Mark Cuban and his attorney wrote a piece in the Wall Street Journal today that is worth reading. Cuban successfully beat back insider trading charges by the Securities and Exchange Commission. To do so, he took the relatively unusual step of going to trial instead of settling with the SEC. Defending oneself against an SEC enforcement action is costly financially, but can also take a toll on one's mental and physical health, family life, and career. For that reason, many people choose--regardless of the validity of the SEC's allegations--simply to settle and move on with life as best they can. Cuban maintains that the SEC should operate under a rule currently applicable in the criminal context that requires the government to turn over to the defense material exculpatory evidence. Cuban's commentary raises broader questions about regulatory agencies' enforcement programs.
The SEC is a regulatory agency without criminal authority, but is fond of portraying itself as a law enforcement agency. Its current chairman, a tough former criminal prosecutor, lamented in a recent speech that the agency lacks the power to arrest and imprison. The SEC is not alone in blurring the line between civil and criminal enforcement. The Bureau of Consumer Financial Protection assures us that it is the "cop on the beat to patrol the consumer financial services markets." The Commodity Futures Trading Commission's acting chairman testified recently that the regulator's enforcement lawyers are "cops on the beat" in the swaps and futures markets. Regulatory agencies are obligated to enforce the laws they administer, but they are not prosecutors. If these agencies insist on modelling themselves after criminal prosecutors, then Cuban is right that the people they pursue need the same protections afforded to criminal defendants. Alternatively, regulatory agencies could remind themselves--as SEC Commissioner Daniel Gallagher recently did for the SEC--that the SEC's enforcement division is not an arm of the Department of Justice. Enforcement attorneys at agencies like the SEC, the CFPB, and the CFTC, need to put away their dreams of guns and badges and concentrate on bringing legally and factually sound enforcement actions that support the regulatory mission.