Billionaire Mark Cuban Begins SEC Trial for Insider Trading
- Mark Cuban
Mark Cuban, the multibillionaire owner of the Dallas Mavericks basketball team, is set to appear on trial this afternoon as a seriously postponed result of accused illegal insider trading actions. Cuban is facing civil charges for insider transactions made in a small Internet search company, occurring nearly a decade ago.
Cuban is accused of selling his total 600,000 shares of Mamma.com on June 28, 2004. He allegedly sold these shares immediately after he found out from CEO Guy Faure that the company was planning an equity offering that would ultimately dilute his 6.3% stake in the company.
This constitutes as illegal insider trading because the Mavericks’ owner was allotted information that had not yet been awarded to the general public.
The Securities and Exchange Commission (SEC) reported that Cuban avoided an estimated loss of $750,000 after the Canadian-based company announced their equity offering which caused the company’s price to drop 9.3% on Jun 30, 2004.
The always vocal Mark Cuban has argued that he did nothing wrong, and that all the information he was given was not secret or confidential information. And with Forbes valuing Cuban at $2.5 billion, $750,000 seems like a rather minor amount of money.
The trial procedures begin today under U.S. District Judge Sidney Fitzwater in Dallas, and are expected to last anywhere from eight to ten days. In 2009, Judge Fitzwater dismissed the case buy a federal appeals court revived the case the following year. The SEC is attempting to recover the money lost by this transaction, impose civil charges and fines and obtain an injunction which would prohibit Cuban from any other misbehavior.
The SEC’s crucial piece of evidence is the records of a phone call between Cuban and the Mamma.com CEO. According to the SEC, in this phone call Faure told Cuban that he had “confidential information” for Cuban, and Cuban agreed to keep the information secret. But when Cuban found out that his shares would decrease in value exponentially in value he said (according to the SEC), “Well now I’m screwed. I can’t sell.”
But he did.
Over the duration of the next two days, Cuban sold all 600,000 of his shares before the company announced the stock offering.
James Meyers, a former enforcement attorney at the SEC, told USA Today that insider-trading cases are ultimately difficult to prove because for the most part they rely on circumstantial evidence — a phone call, a trade, a presumed link between the two — and also because some jurors might not believe that there is anything wrong with insider trading.
Meyers also went on to explain that a lot relies on how Cuban portrays himself to the jurors. Meyers believes that Cuban could lose the case if he comes across as the hot-headed, egotistic billionaire. Meyers said, “I would tell him to come across as humble and affable and not as master of the universe.”
James Cox, a law professor at Duke University, also told USA Today that both Mark Cuban have a lot to lose, and that if the agency loses this trial, “It might hesitate before filing the next insider trading lawsuit.”