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Summary:

Updated: It’s a classic PR play: When you start to look like the bad guy, call out a bigger bad guy. And it seems to be the strategy that the Securities and Exchange Commission — besieged by accusations of lax enforcement before and during the credit […]

Mark Cuban by Brian SolisUpdated: It’s a classic PR play: When you start to look like the bad guy, call out a bigger bad guy. And it seems to be the strategy that the Securities and Exchange Commission — besieged by accusations of lax enforcement before and during the credit crisis — is using in going after Mark Cuban for insider trading. It’s too early to say definitively whether Cuban is guilty of insider trading in Mamma.com (now called Copernic), a search also-ran whose management has, in Cuban’s own judgment, “a checkered past.” On his blog, the normally voluble Cuban simply accused the SEC of acting on “win-at-any-cost ambitions” and a process that “was result-oriented, fact be damned.” Still, it’s not looking good for him at all.

The SEC’s complaint against Cuban outlines some pretty compelling evidence: Cuban bought 6.3 percent of Mamma.com in March 2004. Three months later, the company CEO told him it was issuing a controversial, and heavily dilutive, private placement. “Well, now I’m screwed,” Cuban told Mamma’s CEO. “I can’t sell.” But he did, before the offering’s official announcement, sparing himself $750,000 in losses.

Whatever the outcome of the case — Silicon Alley Insider discusses some possible wriggle room — the timing of this news is fishy. Cuban’s attorney said the investigation has been pending for nearly two years, yet it’s only being announced now, less than a month after SEC chair Christopher Cox was raked over the coals at a House committee hearing.

Cox has hardly been a champion of investors. Back in April, some Senators asked the General Accounting Office to investigate the SEC’s enforcement division. Years of budget cuts had left a lean crew, prompting many talented staffers to leave. Disgorgements — repayments of ill-gotten profits — fell 50 percent last year. With a credit crisis looming, Cox’s 2009 budget called for a 1 percent increase in funds — not enough to account for cost of living increases, so another 32 jobs were cut from the enforcement division.

There’s no quicker way to show your watchdog has teeth than to bite a big name. The Cuban story is dominating business news today, just as the Martha Stewart insider trading case did in the wake of the last round of financial scandals — Enron, WorldCom, Tyco, etc.

Martha Stewart did regulators a big favor: She kept the story alive by making statements that prosecutors deemed false. The SEC had been facing charges of lax enforcement back then, too. Stewart’s stock sales saved her only $46,000, but her trial and jail time not only eclipsed other financial fraud cases, it left many people thinking the SEC had learned its lesson and was getting tough.

To be clear, I’m not defending insider selling. Cuban may or may not be guilty, and as I said it’s not looking good. My point is that it’s very suspicious that the SEC tends to wheel out a big, headline-grabbing case whenever it’s chairman is on the ropes.

Whatever happens to Cuban, this case will do absolutely nothing to prevent the SEC from falling asleep at the wheel again.

Update: Cuban is fighting back, as VentureBeat sums up. Cuban’s blog has a memo attempting to refute evidence in the SEC ‘s complaint; and the NY Times has a purported email from an SEC staffer accusing Cuban of being unpatriotic because of his involvement in a documentary critical of President Bush. Very odd, but it suggests Cuban may run a media-savvy counter-campaign.

Photo Courtesy of Brian Solis via Flickr.

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  1. Martha. Stewart is of no relevance to the illegal insider trading charges on Mark Cuban. She was never involved in any illegal insider trading. She had NO insider information. To save her company that the SEC wanted to destroy, she settled and agreed to none of their bogus allegations. Her “trial and jail time” had nothing to do with insider trading; she was never charged with insider trading. She was railroaded in a bogus conviction on trumped-up charges pulled from the ether in a political persecution. It is about time the reckless and irresponsible media quit the media bashing on her with misinformation, misrepresentation, and state propaganda.

  2. The Case Against Cuban Smells Fishy Monday, November 17, 2008

    [...] of the Dallas Mavericks, Mark Cuban, with insider trading. GigaOm’s Kevin Kelleher explains why it smells fishy: The SEC’s complaint against Cuban outlines some pretty compelling evidence: Cuban bought 6.3 [...]

  3. Goose & Maverick Monday, November 17, 2008

    This is as obvious as it comes to insider trading. I like Cuban, but, this blatant sell was due to arrogance. Now he can spend some of his money hiring a high price douche bag lawyer to clear him or lesser infraction without self incrimination and a $100k fine.

    Facts:
    Step 1:CEO says your going to be highly diluted in a confidential non public personal note to Cuban
    Step 2: Cuban calls his broker to sell ENTIRE position
    Step 3: Public black eye for Cuban.His image is now like Martha Stewart
    Step 4: Cuban settles and takes his private jet to Las Vegas and let out some steam
    Step 5: Mavericks implode and Cuban blames the US Attorney

  4. Kevin Kelleher Monday, November 17, 2008

    @keen,

    Yes, Stewart’s trial and jail time were about her statements to investigators. They felt pretty strongly she lied to them. I tried to make that clear and I’m sorry if it wasn’t.

    She also faced no criminal charges of insider trading, but the SEC did indeed charge her in a civil complaint (see the link in the post). She also paid the SEC $195,000 in disgorgement, interest and penalties. So I’d have to say she’s in fact pretty relevant.

    Kevin

  5. Why The Case Against Cuban Smells Fishy | Kevin Kelleher | Voices | AllThingsD Tuesday, November 18, 2008

    [...] Read the rest of this post Print all_things_di220:http://voices.allthingsd.com/20081118/why-the-case-against-cuban-smells-fishy/ SHARETHIS.addEntry({ title: “Why The Case Against Cuban Smells Fishy”, url: “http://voices.allthingsd.com/20081118/why-the-case-against-cuban-smells-fishy/” }); Sphere Comment Tagged: GigaOm, Kevin Kelleher, Mamma.com, Mark Cuban, Securities and Exchange Commission, Voices, credit crisis, insider trading, lax enforcement | permalink [...]

  6. I don’t really care if Mark is guilty or not. But this investigation pisses me off.

    Given the current situation in the financial markets is this really the best use of the SEC’s time and resources?

  7. The SEC has one, and only one, mandate: to protect the interests of those State-affiliates from anyone outside of that cartel.

    The SEC is not around to protect general investors. It is not there to deter corporations from committing financial fraud. It is not there to provide a balance to transparency and secrecy in any stock trade or barter.

    Remember who keeps the SEC paid: Congress. Remember who provides the SEC with more and more power: the Executive Branch. The SEC is the customer of these two branches of government, not your customer.

    Remember when doctors were paid by patients, not third parties? They answered to patients, and only patients. Now, doctors are paid by third parties (medicare, insurance, etc), so they are no longer responsible to patients, who are the new third parties.

    Just as the medical industry is a cartel used to provide more and more State power, the SEC is an organized cartel of those with State power prefering to profit from the losses and ineptitude of the masses. The more you look at the SEC, the more you realize that they’re not your friend, or my friend, but the friend of the elect that you probably put into office.

    Don’t be mad at the SEC here for striking out at Cuban. This is what the SEC does. This is what they will always do. The AMA lobbies Congress for more control. The SEC listens to Congress in who to target. The IRS works with CPAs and other cartelized monopolists to hamper the profitability of those who don’t use the cartel. It’s all part of the game, just play along nicely.

  8. Red herring once again. If the 2 quotes and links below don’t get you fired up, and you really think this is just about Cuban, then you’re naive. Cox should be jailed. To start with.

    “This morning (10/23) SEC Chairman Chris Cox was repeatedly asked if he had
    authorized the dismantling and the elimination for funding from his
    own budget for a Committee that was to have the SOLE responsibility to
    investigate DERIVATIVES and CDOs. He REFUSED to answer the question –
    although the Congressman had PROOF in his hand that he had
    INTENTIONALLY railroaded the effort to supervise these products. This
    committee was to be formed to conduct these investigations and was
    funded/authorized under the Clinton Administration and then was
    immediately ABANDONED under the Bush Administration via the
    appointment of Chris Cox as SEC Chair.”

    http://oversight.house.gov/story.asp?ID=2256

    “Then again, maybe the S.E.C. is trying to cover up its own culpability in this (banking/investment) crisis. Four years ago, the agency pushed through a rule that allowed the big investment banks to take on a great deal more debt. As a result, debt ratios rose from about 12 to 1 to more like 30 to 1. Guess what Lehman’s debt ratio was when it went bust? Yep: 30 to 1.”

    http://www.nytimes.com/2008/09/20/business/20nocera.html?_r=2&8dpc&oref=slogin&oref=slogin

  9. Whether timing is right or wrong is a different question. But given the issue is not so easy to police, I feel that SEC has all the rights to take up selective cases that involve celebrities. Best way to police the crime is prevent it in the first place. Only through these kind of cases can SEC make sure message is delivered. Mark Cuban is great guy in all other aspects, but if what ever is mentioned in the case is true, he did the wrong thing and he has to go through the case. Laws will always have loopholes, but what SEC will accomplish even if they lose is give publicity to the insider selling law. SEC may have other problems, but let’s not condone insider selling because they are not doing their job somewhere else.

  10. You’re kidding right? Last time anyone checked, the SEC doesn’t bring charges for the fun of it. Cuban finally got caught.

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