NBA Owner Mark Cuban Charged With Insider Trading
Tuesday, November 18, 2008
Mark Cuban, the outspoken owner of the NBA's Dallas Mavericks, is skilled at getting attention in the basketball arena, but it was his trading in a Canadian Internet start-up that has gotten the notice of the Securities and Exchange Commission.
Cuban was charged yesterday with insider trading in connection with his 2004 sale of 600,000 shares in Mamma.com, a search engine company he had invested in earlier that year. He faces accusations of dumping his shares after receiving confidential information from the company's chief executive about a plan to raise money in a private placement that would have diluted the value of existing investors' holdings.
The case against Cuban took an odd twist just hours after it was filed in federal court in Dallas. Cuban posted a message on his blog, http:/
Cuban wasn't any more specific, but by the end of the day, the SEC acknowledged that a staffer at a regional SEC office had sent an e-mail to Cuban criticizing him for matters unrelated to the insider trading investigation, and had been disciplined for it.
In a May 2007 e-mail obtained by The Washington Post, Jeffrey Norris with the SEC office in Fort Worth, chided Cuban for helping to finance a documentary critical of the Bush administration. The e-mail is "one of" the issues that Cuban's defense plans to raise in court, an attorney for Cuban said. He declined to elaborate.
According to the SEC's complaint, Cuban "became very upset and angry during the conversation" with a Mamma.com executive and started unloading his shares hours later. After the capital-raising plan was disclosed the next day to the public, the stock tumbled. Cuban avoided a $750,000 loss by selling his entire stake before the information was shared with the public, the complaint alleged.
The SEC wants Cuban to pay $750,000 plus other unspecified civil penalties.
Cuban, 50, made his fortune selling his Broadcast.com Internet radio start-up to Yahoo in 1999. Two years ago, he bankrolled a journalism Web site, Sharesleuth.com, to expose unsavory practices by companies and said he would potentially short-sell the shares of any business investigated.
He may be better known for his courtside actions. He has paid more than $1 million in fines to the NBA for league violations, including criticisms he has hurled at game referees.
It's already been a tough year for Cuban. His basketball team is off to shaky start this season, and his bid for the Chicago Cubs baseball team has been met with skepticism.
A recent Chicago Sun-Times story reported that Cuban had "zero chance" of buying the Cubs from Tribune Co., but other baseball sources say he is very much still alive, notwithstanding the news of his trouble with the SEC. A Major League Baseball spokesman said yesterday the league would have no comment about the SEC's charges against Cuban.
The SEC was looking at Mamma.com before Cuban sold his stake. The agency started examining trading activity in the stock after it had logged one-day gains of more than 20 percent on four different trading sessions in March 2004, including one increase that appeared to be driven by Cuban's disclosure that he had taken a 6.3 percent stake in the company.
That investigation, which was closed in 2007 with the SEC not recommending any enforcement action against the company, was separate from the investigation into Cuban's stock sale, said Robert Kaplan, assistant director of the SEC's enforcement division.
Staff writer Dave Sheinin contributed to this report.