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Articles

Mark Cuban GC Says Managing Trial Team Key To SEC Win

September 10, 2014

Articles

Mark Cuban GC Says Managing Trial Team Key To SEC Win

September 10, 2014

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This article originally appeared on Law360.com on September 10, 2014.

By Jess Davis

Billionaire Mark Cuban brought in a game-changing outside ringer to coordinate what had become a sprawling legal team just a few months before a trial began over the U.S. Securities and Exchange Commission’s insider trading allegations, Cuban’s general counsel said Wednesday.

Robert Hart, general counsel for the Mark Cuban Companies said he needed “a Kissinger” to manage Cuban’s trial team without stepping on any egos and ruffling as few feathers as possible, in a behind-the-scenes glimpse into the trial he gave at the Dallas-Fort Worth chapter of the General Counsel Forum on Wednesday morning. Fish & Richardson PC’s Tom Melsheimer was brought in to fill that diplomatic role and oversee the efforts of what were then four law firms working to defeat the SEC’s allegations that Cuban had violated insider trading laws by trading on confidential information.

Cuban had been working with a group of white collar, securities and appellate lawyers at the then-Dewey & LeBoeuf LLP during the yearslong SEC investigation into his investment in the Canadian search engine Mamma.com. When Dewey & LeBoeuf imploded in 2012, the lawyers who knew the ins and outs of his case ended up at different firms — Brown Rudnick LLP, Cooley LLP, White & Case LLP and Latham & Watkins LLP.

“So we’re working with four different law firms and trying to manage them all at the same time, which was just kind of pretty hectic,” Hart said. “We realized we really needed kind of a go-to lawyer to pull all forces together.”

Hart says when the lawyers were all at Dewey, they worked well together and shared a common financial interest, but when they split into different firms, there was some disagreement about who would handle which projects in the case. He decided he needed someone to manage the trial preparation and keep everyone happy without losing any of the in-depth expertise they had built in years of preparing the case.

Melsheimer said he was skeptical at the time that he could steer the lawyers who were running in different directions to a common goal without stepping on any egos. Each law firm wanted to carve out its role, be able to contribute and know what its goal was — and it was a challenge to step into that leadership role in the summer of 2013, just months before the October trial began, Melsheimer said.

The turning point came when Melsheimer convinced Cuban to hold a mock trial — it allowed the lawyers to come together as a team, test different strategies and arguments before a mock jury and clarify the substantial roles each lawyer ended up playing in the three-week trial. Melsheimer said he deferred to Cuban’s longtime lawyers on the facts, but had an advantage in coming in to the case late in the game and knowing less because he was able to ask tough questions.

“Getting all those teams together was hard,” Melsheimer said. “We really did all like each other and at the end of the day, that was the real driver. I tried to be respectful of everyone’s roles and seek input from everyone.”

The case, launched in 2008, was an early test of the misappropriation theory of insider trading that can include defendants like Cuban who aren’t corporate insiders but who are alleged to have breached a duty of confidentiality to the source of the information that prompted their trades. Cuban had bought 600,000 shares of the search engine company in 2004, but dumped his stock months later — he says it was because he realized the company was crooked, while the SEC alleged it was because he learned confidential information about an upcoming financial offering from Mamma.com’s CEO.

A Texas federal judge tossed the case in July 2009, ruling the SEC had failed to show both that Cuban agreed to keep the information confidential and to refrain from trading after learning about the offering. That decision marked a major setback for the agency, which had argued that proving the first element — the existence of a confidentiality agreement — would suffice. The Fifth Circuit revived the suit in September 2010, finding that the SEC had presented “plausible” evidence of an agreement not to trade. In March 2013, the district court rejected Cuban’s bid to end the case without a trial.

After three weeks of testimony, including Cuban taking what was seen as a make-or-break turn on the witness stand, a jury unanimously sided with Cuban on all essential elements of the SEC’s claim.

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