Billionaire Mark Cuban sent his broker an e-mail asking about the propriety of a share sale that the U.S. Securities and Exchange Commission has since accused him of making based on inside information.
“I wanted to make sure I was 100 pct kosher on that trade,” Cuban wrote in the e-mail to Charles McKinney the day after the transaction. “Can you check with your folks to make sure all is cool,” he asked McKinney, who at the time was a senior vice president at UBS Financial Services Inc.
That message was shown to Dallas federal court jurors today as the owner of pro basketball’s Dallas Mavericks began the first full day of defense in the trial of the SEC’s insider-trading case against him.
The SEC sued Cuban, now 55, in 2008 accusing him of selling about $7.9 million in stock in the Canadian Internet company Mamma.com Inc. in 2004 to avoid a $750,000 loss after he learned nonpublic information about a private placement plan that would dilute his shares.
Called to the witness stand by the SEC, Cuban testified earlier this week that he did nothing wrong. The SEC is seeking disgorgement of his alleged ill-gotten gains and unspecified monetary penalties. The trial started Sept. 30.
Under questioning from defense lawyer Thomas Melsheimer, McKinney, the broker, testified today that if there was a problem with the trade it would have been identified and it could have been unwound in the three days before it settled.
The e-mail string displayed for the jury showed that McKinney forwarded it to a compliance officer at UBS.
In it, Cuban described how he was invited to take part in Mamma.com’s effort to raise money in a private investment in public equity, or PIPE, plan.
“He tried to sell me on it,” Cuban wrote, referring to Arnold Owen, the investment banker who was offering the PIPE. “I guess that means its public since they were selling to others as part of the raise.”
On cross-examination, McKinney told SEC lawyer Duane Thompson he remembered nothing about the e-mail or whether he discussed the Mamma.com sale with Cuban. Thompson pointed out in his questioning that there was no written response to Cuban’s e-mail from anyone at UBS.
Cuban’s $695 Million
McKinney, who is now at Credit Suisse Group AG, said he manages $695 million for Cuban. On cross-examination, he said he had carried out as many as 40,000 trades over 16 years for Cuban and that Cuban’s business earned $2.5 million to $4.5 million annually for the two firms where McKinney worked.
When Thompson asked how much McKinney made personally from Cuban’s business, U.S. District Judge Sidney A. Fitzwater, who is presiding over the trial, told the witness not to answer.
Thompson asked McKinney if that amount of business would make it unlikely that he would testify to anything implicating Cuban in insider trading.
“I’d tell the truth without a doubt, sir,” the broker said.
Cuban’s lawyers also called Christopher Aguilar, who was general counsel for Owen’s firm, Merriman Curhan Ford Inc., in 2004 when the PIPE was sold.
Aguilar told the court his firm had a policy of keeping PIPE information confidential and that public companies for which Merriman was raising capital were put on a list restricting firm employees from trading in their stock.
Under questioning by Stephen Best, one of Cuban’s lawyers, Aguilar said there was no law or regulation on the books at the time stating PIPE information was material nonpublic information.
“We didn’t have anything official,” he said.
Aguilar said SEC officials had made statements at a financial industry conference in early 2004 that they considered a company’s intent to undertake a PIPE to be nonpublic information. Aguilar said he drafted a letter he sent to firm clients repeating that information.
The former Merriman general counsel also said his firm didn’t require investors who spoke to its agents about the Mamma.com PIPE to sign confidentiality agreements.
On cross-examination, SEC lawyer Jan Folena produced Merriman’s engagement letter with Mamma.com and pointed out where the firm said it would obtain nondisclosure agreements from potential investors for the PIPE.
“I don’t think we did obtain nondisclosure agreements,” Aguilar said.
At the close of today’s proceedings, attorneys for both sides told the judge that the evidentiary portion of the trial may be completed as soon as tomorrow.
While no proceedings are scheduled for Oct. 10 or 11, or for the Oct. 14 Columbus Day holiday, the jury could hear closing arguments and get the case as soon as Oct. 15, the lawyers said.
The case is Securities and Exchange Commission v. Cuban, 08-cv-02050, U.S. District Court, Northern District of Texas (Dallas).