From left: Fish & Richardson principals Scott C. Thomas, Thomas M. Melsheimer and Natalie L. Arbaugh in the Dallas office (Mark Graham)
On Oct. 16, 2013, a Dallas federal jury found that the U.S. Securities and Exchange Commission had failed to prove that Dallas Mavericks owner Mark Cuban engaged in insider trading. That finding was due largely to the efforts of a Fish & Richardson team.
Cuban Cos. general counsel Robert Hart wrote in an email: “Fish came in a few months before trial, quickly narrowed the focus of the preexisting trial team and took over as lead counsel. They did a tremendous job with trial strategy, working with cocounsel and witnesses, and presented our defense in a very straightforward, transparent and convincing way.”
Fish lawyers based in the firm’s Dallas office joined attorneys from Latham & Watkins in New York City and Brown Rudnick and Cooley LLP, both located in Washington, D.C., in defending Cuban against the charges in U.S. Securities and Exchange Commission v. Mark Cuban. The case was tried in the U.S. District Court for the Northern District of Texas.
Tom Melsheimer, Fish’s managing principal in Dallas, served as lead counsel for Cuban at trial, facing off against Jan Folena, the SEC’s assistant chief litigation counsel.
“It was a very circumstantial case, a ‘he-said, he-said’ case,” Melsheimer said.
Judith Burns, an SEC spokeswoman, declined a request for an interview with Folena.
The SEC filed a civil lawsuit against Cuban, alleging in the Nov. 17, 2008, complaint that Cuban had committed securities fraud by engaging in insider trading. As alleged in the complaint, the CEO of Mamma.com—a now-defunct Canadian company in which Cuban had acquired 600,000 shares—disclosed to Cuban during a June 2004 telephone call that the company was about to raise capital through a private investment in public equity (PIPE) offering. The SEC alleged that the CEO told Cuban about the PIPE after Cuban agreed to keep the information confidential. The SEC further alleged that Cuban sold all of his 600,000 shares in Mamma.com right before the company publicly announced the PIPE on June 29, 2004, thereby avoiding losses “in excess of $150,000.”
On the SEC’s side, Melsheimer said, was the appeal of a regulatory agency making sure that everybody plays by the same rules and the appearance of a witness who appeared to be credible.
“On our side: We had a very popular local figure in sports and on television,” he said.
Melsheimer said the SEC’s evidence that Cuban had agreed to keep the information confidential was based on the 2004 conversation that Cuban had with Guy Faure, Mamma.com’s CEO.
“Mark’s testimony really was that he didn’t remember the phone call,” Melsheimer said. “We did have Mark saying he would not make that sort of agreement over the phone.”
Melsheimer said he expressed indignation in his two-hour closing argument, including “calling out” the government for bringing the case against Cuban at a time when the government was shut down. A partial government shutdown began Oct. 1, 2013, after Democrats and Republicans, who were fighting over whether to defund the 2010 Affordable Care Act, failed to pass a bill that would keep the government running.
“I made the point that the government is shut down but these guys are still here,” Melsheimer said.
Fish principal Scott Thomas, who helped Melsheimer prepare Cuban for direct examination and worked on the opening and closing argument, said the most difficult thing about the case was getting away from the discussion of complex securities law and distilling the information to focus on the allegations of fraud.
“We were making sure we stuck to that,” Thomas said.
Natalie Arbaugh, another Fish principal on Cuban’s defense team, said, “We wanted to make sure—and we were constantly gauging—that we didn’t overcomplicate things.”
Arbaugh, who helped prepare Cuban for cross-examination, said the case was about Cuban and whether he made an agreement to keep the information about the PIPE confidential.
“We all knew the case was going to rise and fall with Mark Cuban,” she said. “We knew the key was that Mark got to tell his story.”
Arbaugh said her job was to conduct mock cross-examinations of Cuban in the manner the Fish team expected Folena to cross-examine him at trial. She said she was aggressive and incredulous, and cut Cuban off when he did not give yes or no answers to her questions.
“I was a little over the top,” Arbaugh said.
Another of Arbaugh’s assignments was to help with jury selection. After focus groups met, the defense team knew that women tended to like Cuban, but white males 60 or older were less likely to like him, she said.
Arbaugh said that seven women were on the nine-member jury that returned the verdict in Cuban’s favor.
Latham & Watkins partner Chris Clark, who worked on the case with the Fish lawyers, said, “The Fish team made sure that everyone on our team had the right credibility with the jury all the time.”
The Fish lawyers tried to make the jury understand that the defense team stood on the side of good and trust, Clark said, “I think that made a difference in the outcome.”