AUTHOR’S NOTE 11-18-08: I originally wrote in the blog post below that jail/prison time was a likely outcome of the SEC’s legal proceedings against Mark Cuban. This is NOT possible as it is a civil case and not a criminal proceeding.
Additionally, I compared Cuban’s challenge to that of Martha Stewart, who was likewise brought up on insider trading charges. However, Stewart ended up in prison for lying about her insider trading activities and NOT for the insider trading activity itself.
I have, therefore, edited my original post below, using the strikethrough font to identify words below that should have NOT been included in the original post. In addition, where I have added new words/language to the original post, these are highlighted in a red typeface so the added words are clearly highlighted.
Finally, I extend a sincere apology to Mr. Cuban (and my readers) for incorrectly suggesting that he might be facing incarceration for his alleged actions. Clearly this is not the case, and I apologize for suggesting otherwise.
The original post, now edited and updated, appears below.
Sincerely,
David Politis
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In news designed to shock investors everywhere, the United States Securities and Exchange Commission today announced (11-17-08) it has filed insider trading charges against Mark Cuban, the outspoken and often controversial owner of the Dallas Mavericks.
Cuban made the bulk of his riches near the height of the dotcom boom by selling Broadcast.com to Yahoo! for $5.7 billion in 1999. He was recently pegged by Forbes magazine as the 161st richest person in America with an estimated worth of $2.6 billion (as of 9/17/08).
According to the official SEC announcement, Cuban is charged 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 alleged action took place in June 2004 after Cuban first agreed to keep confidential information about a forthcoming discounted stock offering in Mamma.com, now known as Copernic Inc.(NASD: CNIC). However, according to the SEC, Cuban contacted his stock broker a few hours after meeting with Momma.com and ordered him to sell all of his shares in Mamma.com.
After the Montreal, Canada-based Mamma.com publicly announced its discounted stock offering, the stock dropped 9.3 percent from the prior day’s closing. In other words, Cuban’s action on his alleged insider information helped him avoid a loss of more than $750,000.
If the allegations are proven in the civil action, Cuban will definitely NOT do jail timeas the SEC’s legal action against Cuban is a civil matter and incarceration is NOT a potential penalty. à la Martha Stewart, Nevertheless, Cuban’s as his profile is just too high for the SEC to avoid putting the fear of God into every retail investor, stock trader and corporate insider to let this opportunity pass it by. Conversely, Martha Stewart did prison time for lying about her insider trading activities, NOT for insider trading activities per se.
However, T the fact that the SEC issued a separate news release about its charges against Cuban signals that the agency means business ,and it’s looking to generate as much visibility for this case as possible. Hence, the news release.
And yes, that’s my opinion as a professional communications consultant. Remember, this blog is designed to examine the best and worst examples of marketing communications (specifically as they relate to the efforts of organizations and individuals to simplify their messages so people like Grandma Betty understand what they’re trying to communicate).
And in this instance, the SEC is doing exactly what I would do if I were in charge of PR for the SEC.
Simply put, high-profile cases mean high visibility media coverage. Ergo, publicize the heck out of high-profile cases as a way of trying to minimize illegal activity by retail and professional investors.
Look for the SEC to push ahead full speed in a very loud and public way as it seeks a conviction against Cuban.
[NOTE: Here is the link to Cuban's official response to today's announcement by the SEC as found on his blog: Blogmaverick.]
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For additional thoughts on this matter, check out “Is Mark Cuban Going to Jail? For Insider Trading? No!” on the SOAR Communications‘ blog.
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The SEC doesn’t seek a “conviction” nor can they seek jail time. This is only a civil action as if an investor was suing him. The Securities and Exchange Commission has no criminal authority only civil.
I posted this reply to the Dallas News editorial.I read this story and the actual court complaint you who wrote this artical in effect called Mark Cuban stupid and greedy. My question to you is were you in the room with him when he was on the phone with Merriman or the other CEO I think not it is thier word against his that makes you stupid. Insider trading I think not if you own something and you get a call and do not like what they are planning on doing with it you have a right to sell it. If any one is at fault it is Merriman or the other CEO if they called him to tell him something then that is on them not Mark. To me they are the ones that are quilty for being the one with a prior knowledge of anything and it is thier word against his if it was to be kept confidential. If they did not want him to know for any number of reasons they would not have called him. There is not any reason to call it criminal. The reasoning you and them are using means you should never accept a call and never talk business on a phone because maybe the SEC will file charges against you. It is not Mr. Cubans fault that they called him and told him anything for what ever reasons. He if upset with them or angry has a right to no longer be affiliated with them ie. sell all he has to get rid of any further connections with them. It should not be and I don’t think it is a law that you have to keep a connection and keep ownership of anything inclucing stock of people your upset and angry with. Those are my thoughts.
Heyyyyyyyyyyyyy when are you going to get the MMA fights back in Dallas. I am disabled and was able to go see them the last time they were there and I loveddddddddddddd it bring em back. Hugsss and my prayers and support are with you on the idiotic SEC charges.
Renee:
Unfortunately, Mark Cuban qualifies by all counts as what is legally known as an “accredited investor.” That means that he’s expected to be more savvy and knowledgeable than the average retail investor.
On top of that, Cuban’s then 600,000 shares in Mamma.com also apparently gave him more than 5% interest in Mamma.com (which is another legal threshold that would take too long to go into in this comment). Simply put, if you own more than 5% of any publicly traded company, the SEC treats you differently and you’re required to interact with the company and the SEC differently than if you held a lower amount.
Bottom line, Cuban apparently met multiple criteria as an “insider.” If this in fact is true, then the SEC’s efforts are straightforward: Prove that the Mamma.com CEO shared “material news” with Cuban that the rest of the public did NOT know BEFORE he sold his shares and BEFORE the Mamma.com news became public knowledge.
If the SEC can prove this, then Cuban is guilty; if they cannot, then Cuban is innocent. It’s really that straightforward. Not easy, mind you — just straightforward.
If, however, Cuban can show that he contacted his stockbroker with instructions to sell the Mamma.com stock before the alleged phone call took place between Cuban and Mamma.com CEO, then Cuban has no problem.
So . . . we’ll see. Right now, I’d say it doesn’t look very good for Cuban.
David,
So your saying that he can be held liable for someone he is doing business with called him and upset and made him angry it is against the law for him to no longer do business with them? If so omg who wrote that law? LOL To me it is still a he said she said type deal right? According to the court document Momma.com “said” he had to keep confidential and not sell till it went public. Isn’t the burden of proof on them top prove they said that? Do the SEC laws still go by beyond a reasonable doubt?
Let’s go after Mark says the US government. It is a way to get the high profile bankers off the map right now. You prosecute Mr. Cuban, and let the big fry go because??? The people at the SEC need to get a life. If someone told me they were going to make me lose big $$$ in a couple of days, I would say bull shute. I would sell immediately to protect my investment and my money. Doesn’t everyone have the right to protect their bank account. Does the SEC have the right to tell someone they have to lose money? I guess it is legal for them to do so? Kick their butts Mark.
SEC only has to prove its case by a preponderance of the evidence which means more evidence is in their favor than against, a reasonable doubt is a criminal standard and doesn’t apply in this matter.
No one goes to jail in an SEC action, and Martha Stewart did not go to jail because of insider trading, she went to jail for lying.
And the fact that the SEC issued a “separate” press release means nothing. The SEC issues a press release for virtually every case they file.
They somehow seem to forget to issue a press release for the cases that they withdraw or lose, but that is another story.
For the other side of the Cuban Insider Trading Case, take a look at one securities lawyer’s take on the matter at
http://seclaw.blogspot.com/2008/11/sec-accused-of-gross-abuse-of_18.html
Renee & T. Durham:
Unfortunately for the “bad guys” (and in the eyes of the SEC, Mark Cuban probably qualifies), that’s one of the reasons prosecutors use phone records.
If phone records show a 5- to 10-minute phone call between Cuban’s cell phone and the Mamma.com offices, and then 4 hours later Cuban sells all of his Mamma.com shares, sure looks awfully suspicious to me, particularly when the bad news is issued shortly after that.
Do people have the right to protect their bank accounts? Yes.
Does the SEC have the right to tell people they have to lose money? No.
However, the SEC does have the right to tell people if you have insider information you CANNOT act upon it until such information becomes public knowledge.
In simplest terms, “insider information” is ANY info that is not available to the general public and that a reasonable person could/would make a stock-buying/-selling decision on IF they knew said information.
The SEC alleges that Cuban had access to such insider information and then acted upon it to his benefit before the company shared such information with the public at large.
IF this is the case, Cuban is guilty of “insider trading;” if it is not the case, Cuban is innocent.
Ronald Kaufman & Lawman:
You’re correct. This is NOT a criminal case - it’s a civil case. As such, jail time is NOT a potential result if Mark Cuban is found guilty.
And yes, Martha Stewart went to jail for lying about her insider trading, not for insider trading per se.
In that regard, I suspect the District Attorney and local/Federal prosecutors will be following this entire action VERY CLOSELY.
I agree with the complaints that this is a case of “wag the dog” or some other method of obfuscation. The fact that my tax dollars are being used to go after Mark Cubans for his perfectly reasonable response to an unsolicited phone call from the CEO of this company is pure, unadulterated BULLS**T.
They whole Financial structure of the global economy is at risk, confidence shaken to the core by the very same sorts of shenanigans and much worse by HUNDREDS of CEO’s, CFO’s and corporate boards. Exploiting the savings and investments of millions of Individual Investors to maximize the APPEARANCE of profitability for the sake of bonus packages and to comply with the whims of large money managers, i.e. your mutual fund and hedge fund guys, is why we are in this situation right now. GO AFTER THE JERKS WITH THE MBA’s after their names…and their Bureaucratic and Legislative lackeys and lap-dogs. CREATE Ethical Standards and ENFORCE them. I AM SICK of all this CRAP. The people who are ultimately going to pay the biggest price in this godforsaken debacle are the working class, the middle class, the REAL Pillars of this country. WE HAVE BEEN RAPED AGAIN! because we trusted government to DO what it agents and officials were supposed to do.
…AND people ask me how and why I vote Libertarian…Why I espouse “anarchistic” sentiments…How much worse can it get??? before WE THE PEOPLE demand and GET accountability from Government at ALL levels.
Poppa P.
Motley Fool used to solicit info from readers about companies they worked at or lived near for their bulletin board discussions of likely stock investment prospects. People would post observations of how full the company parking lots were on Saturdays and Sundays. Employees would anonymously post info on NEW programs and other “Insider” news.
This persec..I mean prosecution of Mr. Cubans smacks of a “set-up” for a fall. Intentional or not, the CEO had to have SOME idea of Mr. Cubans’ probable reaction to his UNSOLICITED information. He is on record, thru commentary and track-record for a certain investment mindset and this MEALY-MOUTH CRETIN of a CEO calls and “offers” him an inside track on a stock manipulation that Mr. Cubans is likely to refuse. I can JUST hear the rebuke that IDIOT in Montreal got from him. ANY lawyer that would propose, or even participate in such a case should be TARRED and FEATHERED and left think about in the Pillories for a day or so.
This is AMERICAN JUSTICE??? Let the [PLEASE AVOID RACIAL SLURS] have it, this is NOT the America I was raised to Pledge my Allegiance to.
Kevin:
Interestingly, checking out parking lots to see how full they are on any given day is not illegal. Posting such observations in chat rooms is not illegal either. Neither is making a stock-buying or -selling decision based upon such observations, whether they are your own observatons or those of someone else.
Even employees posting/disclosing insider information (anonymous or not) is probably not illegal unless they are expressly prohibited from doing so by the law. (Such as disclosing top secret data to a foreign government.) That doesn’t mean that such disclosures wouldn’t get you in trouble, ’cause they could, such as receiving a reprimand or even getting fired.
But these are not the allegations that Mark Cuban has been accused of by the SEC.
Cuban stands accused of using “insider information” (info that only a few people had access to at the time he allegedly received it) to financially benefit himself.
Whatever motivations the Mamma.com CEO may or may not have had are irrelevant. The SEC doesn’t have to prove what the intent was of the Mamma.com CEO when he and Cuban apparently spoke. The SEC just has to “prove” that the two of them spoke, and that (I presume) is where the phone records will come into play.
Then it will be a fairly straightforward matter of proving that Cuban’s 6% stake in Mamma.com was then sold within a matter of hours after speaking with the Mamma.com CEO.
At that point, unless Cuban’s attorneys can PROVE that a sell order was already in place BEFORE the call apparently took place when the insider information was allegedly disclosed, then Cuban is SCREWED!
Do not pass go! Do not collect $200! You’re guilty as charged: you owe $X.X million in fines and penalties for insider trading. (But he won’t be incarcerrated unless he’s also charged and found guilty of a criminal offense and sentenced to jail/prison.)
So . . . now the process moves forward and we see what’s what.
