« Previous | Main | Next »

Cuban: Jail, Cubs Unlikely

November 17, 2008 4:04 PM

Mark Cuban, the maverick Dallas Mavericks owner, was hit today by the Securities and Exchange Commission with insider trading charges that could cost him millions in fines and legal fees.

This could mean the final nail in his bid to buy the Chicago Cubs---which, on the bright side, means he’ll avoid a sentence of suffering and heartbreak in Septembers to come.

Also on the bright side: Cuban is unlikely to face prison time. The Justice Department hasn't filed criminal charges along with today's SEC's action. The SEC's civil complaint doesn't carry jail time--only fines and financial penalties. Any criminal charges would come from the Justice Department, which almost always files them at the same time the SEC files its civil complaint.

As a legal matter, DOJ still could bring insider trading charges. But since they weren't announced today with the civil complaint, it's highly unlikely as a practical matter.

Here’s the curious thing: this is a simple, straightforward insider trading case, the kind that typically settles. Cuban could have paid $1.5 million, plus interest, and walked away. His decision to fight it (and the Justice Department’s decision at this point to stay out of it) suggests there may be something for Cuban’s lawyer, prominent former SEC general counsel Ralph Ferrara, to work with.

Based on the complaint and on Cuban’s comments in the past, it seems he will challenge whether he ever agreed to keep confidential the impending stock offering. Cuban sold 600,000 shares of stock in an Internet search engine company after the company’s CEO told him about the upcoming offering.

On his blog today, Cuban blasted the SEC for what he called its “win-at-any-cost ambitions.”
Before that, Cuban’s most recent blog entry was about the Mavericks’ dismal performance, entitled “I Hate to Lose.”

Should be an interesting series.

Here’s the release:
SEC Files Insider Trading Charges Against Mark Cuban
FOR IMMEDIATE RELEASE
2008-273
Washington, D.C., Nov. 17, 2008 — The Securities and Exchange Commission today charged Dallas entrepreneur Mark Cuban with insider trading for selling 600,000 shares of the stock of an Internet search engine company on the basis of material, non-public information concerning an impending stock offering.
The Commission's complaint, filed in the U.S. District Court for the Northern District of Texas, alleges that in June 2004, Mamma.com Inc. invited Cuban to participate in the stock offering after he agreed to keep the information confidential. The complaint further alleges that Cuban knew that the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders.
Within hours of receiving this information, according to the complaint, Cuban called his broker and instructed him to sell Cuban's entire position in the company. When the offering was publicly announced, Mamma.com's stock price opened at $11.89, down $1.215 or 9.3 percent from the prior day's closing price of $13.105. According to the complaint, Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the offering.
"Insider trading cases are a high priority for the Commission. This case demonstrates yet again that the Commission will aggressively pursue illegal insider trading whenever it occurs," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.
Scott W. Friestad, Deputy Director of the SEC's Division of Enforcement, said, "As we allege in the complaint, Mamma.com entrusted Mr. Cuban with nonpublic information after he promised to keep the information confidential. 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."
The complaint alleges that Cuban violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission's complaint seeks to permanently enjoin Cuban from future violations of the federal securities laws, disgorgement (with prejudgment interest), and a financial penalty.

November 17, 2008 | Permalink | User Comments (2)

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/t/trackback/433071/35855274

Listed below are links to weblogs that reference Cuban: Jail, Cubs Unlikely:

User Comments

Posted by: belicoso | Nov 17, 2008 6:16:08 PM

Posted by: Neil | Nov 17, 2008 8:06:26 PM

Post a comment

Name:

Email Address:

URL:

Remember personal info?

Comments: