By Sarah N. Lynch and Aruna Viswanatha
WASHINGTON, Dec 12 (Reuters) - U.S. Securities and Exchange
Commission Chair Mary Jo White says her team will not shy away
from high-stakes trials, and not just strike settlements with
wrongdoers, but a string of recent court setbacks shows she has
her work cut out for her.
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
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
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
"They need to take greater account of how something will
play in front of a jury," he said.
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 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
(Reporting by Sarah N. Lynch and Aruna Viswanatha; editing by