How serious are the insider trading charges against Mark Cuban?

Topic A for discussion this morning are the insider trading charges filed by the U.S. Securities and Exchange Commission against former “Dancing With The Stars” also-ran Mark Cuban. Oh, and he’s also the guy who owns the Dallas Mavericks, wants to buy the Chicago Cubs, and has an ego the size of Silicon Valley.

The complaint filed Monday contains the good, old-fashioned kind of allegations. You can read the full complaint here. In essence, the SEC claims that Cuban was an investor in the search engine Mamma.com. Back in 2004, the company briefed him on plans to issue a new round of stock, which would likely dilute shareholder value and cause the stock price to drop. Also, Cuban was ordered not to tell a soul.

According to the SEC, Cuban called his broker and told him to dump his Mamma.com shares. The stock dropped almost 10 percent the next day, and Cuban saved about $750,000. Nice (allegedly).

You can read the full complaint here. But Gawker provides the highlights here.

One of the tastiest morsels from the complaint comes from a conversation between Cuban and the Mamma.com CEO:

“The CEO prefaced the call by informing Cuban that he had confidential information to convey to him, and Cuban agreed that he would keep whatever information the CEO intended to share with him confidential. The CEO, in reliance on Cuban’s agreement to keep the information confidential, proceeded to tell Cuban about the PIPE offering. Cuban became very upset and angry during the conversation, and said, among other things, that he did not like PIPES because they dilute the existing shareholders. At the end of the call, Cuban told the CEO “Well, now I’m screwed. I can’t sell.”

But then, apparently, he did sell. Allegedly.

And what does Mr. Cuban have to say about all of this?

This afternoon, Cuban posted a press release on his blog noting, “I wish I could say more, but I will have to leave it to this, and let the judicial process do its job.” In the release, Cuban responds:

“This matter, which has been pending before the Commission for nearly two years, has no merit and is a product of gross abuse of prosecutorial discretion. Mr. Cuban intends to contest the allegations and to demonstrate that the Commission’s claims are infected by the misconduct of the staff of its Enforcement Division.

Mr. Cuban stated, “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.”

So, at least he hasn’t let this affect his charm. But just how bad is this for him?

According to the press release from the SEC:

The Commission’s complaint seeks to permanently enjoin Cuban from future violations of the federal securities laws, disgorgement (with prejudgment interest), and a financial penalty.

It’s anyone’s guess as to how big such a penalty might be. It’s also difficult to estimate Cuban’s personal wealth at this point. He gained much of his wealth when he and his partners sold Broadcast.com, an online radio platform, to Yahoo in 1999 for $5.9 billion in stock. Who knows how much of that he sold? But apparently it’s enough to allow him to do things like lead a consortium that has bid to buy the Chicago Cubs for more than $1 billion.

So the amount could be chump change, depending on how large the penalty is. The bigger hit may be to his reputation and legitimacy.

On the other hand, given his combative nature, having he might enjoy having a rather public fight with someone other than NBA commissioner David Stern. to stage a public fight. Cuban just might savor anything that brings him more headlines and more attention. As long as they’re talking about you, right?

 

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