Charges Filed Against Mark Cuban by SEC for Insider Trading

Mark Cuban, one of the most famous graduates of my beloved Indiana University and the current owner of the Dallas Mavericks, has been charged with insider trading by the SEC according to the Wall Street Journal.

The insider trading charges stem from Mark Cuban’s investment in Mamma.com, and it is alleged that Cuban sold off his entire 6% stake in the company after receiving inside information that the company would be announcing it would raise money through a private offering, known as a PIPE transaction.

A few details regarding the charges, per the WSJ:

The SEC alleges in a civil action that Mr. Cuban sold his entire 6% ownership stake on June 28, 2004, after learning that Mamma.com was raising money through a private investment in a public entity, or PIPE. The next day, on June 29, the company announced the PIPE financing and shares of the company dropped by more than 10%. By selling his stake, the SEC alleges, Mr. Cuban avoided more than $750,000 in losses.

Obviously, these are only charges and Mark Cuban has not convicted of anything yet. However, this certainly does not look good. According to the Huffington Post, when Mark Cuban initially sold his shares it made news. Apparently he claimed at the time that he did not agree with PIPE transaction because it would dilute his funds. This is not an uncommon reaction by major shareholders upon the announcement of PIPE transactions, but the key to this story, as with any insider trading story, will be the prosecutors’ ability to establish a timeline.

If Cuban did, in fact, know about the proposed PIPE transaction before it was announced publicly, he could very well be up shit’s creek without a paddle as they say. Is it possible that rumors of this insider trading announcement are part of the reason why word leaked last week that Major League Baseball owners would, under no circumstances, allow Mark Cuban to buy the Chicago Cubs?

Wow.

If this turns out to be true, all I can say is that this was ridiculously dumb and short-sighted on the part of Mark Cuban. The guy is worth billions upon billions of dollars. I don’t want to be flippant by saying, “What’s $750,000 to a multi-billionaire?” but…”What’s $750,000 to a multi-billionaire!!!??”

I have always liked Mark Cuban, and I got to meet him when I was at Indiana. I like him as an owner, and though he rubs some people the wrong way, I think his passion and openness are good for sports.

If the insider trading accusations prove to be true, I don’t think Mark Cuban will be involved in sports too much longer. Of course, Martha Stewart seems to be rebounding nicely from her own insider trading scandal; but she’s the devil. Mark Cuban may not have such powers.

Anyway, hopefully it’s not true, but the evidence certainly appears to be pretty damning. I know this, I will definitely be following the case and hoping that Mark is exonerated. He’s great for sports, he’s been a great supporter of Indiana as an alum, and I wish him the best in fighting the charges if he was erroneously charged.

(Update: On Mark Cuban’s blog, Blog Maverick, he has officially denied the charges. He states, “I am disappointed that the Commission chose to bring this case based upon its Enforcement staff’s win-at-any-cost ambitions. The staff’s process was result-oriented, facts be damned. The government’s claims are false and they will be proven to be so.” I hope he’s right.)

What do you think?

(Editor’s note: Mark Cuban’s fellow contestant on Dancing With the Stars is also in hot water. Helio Castroneves had his motion to delay his trial denied and will stand trial for tax evasion beginning on March 2, 2009.)

[tags]mark cuban, insider trading, sec[/tags]

Tags: insider trading, mark cuban, SEC

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