Cuban Tells Jury He Thought He Was Free to Sell Stock
Billionaire Mark Cuban vowed that he wouldn’t be pushed around by the U.S. Securities and Exchange Commission as he finished two days of testimony in the regulator’s insider-trading case against him.
The SEC has accused Cuban of selling about $7.9 million in stock in a Canadian Internet company in 2004 to avoid a $750,000 loss after learning non-public information about a private placement plan that would dilute his shares.
Cuban, 55, who has been a contestant on television’s “Dancing With the Stars” and is a regular on the investment-themed TV show “Shark Tank,” has denied the commission’s allegations, claiming he never agreed to keep the private placement information confidential and that that wasn’t his sole reason to sell.
As the SEC closed its case, U.S. District Judge Sidney A. Fitzwater denied a defense request that he throw out the case, leaving it up to Cuban’s lawyers to call their first witness.
“The SEC has made out a prima facie case that Mr. Cuban had access to information that was non-public and that he traded on it,” Phillip L. Stern, who spent a decade working as an enforcement attorney for the regulator, said yesterday in a phone interview.
“Obviously we need to hear what defense he’ll be putting in,” he said. Stern, who is now partner with Chicago’s Neal Gerber & Eisenberg LLP, has been following the trial.
Another former SEC lawyer, Alex Bourelly in the Washington office of Houston-based Baker Botts LLP, said the case will pivot on the alleged existence of a confidentiality agreement between Cuban and Guy Faure, then chief executive officer of the Canadian search engine operator, Mamma.com.
“That’s the big question that both sides are going to have to grapple with,” Bourelly said yesterday in a phone interview.
At the time he sold all his shares, Cuban was the Montreal-based company’s biggest stockholder. Mamma.com is now Copernic Inc.
The SEC is seeking disgorgement of his alleged ill-gotten gains and unspecified monetary penalties. The trial started Sept. 30.
Faure, in prerecorded testimony played for the 10-person jury last week, said he called Cuban in June 2004 to tell him of the company’s intent to carry out a private investment in public equity, or PIPE, plan.
He also said he’d told Cuban at the outset of that conversation that the information he was about to impart was confidential, which he said Cuban acknowledged. After an eight-minute discussion about the company’s private placement plan, Cuban said, “Now I’m screwed. I can’t sell,” according to Faure.
The billionaire testified last week that he didn’t recall specific details of that discussion with Faure.
SEC lawyer Jan Folena yesterday asked Cuban if he believed Faure was lying when he recounted Cuban’s reaction to news of the PIPE plan.
“I don’t know,” the Maverick’s owner answered. Earlier he denied having entered into a confidentiality pact with Faure.
“I didn’t feel I was under any limitation whatsoever,” Cuban said. Answering questions from his own attorney, Thomas Melsheimer, he also said he wouldn’t have made such an agreement orally.
Cuban has said he told Mamma.com investment banker Arnold Owen, who was handling the PIPE transaction, that he planned to sell his shares.
Testifying for the SEC last week, Owen said he had difficulty recalling details of the phone conversation he’d had with Cuban about the private placement plan before the billionaire cashed out. During that testimony, the SEC presented statements Owen made during an earlier investigative interview in which he said he told Cuban during the phone call that the PIPE would be made public the next day.
“I told him I would sell,” Cuban said yesterday. He also said he didn’t know when the PIPE offering would be completed. “I had no idea when it would happen.”
Cuban said his sale was motivated in part by concern the company was involved with stock promoter Irving Kott, who in May 2004 had pleaded guilty to charges he’d concealed his ownership interest in the discount brokerage firm J.B. Oxford Holdings Inc. He said the PIPE offering added to his concerns.
“It was an indication to me that the company was a scam,” Cuban said of Mamma.com yesterday.
Stern, the Chicago-based former SEC lawyer, predicted it will be hard for Cuban to win over the jury simply by saying he couldn’t recall the Faure discussion or that he had other reasons for selling his shares.
“I think that’s going to be a very difficult defense,” Stern said. He noted that the SEC’s lawyer confronted Cuban last week with contemporaneous e-mail messages in which he’d said he was motivated to sell by the PIPE.
Bourelly, the Washington lawyer, offered a different perspective.
“What the defense is doing is giving the jurors as many possible reasons to let him go, to find him not liable,” he said.
Bourelly noted Cuban’s celebrity status and his ownership of the hometown Mavericks, who won the National Basketball Association championship in 2011.
“He’s a very charismatic guy and if jurors like you, they may tend to believe you,” the attorney 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: Tom Korosec in Dallas federal court at email@example.com; Andrew Harris in Chicago at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Hytha at email@example.com