Why The SEC Sued Me – And Why You Should Care
And I wasn’t the only analyst who was told when to expect the deal.
In the discovery process of our lawsuit, we found a notebook from USEC’s investment bank – Bank of America – where its analysts clearly indicated May 22 was the expected announcement date.
But instead of pursuing the possibility USEC’s managers and bankers were withholding this material information, the SEC decided to attack me. Keep this in mind: I didn’t use this information for my own personal gain. I didn’t buy the stock. Or even just tell my friends to buy the stock. No, instead I did my job. I published a report about what I’d learned and offered to sell my report to any (and all) interested investors.
You see, even though I never owned a share of the company, even though I had no incentive whatsoever to lie about the company, and even though third parties who have looked at the facts of the case (like The New York Times) agree my report on the matter was overwhelmingly correct… the SEC decided to come after me and not the people who were really defrauding the public.
When the SEC came calling later in 2002, I expected it would be going after the company for selective disclosure – a violation of SEC regulation FD. And sure enough, it wanted all of my personal records to make sure I wasn’t front-running the stock, etc. But then, instead of shifting its investigation to the company, it demanded to have the entire subscription list of not just my publishing company, but also of our parent company, Agora Inc.
It wasn’t going after USEC for withholding material information; it was going after us by intimidating our clients. And it didn’t ask for just the USEC report subscribers – it demanded every single name and address on our entire database, including my parent company’s database.
Rather than give in to this subpoena, we sued the SEC in federal court to protect our subscribers’ privacy. A well-established legal precedent protects a publisher’s subscriber lists. (What you decide to read is none of the government’s business.)
That’s part of the story I’m sure you’ve never heard before: We sued the SEC first. And we did so to protect our subscribers, the overwhelming majority of whom never bought the USEC report in the first place.
But my story isn’t unique.
At the same time the SEC was abusing its power by subjecting me to interrogations, subpoenas, and crushing legal bills – all in violation of the First Amendment – it was also going after many other legitimate market participants – including David Einhorn, the well-regarded hedge-fund manager (Greenlight Capital) for merely speaking about securities.
As with my case, the SEC came after Einhorn for speaking openly about abuses taking place at a Washington-based business (Allied Capital), a company that – like USEC – was heavily staffed with former government officials, including Joan Sweeney, the company’s chief operating officer, who was a former senior member of the SEC’s Division of Enforcement. Our stories are eerily similar…
Whether you realize it or not, the SEC isn’t trying to protect investors. If it were, Bernie Madoff would have never happened. The SEC knew all about Bernie Madoff – the SEC audited him regularly. Many people – including Barron’s – pointed their finger right at Madoff and revealed his fraud. Still, the SEC did nothing.
I can’t prove it… but I don’t think the government likes it very much when I tell investors the truth about things like Fannie, Freddie, and General Motors. I don’t think the SEC wants the American people to know the truth about our financial markets – or the state of our government’s finances. And I think the government is afraid of what will happen when you find out the truth.
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