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 On Tuesday, a federal judge in California rejected a securities
fraud case brought by the SEC and said the agency had "not carried
its burden of proof" against two former senior executives at Basin
Water Inc who were accused of fraudulently boosting their company's
revenue.
That defeat came one week after a Kansas jury cleared Stephen Kovzan,
an executive at technology company NIC Inc. The SEC had accused him
of concealing a payment of more than $1.18 million used to fund
perks for the then-CEO, including vacations, clothing, houses, spa
treatments and a luxury car. But a jury disagreed and rejected all
of the SEC's claims.
The most high-profile defeat this year came in October, when a Texas
jury cleared billionaire Mark Cuban, owner of the National
Basketball Association's Dallas Mavericks, of insider-trading
charges brought by the SEC. After the verdict, Cuban slammed the SEC
attorneys who tried the case.
David Kornblau, a partner with Covington & Burling LLP, said he
thinks the SEC's hit-or-miss track record could improve if the
agency more carefully chooses which cases it brings.
"I think the issue is case selection, not the competence of the
SEC's trial lawyers," he said. "It is easy for Congress and pundits
to demand more aggressive SEC enforcement, but much harder to prove
fraud to a neutral judge or jury."
WHO'S AFRAID OF THE DEFENSE BAR?
While the SEC selected the cases long before White became SEC chair
earlier this year, two of the recent losses come less than a month
after she told a Washington legal audience that her team is "ready
to go up against the best of the white-collar defense bar."
Her remarks addressed concerns that her new policy to seek
admissions from defendants in some circumstances would prompt more
of them to litigate cases rather than settle the charges.
Historically, the SEC has always settled far more cases than it
takes to trial.
White, a former federal prosecutor, is no stranger to the courtroom,
and experts said her background could help the SEC better assess how
a case might play in front of a jury.
"What you have now is a very, very, very experienced trial lawyer as
chair of the SEC, and you have never had that before," said Stephen
Crimmins, a former SEC trial attorney who is now a partner at K&L
Gates.
He added that under White's watch, she may be more likely to empower
trial attorneys to weigh in before the SEC votes to bring cases.
"They need to take greater account of how something will play in
front of a jury," he said.
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In a sign the SEC is taking White's pledge seriously, it recently
filed a procurement request for a jury consulting service to provide
mock jury sessions to help the agency determine the effectiveness of
its arguments.
SEC spokesman John Nester said the SEC uses jury consultants "when
it's appropriate," and that this is not the first time the SEC has
used a mock jury.
STATISTICS NOT SO BAD
The SEC has won close to 80 percent of its cases before juries,
judges and SEC administrative law judges in the last three fiscal
years, SEC statistics show.
But a handful of high-profile losses in cases stemming from the
2007-2009 financial crisis, including one against a Citigroup Inc
manager and one against the founder of the Reserve Primary Fund,
have left the SEC scrambling to defend its mostly winning record.
The SEC did score a major victory in July when a jury found former
Goldman Sachs Vice President Fabrice "Fabulous Fab" Tourre liable
for fraud in connection with a failed mortgage deal. It also won two
lesser-known cases in connection with offering frauds this fall,
including one against financial services firm AIC Inc and another
involving a real estate fund in Minneapolis.
In the case from earlier this week, the SEC had alleged that former
Basin Chief Financial Officer Thomas Tekulve Jr and former Chief
Executive Peter Jensen intentionally misled investors by using
accounting techniques that fraudulently boosted the company's
revenue.
The judge said the SEC failed to present any direct evidence to back
up its claims.
"We're proud of our successful record in often difficult cases on
behalf of the investing public," an SEC spokeswoman said.
(Reporting by Sarah N. Lynch and Aruna
Viswanatha; editing by Matthew Lewis)
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