Mark Cuban Is Charged With Insider Trading
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.”