organization.

There are basically two courts:- In-House Court and Federal Court. The In-House court does not require any evidence to prove unfair or irrelevant activities going on in the Companies. Hence. In-House court is just Boon for them. Also they have won 100% cases in the In-House Court, which is way better than Federal court cases in which they have won only 61% cases. Federal Court requires a deep analysis of cases and traditional evidence as proof. The Federal Court of USA is providing Proper justice to the companies by the Evidences and Hearing pleas of guilty. So, this clearly proves that SEC is ruling in Security and Exchange Market of USA and enforcing them to pay hefty fines and charges imposed by SEC found in Insider Trading.

Even the renowned Entrepreneur, Mark Cuban have been there & spent years in fighting case of Insider Trading and at last he lost his case in In-House court because of no discovery in his case. At last he filed the case in Federal court and as per the rules of Discovery revealed that this case should never be Brought. Similarly, Nelson Obus, the founder of Wynnefield Capital have spent 12 years to get out of SEC charges. They were charged for the deposition and inconsistencies in their work which is the part of Insider trading. Also, The Chief Executive of mamma.com was charged for Insider Trading without any evidences and Discovery of Litigation. Hence, these all examples are the proof or the evidences which clearly describes the situation of SEC.

The In-House Courts should be restricted for unfair means or they should strictly comply with the rules and regulations of USA Federal Government. They can also follow the similar model of Federal Court in which Discovery in Litigation and Trading Rules of Evidence are Enforced. The SEC should be run by Federal Government of USA instead of Making it independent agency. The powers of SEC should be made less vigilant and more investor friendly. The SEC should be managed and regulated under the Federal Government which is providing Justice with Equality.