Mark Cuban, the billionaire owner of a professional basketball team, TV network and art-house movie theater chain, said he doesn’t recall details of a conversation in which the U.S. claims he was warned that information he received about a company was confidential.
Cuban, 55, was called to testify by the Securities and Exchange Commission today in federal court in Dallas, where he’s accused of selling $7.9 million worth of his shares in a Canadian Internet search company, Mamma.com, after learning non-public information about a private placement plan that would dilute the value of his holdings.
Wearing a gray, pinstriped suit, blue shirt and striped tie, the owner of the National Basketball Association’s Dallas Mavericks smiled frequently as he answered questions from Jan Folena, an SEC attorney.
Cuban was the biggest stockholder of Montreal-based Mamma.com, with 6.3 percent of the shares. He liquidated his stake, according to the SEC, after being advised by then-Chief Executive Officer Guy Faure in a June 2004 phone call that the company was planning a private investment in public equity, or PIPE, transaction.
When Folena asked Cuban today about that conversation, in which Faure allegedly told him the PIPE information was confidential, Cuban said he didn’t recall details of the discussion.
“You have no recollection of the words exchanged between you and Guy Faure on that phone call,” Folena said, phrasing the question as a statement.
“No recollection,” Cuban replied.
In pre-recorded testimony presented yesterday, Faure said he told Cuban during that call that the PIPE information was confidential.
The SEC sued Cuban in 2008 over the transaction, alleging he avoided a $750,000 loss by availing himself of non-public information. The agency is seeking disgorgement of his ill-gotten gains and unspecified civil monetary penalties.
Faure, whom Folena has called a key government witness, said he didn’t have a written nondisclosure agreement with Cuban because he didn’t think one was required.
“At the end of the conversation, he mentioned something like, ‘Now I’m screwed. I can’t sell,’” Faure said.
Cuban, who owns the HDNet TV network and the Landmark Theatre chain, has been a contestant on the television program “Dancing with the Stars” and currently appears on the investment-themed program “Shark Tank.”
He had offered to use his fame to promote the company and assist it with possible acquisitions, according to a Sept. 25 pretrial filing by U.S. District Judge Sidney A. Fitzwater summarizing each side’s claims.
“Just like I have my Mavericks cuff links on, I’m a promoter,” Cuban told the jury today, pulling up his coat sleeve. Cuban said he is the kind of investor who would tell Walt Disney Co. where to place trash cans at its parks. “That’s the way I am,” he said.
Folena today showed Cuban a series of e-mails he exchanged with friends and strangers in which he discussed his Mamma.com stock sale.
In each he gave the same reason for it: his dislike for the company’s PIPE transaction, calling it in several replies, a “red flag.”
“I sold because they were selling additional equity that would dilute my ownership,” he wrote to a Canadian reporter in July 2004.
Cuban said today that the PIPE was one of several reasons he sold. “Was it the whole story? Yeah, but,” he said, without completing the sentence.
Another reason, he said, was that he was concerned the company was involved with Irving Kott, a convicted stock swindler.
Kott in May 2004 pleaded guilty to two charges related to his concealment of his ownership of a discount brokerage firm in the mid-1990s.
Cuban said that just days after his stock sale he was interviewed by the SEC about Kott.
“I’m trying to help the SEC. I spoke to the SEC,” he said today.
Folena asked Cuban whether, in any of the e-mails, he mentions Kott, or stock manipulation or “the management of the company being crooks.”
“No, I don’t,” Cuban said.
Folena asked Cuban about an e-mail he sent in July 2007 to Chris Carey, a reporter at the website Sharesleuth.com. The SEC lawyer told jurors this was just weeks after Cuban received a letter saying he was being investigated for insider trading for the Mamma.com sale. According to postings on the Sharesleuth website, Cuban is majority owner of Sharesleuth.com LLC.
In that message, Cuban wrote, “We need to get real dirt” on Faure and other company executives as well as Kott.
Folena showed the billionaire messages he exchanged with a man in Perth, Australia, in 2004, before the the stock sale.
Replying to the Australian’s warning about Kott’s involvement with Mamma.com, Cuban replied, “Time for you to get a life.”
In a July 2004 message after the sale, Cuban told the same man, “You are an idiot.”
Later, on cross-examination, defense lawyer Thomas Melsheimer asked Cuban if his Kott concerns were “a bogus excuse” raised in defense of the government’s allegations.
“They were absolutely real,” Cuban told the jury. Referring to the SEC lawyers who interviewed him, he said, “That’s the only reason they called me.”
The investor said he didn’t mention those concerns in the e-mails that Folena confronted him with or on his blog for fear of being sued.
“I say something negative about someone, it would not be out of the question that they’d come back and sue me,” he said.
The trial is in recess tomorrow and will resume with Cuban’s continued testimony on Oct. 7.
The case is Securities and Exchange Commission v. Cuban, 08-cv-02050, U.S. District Court, Northern District of Texas (Dallas).
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