In a February 10, 2012 Memorandum Opinion and Order, Chief Judge Sidney Fitzwater ruled on the motions to compel pending in the SEC’s lawsuit against Mark Cuban. Although these disputes in the insider trading case are largely procedural, they are significant in that the Court considered whether the SEC would be required to produce certain materials from its investigative files. Judge Fitzwater ruled that the SEC would be required to produce non-privileged documents from a related investigation into Mamma.com and documents relating to the relationship between the Mamma.com and Mark Cuban investigations. The Court denied Mr. Cuban’s request for documents relating to the involvement of another group of witnesses, as well as the request for the SEC’s notes and summaries of witness interviews. Finally, the Court ordered both sides to produce certain privilege logs.
The SEC brought its insider trading case against Mark Cuban in November 2008, alleging that, prior to the public announcement of Mamma.com’s PIPE offering, Mr. Cuban, who was aware of the planned offering, sold his entire stake in the company, avoiding what the SEC claims was potentially a $750,000 loss.
Mr. Cuban’s defense team has mounted a number of interesting arguments, including: (1) an affirmative defense that the SEC had "unclean hands" based on the conduct of Division of Enforcement staff members during the investigation, which was stricken when the Court ruled it was available "only in strictly limited circumstances" (as discussed here); and (2) a complaint with the SEC Office of Inspector General, making arguments regarding alleged violations of SEC policy and bias of SEC staff members during the investigation, which was unsuccessful when the Inspector General stated that it "did not find sufficient evidence to substantiate any allegations of misconduct" (discussed here).
In late August, 2011, Mr. Cuban filed a motion to compel, seeking the production of the non-privileged portions of the SEC’s investigative file (including the notes of the Enforcement attorneys taken during the investigations regarding Mr. Cuban and Mamma.com), as well as the production of a privilege log of all documents it withheld from production on grounds of privilege. In late September, Mr. Cuban filed an amended brief in support of the motion to compel.
As discussed here, on November 22, 2011, the SEC filed its own Motion to Compel, asking the Court to order Mr. Cuban to produce a privilege log of his withheld documents (from the period the SEC was investigating him up to a period more than two years after the lawsuit was filed).
In his February 10, 2012 ruling, Judge Fitzwater held that the SEC would be required to produce: (1) all nonprivileged portions of its investigative file for the SEC’s separate investigation into Mamma.com; (2) all documents pertaining to the relationship between the Mamma.com investigation and the investigation into Mr. Cuban. Mr. Cuban had argued that such documents would be relevant to the credibility of the Mamma.com witnesses (and their possible bias in favor of the SEC), and Judge Fitzwater agreed. However, the Judge pointed out that the SEC would be entitled to withhold documents from those files if they were privileged or covered by the work-product doctrine.
Judge Fitzwater denied Mr. Cuban’s motion to compel production of documents relating to the involvement of the Irving, Ian or Michael Kott with Mamma.com, holding that the documents would not be discoverable as to the issue of Mr. Cuban’s scienter.
The Court also denied his request that the SEC produce all factual portions of the SEC’s notes and interview summaries from the witness interviews conducted in the course of its investigation. The SEC argued that the documents were protected under the work product doctrine. The Court agreed with the Commission:
Even assuming that the materials requested are merely ordinary, not opinion, work product, Cuban has failed to demonstrate undue hardship. Cuban contends that he is unable to acquire the information found in the SEC’s interview notes and summaries because it reflects the initial statements of [Mamma.com CEO Guy] Fauré and other interviewees. But Cuban has access to notes taken by Mamma.com personnel of SEC interviews, and transcripts of sworn, investigative testimony of such witnesses; he has taken his own unsworn, transcribed statements from several witnesses; and he has had the opportunity to depose these witnesses. His failure to demonstrate undue hardship is alone an adequate basis to deny his motion to compel in this respect.
Judge Fitzwater ruled that the SEC and Mr. Cuban were both required to produce a log for documents withheld on the grounds of privilege. With respect to Mr. Cuban’s request that the SEC provide such a log, the Court noted that it had already determined that Mr. Cuban has requested discoverable materials and the SEC must establish that documents which were withheld are privileged by providing a log.
With respect to the SEC’s request, the Court ruled that Mr. Cuban would be required to produce documents withheld for the period after December 31, 2006 and through March 10, 2011 (which was during the investigation and after the commencement of the lawsuit). The Court concluded that " documents created in and after 2007 would, for example, shed light on Cuban’s interaction with several potential fact witnesses."