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SEC Charges Mark Cuban With Insider Trading

UPDATED with response from Cuban, lawyers:

The Securities and Exchange Commission has charged Dallas Mavericks owner Mark Cuban with insider trading.

The reported charge relates to Cuban's alleged selling of 600,000 shares of the search engine just before they were about to become diluted in June 2004.

Dallas Mavericks owner Mark Cuban. (AP Photo/David Zalubowski)

On his blog, Cuban writes: "I wish I could say more, but I will have to leave it to this, and let the judicial process do its job."

The company now does business as Copernic.

From the SEC release:

"The Commission's complaint, filed in the U.S. District Court for the Northern District of Texas, alleges that in June 2004, Inc. invited Cuban to participate in the stock offering after he agreed to keep the information confidential. The complaint further alleges that Cuban knew that the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders.

Within hours of receiving this information, according to the complaint, Cuban called his broker and instructed him to sell Cuban's entire position in the company. When the offering was publicly announced,'s stock price opened at $11.89, down $1.215 or 9.3 percent from the prior day's closing price of $13.105. According to the complaint, Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the offering."

Here's the full text of the response from Cuban's lawyer, Ralph C. Ferrara, of Washington's Dewey & LeBoeuf LLP:

"Mark Cuban today responded to a civil complaint filed by the United States Securities and Exchange Commission in the United States District for the Northern District of Texas, Dallas Division. In its complaint, the Commission charges that Mr. Cuban engaged in violations of the federal securities laws in connection with transactions in the securities of Inc.

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.' ”

Cuban -- who made his fortune by inventing and selling -- had been in the running to buy the Chicago Cubs from Tribune Co.

Cuban blogs on a number of topics, including the economy.

In 2005, he blogged about his purchase and sale of stock.

-- Frank Ahrens

The Ticker is Twittering!

By Frank Ahrens  |  November 17, 2008; 1:38 PM ET
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Martha Stewart went to jail for the same thing. I am tired of the elite rich in this country screwing the little man. How many other people lost money becouse of his actions. This should not be trated like some white collar crime. Its no difference then stealing from the other sharholders bank accounts. Jail him..

Posted by: 8ballgeek | November 17, 2008 1:16 PM | Report abuse

I concur, he should serve a jail-term no lesser than Martha Stewart, and be branded a Felon as well.

Posted by: a_DC_denizen | November 17, 2008 1:25 PM | Report abuse

What has happened to this country and our people? Shouldn't Mr. Cuban have the same rights as O.J. Simpson, a presumed innocence?

The hatred for people who succeed is alarming. Whatever the circumstances involving Mr. Cuban, you who hate, are not going to receive a windfall of good karma. Let the government handle Mr. Cuban and the haters should try and live their lives better and stop wishing for ill to befall others so that you feel more successful. Class warfare should not be a part of America.

Posted by: jacksonga2 | November 17, 2008 1:31 PM | Report abuse

Ahhh, could be but sure seems like interesting timing given his interest in the Cubs. Wouldn't be surprised by a connection.

Posted by: tslats | November 17, 2008 1:38 PM | Report abuse

Meanwhile, Wall Street CEO's take their million dollar golden parachutes that are paid for by the taxpayers. Like Martha, this is small fish. Why don't we jail CEO's for bankrupting the Nation.

Posted by: blarsen1 | November 17, 2008 1:38 PM | Report abuse

sarah palin should like Mark Cuban. afterall, he is a maverick. (wink wink)

Posted by: gratefuljr | November 17, 2008 1:41 PM | Report abuse

Cuban criticized Obama's economic team on November 13th. The SEC is going after Cuban on the 17th. No coincidence. The Brown Shirts would approve.

Posted by: EliPeyton | November 17, 2008 2:06 PM | Report abuse

Cuban is reportedly a financial supporter of this blog which is taking a hard look at what is going on with the government bailout now taking place.

Could it be that the government wants to throw a monkey wrench in the works, or send a 'message' about 'inquiring minds' research and public enlightenment about what the government is doing in terms of the bailout?

Here is a blog post about the effort:
"Billionaire Mark Cuban Launches Bailout Sleuth"
"Billionaire businessman, Mark Cuban, launches new site to monitor financial shenanigans by our Wall Street and Federal Reserve friends"

Posted by: JuicyJuice | November 17, 2008 2:07 PM | Report abuse

jacksonga2 - I agree with your post. I does seem like the prevailing mindset is "If people have more than you then they must guilty." It seems like we're headed for Cultural Revolution where anyone who is successful in business must be brought down to pay for being successful. Like China, this Cultural Revolution too will manifest itself into wide-scale social, political, and economic violence and chaos, that will include large sections of society and eventually bring the entire country to the brink of another civil war.

Posted by: ahashburn | November 17, 2008 2:27 PM | Report abuse

To the individual blaming Obama for Cuban's indictment.

Nice try, but you're out of your mind. Why the hell would Obama care about what Mark Cuban says?

Still ticked about getting your butt kicked in the election, aren't you?

Posted by: mayella3 | November 17, 2008 2:28 PM | Report abuse

I wonder if I can be sued for outsider trading. I invested no money at all in stuff that I knew nothing whatsoever about.

Nah ... I figure nobody is buying that.

Posted by: pressF1 | November 17, 2008 2:38 PM | Report abuse

Just another example of the Bush administration going after all things Cuban.

Posted by: lowercaselarry | November 17, 2008 2:50 PM | Report abuse

SEC has very flimsy case based on hearsay evidence from "exec chairman" who seems oddly fixated in his communications on when Cuban can sell. However, Cuban never spoke to exec chairman - he only spoke to CEO and Merriman rep. Case rests on whether Cuban had clear duty and 1) not clear legally - co calls you out of blue and tells you they are about to dilute equity and you cannot sell? 2) no direct evidence that he was made aware of duty - if there is direct evidence, not included in complaint. Looks like SEC trying to muscle Cuban so take this complaint with a big grain of salt. Afterall, it is Cox's keystone cop SEC making it.

Posted by: truthbomb | November 17, 2008 2:54 PM | Report abuse

I have an insider tip that Mr. Cuban did exactly as charged and will be given the Martha Stewart suite in the federal poky.

Posted by: jrw1 | November 17, 2008 2:58 PM | Report abuse

Martha went to jail for lying, not insider trading.

As long as Cuban keeps his facts straight, he doesn't deserve any prison time.

Posted by: AJohn1 | November 17, 2008 3:02 PM | Report abuse

I don't see why the SEC cares about Cuban. He doesn't even deal with college sports that I know of. I guess Dallas is close to some of the cities in the SEC.

Posted by: zimm1 | November 17, 2008 3:07 PM | Report abuse

I love it when rich guys get into trouble. Throw the book at him.

Posted by: adrienne_najjar | November 17, 2008 3:17 PM | Report abuse

Mark Cuban is a horse's ass. Throw the proverbial book at him.

Posted by: mmclaughlin1 | November 17, 2008 3:25 PM | Report abuse

PS The SEC was sending Cuban emails accusing him of being unpatriotic via his criticism of Bush. Now it wants to prosecute him and smear his name based on hearsay evidence. Those of you who trust your government are naive.

Posted by: truthbomb | November 17, 2008 3:42 PM | Report abuse

Regardless of the facts in THIS case, I believe Martha Stewart went to jail, not for insider trading --which Cuban is charged wit--, but for lying to investigators and therefore obstruction of justice.

Posted by: jmsbh | November 17, 2008 4:23 PM | Report abuse

This seems like a straight-up case. There is the CEO's recollections, followed up by an e-mail sent at the time. There are time stamps on everything. Cuban's defenses are lame. The biggest question I have is a legal one: Why is the S.E.C. pursuing a civil complaint rather than a criminal one?

Posted by: OriginalMagicDog | November 17, 2008 4:25 PM | Report abuse

This is just the way that the government deals with higher profile individuals that back the efforts of lesser known people who are trying to bring the truth about the events of 911 to light. The government, and especially the Bush administration will use everything at their disposal to discredit anyone that questions their fairy tale about 911. Anyone that believes that a 757 can dissappear completely into a 15 ft. hole without a trace, or that a steel frame high rise can "collapse", still believes in the easter bunny. There are criminals in the white house, and there are criminals in the congress, and I don't believe anything they say unless I can verify it myself. Oh, and if you think I'm nuts, go online and watch 911 mysteries and see if you don't end up with some questions. What have you got to lose except your illusion.

Posted by: TRACIETHEDOLPHIN | November 17, 2008 5:30 PM | Report abuse

Posted by: OriginalMagicDog
"Why is the S.E.C. pursuing a civil complaint rather than a criminal one?"

Probably because the standards of proof for civil court are not as strict as criminal court. e.g., O.J. Simpson's aquital in criminal court but conviction in civil court for his wife's death.

Posted by: ahashburn | November 17, 2008 5:33 PM | Report abuse

ahashburn, I do understand that in civil courts the standard is "the preponderance of evidence" as opposed to the criminal "beyond a reasonable doubt" standard. But this seems so open-and-shut. Could it be that a civil complaint is the first step to, or a companion with, a criminal prosecution?

Posted by: OriginalMagicDog | November 17, 2008 6:24 PM | Report abuse

I live in France and just heard in an interview with an American reporter, stationed in France, that Bush laid off everyone at the SEC with the exception of one man to answer the phones and turn off the lights. If this is true, this could be why so few CEO's are being investigated. Do any of you know anything about this claim?

Posted by: vcompton1 | November 17, 2008 6:28 PM | Report abuse

vcompton1, it's not true. They did greatly reduce enforcement, but not to the extent that you describe. Maybe figuratively, but not literally.

Posted by: OriginalMagicDog | November 17, 2008 6:31 PM | Report abuse

This is all very curious. The SEC is suddenly all righteous, rigorous, and johnny-on-the-spot about enforcement over $750K of alleged misdeeds.

But for the last six years--with the insane expansions of derivatives trading reaching into the multiple trillions of dollars--the SEC construed their investigative mandate and regulatory functions as minimally as possible. Even though their authority did not extend directly to the utterly deregulated derivatives themselves, the SEC did possess real (and implied) powers to investigate and enforce nearly-proximate financial activities and completely failed to do so.

It's almost as if the case against the flamboyant, high-profile Cuban serves as window-dressing. I have no insight into the validity of the charges in the case. But the whole episode seems extremely curious to me.

Posted by: IceNine | November 17, 2008 7:28 PM | Report abuse

I'm surprised there aren't a bunch of Limbaugh worshipping dittoheads deriding this "socialicism"! This is interfering with the "Free Market" after all!

Posted by: squirebass | November 17, 2008 10:20 PM | Report abuse

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