Cuban Sold Company’s Shares to Win, SEC Lawyer Tells JuryTom Korosec and Andrew Harris
Mark Cuban sold his stock in a Canadian Internet search business because he didn’t want to be a loser, a U.S. Securities and Exchange Commission lawyer told a jury at the start of the billionaire’s insider-trading trial.
Cuban sold that stake in the company, then known as Mamma.com, in 2004 after he learned confidentially from its chief executive officer of a private placement plan that would dilute its shares by 8.5 percent, according to the SEC.
“‘Now I’m screwed, I can’t sell.’ The evidence in this case will show those are the words of Mark Cuban,” SEC lawyer Jan Folena said yesterday in her opening remarks in federal court in Dallas. “Mark Cuban made that statement just hours before he began to sell 600,000 shares of a company he owned named Mamma.com. The evidence will show that was insider trading.”
In liquidating those shares for $7.9 million before the private investment in public equity, or PIPE, plan became public, Cuban avoided a $750,000 loss, according to the SEC.
Cuban, who owns the National Basketball Association’s 2011 champion Dallas Mavericks, couldn’t wait for the information imparted to him by then-Mamma.com CEO Guy Faure to become public, Folena said.
“In his mind that’s losing,” she said during her hour-long opening. “Mark Cuban is a winner.”
Cuban, 55, is chairman of the high-definition television network HDNet, and has owned the Mavericks since 2000. He also owns the Landmark Theatres chain, has been a contestant on the television program “Dancing with the Stars” and appears regularly on the TV show “Shark Tank.”
In 1999, he sold Broadcast.com, a multimedia web service he founded, to Yahoo! Inc. for $4.7 billion.
Cuban claims what he learned from Faure was no secret. There was no confidentiality agreement, defense attorney Thomas Melsheimer told the panel of seven women and three men yesterday.
“He never broke any promise,” Melsheimer said. “He did exactly what he said he’d do. He didn’t deceive Mamma.”
The jury was selected Sept. 30. The parties’ lawyers have told U.S. District Judge Sidney A. Fitzwater they expect the trial to last eight to 10 days.
Fitzwater said that that schedule may be disrupted by the shutdown of non-essential federal government services due to the budget impasse between U.S. Senate Democrats and Republicans controlling the House of Representatives.
Cuban was the biggest stockholder of Montreal-based company now known as Copernic Inc., holding 6.3 percent of its 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 Fitzwater summarizing each side’s claims.
Mamma.com fell 8.5 percent on June 30, 2004, the first trading day after the private placement was announced, and 15 percent the day after his sale was disclosed in a regulatory filing made public on July 2, according to data compiled by Bloomberg.
The SEC opened the evidentiary portion of its case by playing videotaped 2011 testimony from David Goldman, who served as chairman of Mamma.com when it made the private placement.
Goldman testified the company’s board was concerned about how Cuban would react when told of their PIPE plan as it was known their biggest shareholder didn’t like such transactions.
The board was worried Cuban might “flog us on his blog,” the chairman said.
Goldman acknowledged writing an e-mail message to the board on June 28, 2004, summarizing, among other things, what he knew of the phone call between Cuban and Faure earlier that day.
“As anticipated he initially ‘flew off the handle’ and said he would sell his shares (recognizing that he was not able to do so until we announced the equity.),” he wrote of Cuban.
Goldman said yesterday, “I had not anticipated he would sell before release of the information.”
On cross-examination, Goldman said he never asked Faure to obtain a non-disclosure agreement from Cuban. The chairman also testified Faure didn’t tell him Cuban had agreed to keep the June 28 conversation confidential.
Testifying live for the SEC after Goldman was Arnold Owen, who had been a managing director at Mamma.com’s investment banker, Merriman Curhan & Ford Inc.
Owen said yesterday he had difficulty recalling details of the telephone conversation he’d had with Cuban about the private placement before Cuban sold his shares.
Owen told SEC lawyer Duane Thompson he couldn’t remember specific details about the conversation.
Thompson then read excerpts from investigative testimony Owen gave in 2007, in which he said he believed that learning the timing of the PIPE was the point of Cuban’s call and that Owen had told Cuban it would be announced the next day.
Owen said he still couldn’t recall. His testimony will continue today.
Owen also appears on Cuban’s list of trial witnesses filed with the court. He told Thompson he had met with the investor’s attorneys three times and as recently as the night before last.
The case is Securities and Exchange Commission v. Cuban, 08-cv-02050, U.S. District Court, Northern District of Texas (Dallas).