US: Mark Cuban Is Charged With Insider Trading

Publisher Name: 
The New York Times


As anyone who follows the National Basketball Association knows, Mark Cuban,
the Internet entrepreneur turned owner of the Dallas Mavericks
basketball team, has never shied from a fight. But now the pugnacious
billionaire is squaring off against his biggest adversary yet: the
federal government.

On Monday, the Securities and
Exchange Commission filed a civil suit charging Mr. Cuban with insider
trading for selling shares of a small Internet search company in 2004,
just before its share price fell.

Mr. Cuban saved himself a $750,000 loss, according to the complaint filed in United States District Court in Dallas.

Mr.
Cuban swiftly fired back, accusing the regulator of "prosecutorial
misconduct" and alleging that he was the victim of a political vendetta
by the agency in the waning days of the Bush administration.

"I
am disappointed that the commission chose to bring this case based upon
its enforcement staff's win-at-any-cost ambitions," Mr. Cuban said.
"The staff's process was result-oriented, facts be damned."

Since he bought the Mavericks in 2000 with money he earned by selling his start-up, Broadcast.com, to Yahoo
for $5.9 billion before the dot-com crash, Mr. Cuban has become one of
the biggest lightning rods in American professional sports. From his
seat behind the Mavericks bench, clad in his signature team gear, he
has not hesitated in picking arguments, and has paid nearly $1.7
million in fines to the N.B.A.

(After once saying he would not
hire the N.B.A.'s chief of referees to "manage a Dairy Queen," Mr.
Cuban paid a $500,000 fine - and spent a day at a Dairy Queen serving
Blizzards to fans.)

But he also turned around a flagging
franchise, attracting star players and helping to bring the Mavericks
to the brink of an N.B.A. championship in 2006.

Mike Bass, an N.B.A. spokesman, declined to comment.

The
charges could pose a problem for his dreams of a burgeoning sports
empire. Mr. Cuban is widely reported to be the lead bidder for the
Chicago Cubs baseball team, but he is thought to be too hot to handle
by many of Major League Baseball's current owners. The insider-trading
lawsuit may only make his quest for the baseball team more difficult to
fulfill.

At issue in the S.E.C.'s lawsuit is Mr. Cuban's sale in June 2004 of shares in Mamma.com, a small Internet search engine based in Canada, whose corporate name is now Copernic.

Mr. Cuban had purchased 600,000 shares, or a 6.3 percent stake, just
three months earlier as the stock was soaring. The share price tripled
over a two-day period in early March on volume that totaled more than
12 times the number of outstanding shares. That prompted an S.E.C.
investigation that ended without charges being filed.

Scott W.
Friestad, the S.E.C.'s deputy director of enforcement, said the
investigation of Mr. Cuban's trading began in early 2007, but declined
to say what had set off the inquiry.

On June 28, 2004, Mr. Cuban
called Mamma.com's chief executive after receiving an e-mail message
from the executive, who told him of a planned stock offering and asked
if he would like to invest. Such offerings often depress share prices,
at least temporarily.

According to the complaint, Mr. Cuban was told the information was confidential.

After
the conversation, the chief executive wrote to the company's chairman
in an e-mail message: "As anticipated, he initially 'flew off the
handle' and said he would sell his shares (recognizing that he was not
able to do anything until we announce the equity)."

But within
minutes of the call Mr. Cuban began selling his shares, and completed
the sales on June 29, according to the lawsuit, fetching an average of
$13.24 a share. The next day, after the offering was announced,
Mamma.com stock opened at $11.89, sparing him a $750,000 loss. By July
8, the shares had plummeted to $8. On Monday, the stock closed at 28
cents.

"Mamma.com entrusted Mr. Cuban with nonpublic
information after he promised to keep the information confidential,"
Mr. Friestad said. "Less than four hours later, Mr. Cuban betrayed that
trust by placing an order to sell all of his shares. It is
fundamentally unfair for someone to use access to nonpublic information
to improperly gain an edge on the market."

In a press release (and in a post on his blog),
Mr. Cuban accused the S.E.C. of being "infected by the misconduct of
the staff of its enforcement division," but did not discuss details of
the suit.

A person close to Mr. Cuban provided what he said was
one of a series of e-mail messages from Jeffrey B. Norris, an S.E.C.
lawyer in Fort Worth, who accused the billionaire of being unpatriotic
for helping to finance a movie named "Loose Change." In the e-mail message,
Mr. Norris described the movie as a "vicious and absurd documentary"
that "posits that President Bush planned the demolition of the World
Trade Center as a pretext for going to war against Iraq."

In the e-mail message, sent from his S.E.C. e-mail address, Mr. Norris said he was informing Christopher Cox, the chairman of the S.E.C., of Mr. Cuban's actions.

"If
this upsets you, I wonder how George Bush feels," Mr. Norris wrote. "I
assume that Mr. Cox would view your involvement with 'Loose Change'
much as I do. After all, he served his country as a Republican
congressman from Orange County for nearly 20 years and was appointed by
President Bush."

An S.E.C. spokesman said that Mr. Norris had no
role in or knowledge of the Mamma.com investigation, which was handled
by the S.E.C. in Washington.

He said the e-mail matter was
"referred for disciplinary action," but did not say what action, if
any, was taken against Mr. Norris. Mr. Norris did not return a phone
call.

The S.E.C. spokesman said Mr. Cox had recused himself when
the commission voted to approve filing the complaint. The S.E.C. has
the authority to bring only civil suits, not criminal complaints. The
Justice Department can file criminal insider-trading charges, but does
so only rarely and did not in this case. Mr. Cuban presumably could
have settled the S.E.C. case by paying the $750,000 and perhaps an
additional penalty, and accepting an injunction barring him from
further violations of securities laws.

AMP Section Name:Financial Services, Insurance and Banking