In the last month or so, three cases brought by the U.S. Securities and Exchange Commission have ended in mixed jury verdicts. And while partial victories are better than losses, the agency must be wondering why it’s been unable to land knockout blows.
The latest mixed verdict came on Thursday in an insider trading case against Andrew Jacobs, a former executive at The Hershey Co., and his brother Leslie Jacobs. The SEC alleged that Andrew Jacobs tipped off Leslie Jacobs to French pharma giant Sanofi’s planned tender offer to acquire Chattem Inc., enabling Leslie Jacobs to make $50,000 by buying and later selling Sanofi stock. After a six-day trial, jurors found that the brothers aren’t liable under Section 10(b) of the Exchange Act, the main statute the SEC uses to combat insider trading. The jury did find liability under Section 14(e) of the Exchange Act, a more specific statute that prohibits insider trading in the context of tender offers.
At least in theory, the verdict isn’t internally inconsistent, said Wayne State University Law School professor Peter Henning, who has been following the case. “There is an additional element for a 10(b) claim. It may be that the jury found that element missing,” he said.
David Wilson of Thompson Hine represents Andrew Jacobs. Edmund “Ned” Searby of Baker Hostetler represents Leslie Jacobs. “This was a split decision,” Searby told us in an email. “The court will now decide whether the evidence was sufficient as a matter of law to find for the commission on the [Section] 14 count.”
On Feb. 11, both sides claimed victory in the SEC’s securities fraud case against Connecticut-based investment adviser Marlon Quan, who put hundreds of millions of dollars of investor money into a Ponzi scheme run by Tom Petters. In that case, jurors found liability under Section 10(b), but not under a similar part of the Exchange Act known as Section 17(a). Quan’s lawyers at Wilmer Cutler Pickering Hale and Dorr argued that the result doesn’t make sense in light of the facts of the case. “The effect of the two inconsistent findings is that the SEC has failed to sustain its claims of securities fraud against Mr. Quan,” Wilmer’s Christopher Casamassima told our affiliate Legal Times.
There was another mixed verdict on Feb. 3 in a wide-ranging securities fraud case against Waco,Texas–based Life Partners Holdings Inc., which brokers the sale of life insurance policies to third-party investors. Siding with defense lawyers at Baker & McKenzie and Patton Boggs, a Texas jury returned a verdict that Life Partners executives didn’t violate Section 10(b). The jury did find that Life Partners violated Section 17(a) by prematurely recognizing revenue, but Life Partners argued that the judge needs to toss that part of the case. “Before trial, the SEC had represented to the court that it was not pursuing the revenue recognition claims, and did not present evidence regarding these claims,” the company said. “As a result, Life Partners has requested that the court dismiss these claims as a matter of law.”
Prior to the batch of mixed verdicts, the SEC was on a jury trial losing streak, as Dealbook explained here. The most high-profile loss came in a securities fraud case against billionaire Mark Cuban.
Defendants will be emboldened by the recent results, Henning said. “I think it’s fair to say that the SEC will have more fights on its hand, particularly in close cases,” he said.
One defense lawyer, Wilmer’s John Valentine, said that the SEC needs to reconsider which cases it’s bringing. “Ever since the Bernard Madoff scandal, the agency has been under tremendous pressure to be more aggressive,” he said. “The SEC isn’t evaluating the strength of their cases from an objective point of view.”
An SEC spokesperson didn’t return a request for comment.