Mark Cuban Called to Testify in Insider Trial Against Him

Mark Cuban, the billionaire owner of a professional basketball team, TV network and art-house movie theater chain, began testifying in the U.S. Securities and Exchange Commission’s insider-trading case against him.

Cuban, 55, was called to testify by SEC lawyers in federal court in Dallas, where he’s accused of selling $7.9 million worth of his shares in a Canadian Internet search company after learning confidential information about a private placement plan that would dilute the value of his holdings.

The SEC sued Cuban in 2008 over a transaction executed in 2004, 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.

Cuban is the owner of the National Basketball Association’s Dallas Mavericks, the HDNet TV network and the Landmark Theatre chain. He was also the biggest stockholder of Montreal-based Mamma.com, with 6.3 percent of the shares, and 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.

Cuban liquidated his stake 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.

No Advice

While Faure has testified that he told Cuban the information was confidential, the billionaire maintains he received no such advisory.

Cuban can’t avoid testifying or answering questions by raising constitutional arguments against self-incrimination, said New York criminal defense attorney Stuart Slotnick, a partner in Buchanan Ingersoll & Rooney PC who isn’t involved in the case.

“He doesn’t have a Fifth Amendment right because he can’t be prosecuted,” Slotnick said. Any criminal charges arising from his alleged conduct would have had to be brought within five years of the act, the attorney said.

“He’s probably going to testify directly and forcefully,” said Slotnick, who has been following the litigation. “He maintains what he did was not improper and he’s going to tell his story.”

Recorded Testimony

Jurors have already heard recorded testimony from Faure and from Mamma.com Chairman David Goldman, as well as live testimony from Arnold Owen, who worked for the investment bank handling the PIPE transaction and with whom Cuban also spoke before selling his shares.

While Owen told Cuban attorney Chris Clark he didn’t remember details of the June 28, 2004, phone conversation, he said he could recall that he didn’t ask Cuban to keep their conversation confidential and didn’t ask him to agree not to trade.

Faure, whom Jan Folena, an SEC lawyer, called a key government witness, testified that in their phone call he did tell Cuban the PIPE information was confidential. Faure also said he had no written nondisclosure agreement with the investor 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.

The case is Securities and Exchange Commission v. Cuban, 08-cv-02050, U.S. District Court, Northern District of Texas (Dallas).

To contact the reporters on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net; Tom Korosec in federal court in Dallas at tkorosec@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net