Jury Rules Mark Cuban Did Not Commit Insider Trading

A jury ruled on Wednesday that Mark Cuban was not guilty of insider trading.

Charges Stem from Cuban’s 2004 Sale of Stock

In 2004, Cuban sold approximately 600,000 shares of Mamma.com.  Cuban executed the sale of his almost $8 million stake in the company just before a sharp decline in the stock that would have cost him approximately $750,000.

According to the United States Securities and Exchange Commission, the jury should consider Cuban’s sale as insider trading because they believed Mamma.com Chief Executive Officer Guy Faure told Cuban that the company planned to execute a private equity sale to raise additional funds.  The sale would have reduced the value of Cuban’s shares of stock.

Cuban testified during the two-week civil trial that he had done nothing wrong and had numerous reasons for choosing to sell his stock at that time.  One reason Cuban noted was rumors that Mamma.com had ties to a stockbroker who made deals using fraudulent means.

Cuban, SEC Address Reporters after Verdict

Cuban spoke with reporters after the verdict, levying harsh criticism at SEC attorney Jan Folena and noting that he didn’t really consider the verdict a victory.

“The fact that someone… can just sit up there and tell lie, and lie, and deceit, it’s just wrong,” Cuban said concerning Folena.  “There’s no point in time when I sat there and listened to it and felt, you know what, winning will feel good.”

Cuban also questioned the SEC’s definition of insider trading.  Insider trading is when an investor makes a decision to buy or sell a company’s stock based on information that is not public, giving that investor an unfair advantage.  However, Cuban believes the specifics of what constitutes insider trading from the SEC’s standpoint is unclear.

“You can’t just call up the SEC and say, ‘I want clarification on this, tell me.’  They won’t do it,” Cuban continued.  “They regulate through litigation.”

Cuban noted that in the end he was glad the SEC came after him rather than some little guy who could not afford to defend themselves.

“I’m the luckiest guy in the world,” Cuban added.  “I’m glad this happened to me.  I’m glad I’m able to be the person who can afford to stand up to them.”

Attorneys for the SEC did not address reporters immediately after the jury rendered their verdict, but they did release a statement later in the day.

“We respect the jury’s decision,” said SEC spokesman John Nester.  “While the verdict in this particular case is not the one we sought, it will not deter us from bringing and trying cases where we believe defendants have violated the federal securities laws.”

In the event the jury had found Cuban guilty of the insider trading charges, he would have been required to pay the losses he avoided as well as a fine.

Cuban’s Fortune Made during Dot Com Days

Cuban originally made the majority of his fortune in 1999 with the sale of Broadcast.com, an Internet radio company he founded in the mid-1990s.  In January 2000, Cuban purchased a majority ownership in the Dallas Mavericks.

More recently, Cuban has starred as a panel member on Shark Tank, a reality television series in which entrepreneurs have one hour to pitch a business idea to investors in hopes they will invest in the business.

As of September 2013, Forbes reported that Cuban has a net worth of approximately $2.5 billion.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.