FanDuel - WFBC

November 17, 2008

Mark Cuban Accused of Insider Trading: Entrepreneur Mark Cuban, owner of the National Basketball Association's Dallas Mavericks, was charged Monday by the Securities and Exchange Commission with insider trading.

posted by BornIcon to basketball at 12:10 PM - 31 comments

Sorry guys, I wasn't sure if this deserved to be in the basketball department or the Business & Law section but I figured why take the chance.

posted by BornIcon at 12:11 PM on November 17

Regardless of department, I laughed. I worked with a group of people who practically worshiped the ground that guy walked on and held him up as some sort of paragon of virtue and an icon of 21st century business.

Just as corrupt as the rest.

Nice!

posted by Drood at 12:26 PM on November 17

Wow, I hope his cell gets cable so he can watch SportsCenter.

posted by scully at 12:35 PM on November 17

Like he'll do time at somewhere other than a five star resort.

posted by Drood at 12:53 PM on November 17

Com'on now. Why would anyone be surprised by this? If you so happen to have a friend in the stock that you own and that very friend says to you, "Hey, that stock that you have...you really should sell right now. Trust me!", are you going to say: "No way man!! I am not going to listen to you even though you know way more than I do whether I should sell or not because there's a chance that I get in trouble. Thanks but no thanks" or "Thanks brother. I really appreciate the heads up."

Which would you do...?

Mark Cuban seems as if he's being made an example of just like Martha Stewart was back when. Cuban should just be honest about whether he did what he's being charged with and re-pay the $750,000 that he would have lost if he never sold his stock.

posted by BornIcon at 01:22 PM on November 17

Wow, I hope his cell gets cable so he can watch SportsCenter.

Cuban has been charged with a civil offense. It does not appear that the SEC is seeking criminal penalties. According to the article, it looks like he will likely have to pay penalties of 2x the amount of losses he avoided by selling -- so $1.5MM ($750,000 * 2). Perhaps that is in addition to giving up the $750,000 he saved, so maybe the total outlay will be in the area of $2.25MM. Considering he has paid nearly $1.7MM in fines to the NBA + a matching amount for each fine to charity, I think he'll be okay.

posted by holden at 02:03 PM on November 17

My comment at Blog Maverick:

Finally, a gag that fits over Mark's mouth.

I couldn't care if it's true or not -- I just get sick of hearing (and reading) him run his mouth.

posted by wfrazerjr at 02:16 PM on November 17

Cuban may be OK where this matter is concerned, but the bad publicity probably means any chance he had to buy the Cubs is done. Baseball was already skittish about him.

posted by rcade at 03:37 PM on November 17

Bornicon: Paying the money back doesn't change the fact he committed a crime.

And while you have a point, the fact is you shouldn't have stock in a company you can get info from so you can cover your ass. It does give an unfair advantage, and I find it rather amusing that at a time when Wall Street and friends have bought the finances of the world into almost complete collapse, that you appear to be saying you're in favor of insider trading, or at least see nothing wrong with it, at time when unregulated bullshit in the financial world has caused so much grief across the entire planet.

Your naivety is hilarious.

posted by Drood at 05:20 PM on November 17

I don't think we should assume Cuban is guilty of this simply because the charge has been filed. But if he did do it, it would be incredibly brazen on his part, since he can't possibly be unaware of the laws for insider trading. He's done too much in his career involving stocks.

posted by rcade at 05:32 PM on November 17

Society really amazes me ..

Some poor street type robs a store to obtain food or clothing, and we call them criminals and send them off to jail.

Corporate leaders steal billions through insider trading / creative accounting / option dating and they continually walk away free.

Where are we headed ?

posted by cixelsyd at 05:45 PM on November 17

Paying the money back doesn't change the fact he committed a crime.

Mark Cuban has not been charged with a crime , but rather, has had a civil suit brought against him.

Not only that, but he's only been sued, not found to have committed the civil impropriety. Just a bit of a rush to judgement there?

Drood: Your ignorance of the situation is hilarious.

posted by tommytrump at 05:58 PM on November 17

"Mark Cuban seems as if he's being made an example of just like Martha Stewart was back when."

BI, when I buy a share in a public company I assume that all the information about the company is public, creating a level playing field. And a level playing field means transparency in the system. When Cuban received that information, it was confidential and therefore illegal for him to act on it until it was made public. It's not a tough call.

If Cuban is guilty (and I was actually beginning to like the guy) then, as Rcade said, I find it almost impossible to believe that he was not aware of his crime, which is even worse.

And I can't imagine a worse time to be caught gaming the system. I think this story could get alot of attention.

posted by cjets at 05:59 PM on November 17

I am surprised how many people think I was serious. Lighten up.

posted by scully at 06:14 PM on November 17

In researching this story, I found out that Cuban also is a majority owner of Shareslueth.com, a site that looks for illegal stock transactions. Given this, and the fact that every mid-level executive in any public company is educated on the insider trading laws, I think he's guilty as sin.

He does say on his blog that he is going to fight it. I hope he does, should make for an interesting case. I'll be surprised if he puts up much of a fight, this much money is nothing to him, and right now it's a civil suit. I doubt he'll drag this out and risk further issues being brought up. As many athletes can tell you these days, lying about what you did gets you in a lot more trouble than what you did in the first place.

posted by dviking at 10:12 PM on November 17

In researching this story

That must have been some thorough research. It's right there in the article, third last paragraph.

*In an ironic twist, Cuban is also the majority owner of Sharesleuth.com, an investigative blog designed to sniff out and expose securities fraud, according to site editor Christopher Carey.*

* from the article

posted by tommytrump at 10:33 PM on November 17

I suspect that there's more to this story than meets the eye. It appears that Cuban actually disclosed his sale at the time he made it on his blog. From the relevant entry:

4. Finally, and this has nothing to do with Naked Shorting, I wanted to reference Mamma.com. I had purchased stock in Mamma.com in hope that it could be an up and coming search engine. I thought I had done some level of due diligence. Talked to the company management. Talked to some employees who worked in sales. Read the SEC Filings. I knew that they had a checkered past and had been linked to stock promoter Irving Kott, and that their law firm still handled some of Kotts business, but the CEO, Chairman, lawyers all said that things were reformed and the company was focused on its business.

Then the company did a PIPE financing. Im not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I dont want to own stock in companies that use this method of financing. Why? Because I dont like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants. So I sold the stock.

Now maybe this post was a smokescreen to throw the feds off his trail. But one might also question why Cuban would voluntarily bring attention to a sale that was shady as opposed to just trying to keep it under the radar.

posted by holden at 11:55 PM on November 17

Gee tommy, I'm sorry.

BTW, if we're going to get picky about things, earlier you stated "Mark Cuban has not been charged with a crime". That's odd given that the title of the article is " Mark Cuban Charged With Insider Trading".

Just because they filed it via a civil suit does not mean it wasn't a crime. The SEC normally files the civil suits in cases in which they do not suspect malicious intent and/or mitigating circumstance(perjury, etc).

Holden, your point is exactly why the SEC is filing a civil suit instead of criminal charges. Cuban did not cover anything up, and it almost appears as if he doesn't understand the law. His problem is, once he knew of the PIPE financing that was going to be announced, he could not sell his stock until after the announcement was made.

One article has the following: Mamma.com's CEO contacted Cuban on June 28, 2004, and after hearing of the offering, the complaint said, Cuban "became very upset and angry" because his stake would be diluted and at the end of the call said, "Well, now I'm screwed. I can't sell." Pretty damning in that it highlights that he was aware of the laws governing insider information. That he sold within hours just shows how brazen he is.

posted by dviking at 12:22 AM on November 18

Your naivety is hilarious

And your ignorance is bliss.

Where in the world did you even get that I condone insider trading? Please, for the love of God, show me.

I made an example of how anyone would take the time to listen to another individual that so happened to share some information concerning their money. Anyone in their right mind would listen, I know that I would. I didn't say it was right or for that matter, justified. I implied that anyone in that position would most definately want to learn if there was a possibility that they would lose money.

Cuban was charged in a civil case anyways and it seems that the SEC just want him to repay what he would have lost and also will be fined. The difference with Martha Stewart and Cuban is that Stewart wasn't charged necessarily with insider trading, she was charged with blatantly lying to the government about whether she knew anything about insider trading when in fact she did.

posted by BornIcon at 08:26 AM on November 18

Just because they filed it via a civil suit does not mean it wasn't a crime.

Add the word "also" in there and you might be right, but I think it's misleading to use the word "crime" for something that's not a criminal case. I've revised the headline.

That he sold within hours just shows how brazen he is.

Either that, or he consulted his attorney after the call and was told it was legally permissible to sell.

posted by rcade at 09:58 AM on November 18

Rcade, it is not misleading in the least. There are two courts...criminal and civil...that can be used to try cases. SEC and IRS cases often use the civil route to try cases in which they do not feel that the violation warrantes criminal charges. Cuban has most definitely been charged with violation of several SEC statutes. The actual affidavit is on the web, he has been charged with a crime. Stop sign violations are not usually tried in criminal court, they are charged in traffic court...you still committed a crime.

posted by dviking at 01:10 PM on November 18

I agree with rcade. This is not a criminal charge. It is a civil complaint. If Cuban loses, he pays a fine, but has no criminal record. The burden of proof for the SEC is at a civil level.

Stop sign violations are usually civil infractions, they aren't generally criminal either.

In all likelihood, Mark Cuban didn't think he had received any confidential information. He has no fiduciary duty here, so the SEC has to prove that he was told something in confidence.

posted by bperk at 02:12 PM on November 18

you're missing the point. A crime is an offense against the public law. Murder, insider trading, and running a stop sign are all crimes. One is a felony, one is a misdemeanor, I have no idea where Cuban's charges fall.

Run a stop sign...guilty of a crime, 100%. It's settled in traffic court, but yes, you committed a crime.

As per the SEC's filing: COMPLAINT Plaintiff Securities and Exchange Commission ("Commission") alleges as follows: SUMMARY OF ALLEGATIONS 1. The Commission charges Defendant Mark Cuban ("Cuban") with committing securities fraud by engaging in illegal insider trading. Despite agreeing in June 2004 to keep material, non-public information about an impending stock offering by Mamma.com Inc. confidential, Cuban sold his entire stake in the company 600,000 shares prior to the public announcement of the offering. By selling when he did, Cuban avoided losses in excess of $750,000.

So, yes, the SEC clearly thinks he has violated the law, thus committed a crime.

For further clarity, this from a general discussion of law: Misdemeanor: A minor crime, punishable by a fine or a light jail term. Common misdemeanors, such as traffic violations, are usually dealt with informally, without a trial.

So, yes, traffic violations are crimes, just handled differently.

posted by dviking at 07:54 PM on November 18

A violation of the law and committing a crime are not one in the same. There are tons of laws where the penalties are not penal in nature. Thus, they are not criminal, but civil violations. This is no different than someone who fails to pay all they should on their taxes. Some violations are criminal, and some are merely civil. They are still both violations of the law, but anyone who has ever had to pay back taxes is not a criminal. A restaurant that fails inspection, a store that is charging a different price than the display indicates, a doctor who releases information to a patient's family without permission are all violating the law. That doesn't make them crimes.

A crime is a violation of a penal law, not a violation of any law.

posted by bperk at 04:57 PM on November 19

You're really over-thinking this. By definition a crime is a violation of a law. A criminal is someone that violated a law.

Thus if Cuban is proven to have violated insider trading laws he will indeed be a criminal.

I am a minor criminal because I violated traffic laws. It is on my criminal record.

I'm not a felon, but, yes, I do have a criminal record because of this.

If I am stopped by a police officer, he (she) will be able to check my record.

As to your restaurant example, you are most definitely incorrect. I run 10 restaurants, and I can tell you that the city (Dallas at least) can arrest me for restaurant code violations. They have arrested a peer of mine due to a hot water heater being out.

posted by dviking at 06:02 PM on November 19

A criminal is someone that violated a law

I've had a few speeding tickets in my life, and even a seatbelt violation or two, and maybe 3 or 4 parking tickets, now that I think about it.

None of these things make me a criminal.

I have crossed the Canadian/U.S.A. border many times in the last 5 years (best guess, 40 times). At no time was I refused entry or even questioned about traffic violations. To call a contravention of the Ontario Highway Traffic Act a crime is absurd and ridiculous.

The following is from Foreign Affairs and International Trade Canada.

www.voyage.gc.ca

If you have a criminal record, no matter how minor or how long ago the offence, you may be refused entry to the United States. There may also be problems in travelling through U.S. airport facilities. A pardon for an offence issued by Canadian authorities is not recognized under U.S. law, for purposes of entry into the United States. If you have a criminal record, you should contact one of the U.S. Citizenship and Immigration Services (USCIS) ports of entry well in advance. If you are ineligible to enter the United States, you may apply for a waiver of ineligibility. This will involve completing Form I-192, "Advance Permission to Enter the United States as a Non-Immigrant." There is a fee and it may take several months to process your application. Waiver application forms are available from any port of entry to the United States, any pre-clearance site in Canada, the U.S. Embassy in Ottawa, or one of the U.S. consulates in Canada.

U.S. ports of entry are computerized and connected to a centralized database. Information is readily available on criminal convictions in both Canada and the United States. Even though you may have entered the United States without hindrance in the past, you could run into difficulty if your record shows a criminal conviction or a previous denial of entry. Attempting to gain entry without a waiver could result in several weeks of detention at a USCIS facility.

Long story short: If you have a criminal record, you probably won't be allowed into the U.S. Speaking from personal experience, and also having traveled with friends who I know have had tickets, these do not constitute crimes.

posted by tommytrump at 07:34 PM on November 19

Tell you what...try getting a bunch of traffic tickets in a short period of time and see what happens.

Now, I'm sure it varies by state to state, however, in most states, the first traffic ticket you send in some money, all is good. Get the second ticket in a year, and it costs you a bit more. Both of those you can send in your check, no need to bother going to court. Get that third offense in a year, and guess what...you go to court and the penalties increase dramatically. In many states the third violation in a year is automatically treated as reckless driving.

The point is, minor CRIMES are often dealt with in minor ways. A traffic violation (breaking a traffic law...committing a minor crime) will not keep anyone from entry into, or out of, the US. Committing a felon might. A DWI will not keep someone out of the US, but it might keep you out of certain countries that have differing views on alcohol.

I'm really quite bored with all this, so I'll move on. Bottom line, if you break laws you commit crimes. By literal definition that makes you a criminal. Now if you're talking societal nomenclature, no, we don't call people that have only committed a traffic violation a criminal. However, keep in mind that Cuban is not being charged with a traffic violation. We'll have to wait and see where the SEC case goes. Lastly, when I do a Criminal Background check on prospective employees, recent traffic violations show up, so at least my state considers that person a criminal in the eyes of the law.

posted by dviking at 12:19 AM on November 20

If you do a criminal background check on Cuban if he loses this case, this case will not show up. Neither does it show up if you owe the IRS back taxes. That is because they aren't crimes.

posted by bperk at 01:50 PM on November 20

still missing the point. My original statement is that Cuban has been charged with violation of a law. If found guilty he will have committed a crime.

As to the taxes, depends on the case. If you are charged with tax evasion it most certainly will show up. If the IRS thinks you made an honest mistake, and just wants you to pay the taxes and interest then no. Like the Cuban case, it's all about intent...you broke the law either way, just that sometimes the feds just want their money and really don't see the public value of putting you behind bars. As someone that used to be an "enrolled agent", and sold tax software and tax return services to accountants/lawyers for 10 years, I' love to argue the minutia of tax law with you, but for the sake of getting back to sports I'll pass.

posted by dviking at 10:08 PM on November 20

Here's another point of view those of you with an open mind might want to consider:

http://www.lewrockwell.com/ grigg/grigg-w59.html

I'm not saying I necessarily agree with the writer, but it is true that these kinds of insider trading regulations are notoriously vulnerable to selective enforcement and politically motivated prosecutions.

Considering the mind-blowingly weird and over-the-top economic shenanigans that have been going on this past year or two, and considering we have a secret bailout of taxpayer money that we aren't allowed to know where our money is going to, controlled by a Treasury Secretary who "just happens" to have come to his job after working for Goldman Sachs (no conflict of interest there, right?), are we really supposed to believe that everything is on the up-and-up here and automatically believe that Mark Cuban is guilty simply because the SEC says so, and that this is the best thing that the SEC can find to do with its time and resources, right now?

A little skepticism is in order here, people.

posted by dave2007 at 05:02 AM on November 21

My original statement is that Cuban has been charged with violation of a law. If found guilty he will have committed a crime.

Nope. You cannot be found guilty in a civil court. Guilty/non-guilty is a criminal law distinction where Cuban would be tried in a criminal court and the SEC would have to prove beyond a reasonable doubt all the elements of the alleged crime. That is not what is happening here.

Dave2007, that's pretty shady. That email sounds pretty damning, especially the timing. Cuban's alleged offense happened in 2004, the email exchange happened in 2007. Perhaps they started investigating him in 2007, found this stock sale and started pursuing it then? That would better explain the delay.

posted by bperk at 11:56 AM on November 21

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