First Large SEC Whistleblower Award Is Encouraging, As SEC's "Loss" in Mark Cuban Case May Be

October 21, 2013

"Government shutdown" month (October 2013) has brought encouraging news from the SEC--including some good news you might not realize.

On October 1, the SEC announced its first SEC whistleblower award of more than $1 million. The Commission's Office of the Whistleblowerer led by Sean McKessy awarded more than $14 million to a whistleblower who remains confidential. According to the SEC, the whistleblower's information "led to an SEC enforcement action that recovered substantial investor funds."

Two weeks later, a Texas jury found against the SEC in its insider trading case against Dallas Mavericks owner Mark Cuban. Although some see the verdict as a setback for the SEC, the Commission needs to bring cases that it believes have merit.

An ugly secret is that law enforcement officials too often don't bring cases because they are afraid to lose. We should prefer a law enforcement agency that is not afraid of losing. As the trial lawyer adage goes, if you never lose a trial, you are not trying very many.

The SEC showed it was not afraid of losing. The New York Times' Peter J. Henning has also observed that, while criticisms abound over the decision to go to trial, the case has a silver lining: "The S.E.C. lost the battle with Mr. Cuban, but preserved its ability to pursue cases that do not fit the usual paradigm of a corporate insider trading or tipping."