Judge Allows Mark Cuban |to Go After the SEC

(CN) - In an unusual move, a federal judge on Friday ruled that Dallas Mavericks owner Mark Cuban may conduct discovery on the Securities and Exchange Commission for his demand for attorney's fees. U.S. District Judge Sidney Fitzwater dismissed the SEC's insider trading suit against Cuban in August.

Fitzwater ruled that Cuban could not be held liable for selling his shares in Internet startup Momma.com based on nonpublic information.

In dismissing with prejudice, Fitzwater ruled that Cuban never agreed not to use insider information and was not legally an insider. Cuban avoided approximately $750,000 in losses by selling his shares.

In his motion seeking attorney's fees, Cuban contends the SEC lacked a good faith basis in pursuing the suit, that the facts were insufficient to support the accusation that he agreed to keep information confidential, and that the SEC was aware of this defect before it sued him.

Cuban also accuses the SEC of engaging in investigatory misconduct before its suit was filed. He claims leading questions were used in a second deposition of the CEO of Momma.com, to try to solicit different answers.

Cuban says an SEC attorney sent him a series of "harassing" email messages that questioned his patriotism, because one of Cuban's companies distributed a film about the September 11, 2001 terrorist attacks.

Several of these emails were copied to Christopher Cox, the SEC chairman at the time, Cuban says.

Cuban maintains the entire investigation against him was motivated by bias, which was demonstrated in a speech in which the SEC Director of Enforcement lauded the SEC's pursuit of high-profile insider trading cases.

The SEC insists its claims against Cuban were factually sufficient, that Cuban's allegations of investigative misconduct are unfounded, and that Cuban cannot meet the high standard required to recover the relief he seeks.

In granting Cuban's motion, Fitzwater wrote that "because there are fact issues that remain to be resolved, and because these issues require (or would benefit from) some discovery, the court grants Cuban's request for discovery ... Cuban should be allowed to obtain discovery that would enable the court to fairly judge some of his allegations regarding how the SEC conducted its investigation."

Fitzwater is permitting discovery to be conducted no later than Feb. 1, 2010.

Follow @davejourno

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