More to the Mark Cuban Insider Trading Indictment Than Meets the Eye?

Full disclosure: I normally do not take notice of insider trading suits, even when big names are involved. I long thought Martha Stewart made a huge tactical error in fighting the charges on ImClone. She could easily have said, “My broker called me about this, I was in a cab, between meetings, making calls, juggling a lot of different things. I made a reflex decision without thinking of the ramifications, and it was impossible to undo the trade.” Roll over, offer loud mea cuplas, pay the fine, and move on. Instead she chose to fight and wound up doing time.

I will also be the first to say that the line of speculation, at least on the surface, is a stretch. Mark Cuban, billionaire entrepreneur, now Dallas Mavericks owner, loves to mix it up, and once in a while is overmatched. As the New York Times reminds us:

After once saying he would not hire the N.B.A.’s chief of referees to “manage a Dairy Queen,” Mr. Cuban paid a $500,000 fine — and spent a day at a Dairy Queen serving Blizzards to fans.

The insider trading charges, on the surface, seem pretty open and shut. Cuban held shares in a company called He called in response to an e-mail message from the CEO, who told him that the company was going to sell more shares and asked Cuban if he would like to invest. Cuban allegedly flew into a rage, said he would sell the shares, and apparently did so straight away, despite it being illegal for him to trade on inside information.

Now we will put aside the fact that Cuban may have a defense (if the facts as presented are accurate, it is hard to think of one, unless Cuban can claim that the plans to sell shares were not presented to him as being as far along as they were, that he had the impression, say, that any offer was contingent on a certain percentage of current shareholders subscribing).

A reader e-mailed to point out that Cuban had started campaigning for greater transparency in the bailout process (see here and here and here) and suggested the indictment was related.

Normally I’d dismiss that sort of thinking as paranoid, except this reader has been very close to the bailout process, not merely on a first name basis with some of the names you saw in the paper during key initiatives, but actively advising them. My take is that based on previous conduct of this Administration, he thinks it is quite plausible that this move is retaliation.

Cuban himself suggested the indictment was payback, but for a different offense. Again from the Times:

In a press release (and in a post on his blog), Mr. Cuban accused the S.E.C. of being “infected by the misconduct of the staff of its enforcement division,” but did not discuss details of the suit.

A person close to Mr. Cuban provided what he said was one of a series of e-mail messages from Jeffrey B. Norris, an S.E.C. lawyer in Fort Worth, who accused the billionaire of being unpatriotic for helping to finance a movie named “Loose Change.” In the e-mail message, Mr. Norris described the movie as a “vicious and absurd documentary” that “posits that President Bush planned the demolition of the World Trade Center as a pretext for going to war against Iraq.”

In the e-mail message, sent from his S.E.C. e-mail address, Mr. Norris said he was informing Christopher Cox, the chairman of the S.E.C., of Mr. Cuban’s actions.

“If this upsets you, I wonder how George Bush feels,” Mr. Norris wrote. “I assume that Mr. Cox would view your involvement with ‘Loose Change’ much as I do. After all, he served his country as a Republican congressman from Orange County for nearly 20 years and was appointed by President Bush.”

An S.E.C. spokesman said that Mr. Norris had no role in or knowledge of the investigation, which was handled by the S.E.C. in Washington.

He said the e-mail matter was “referred for disciplinary action,” but did not say what action, if any, was taken against Mr. Norris. Mr. Norris did not return a phone call.

The S.E.C. spokesman said Mr. Cox had recused himself when the commission voted to approve filing the complaint.

So the backstory is convoluted, to put it mildly. And the fact that Cox recused himself (because he was well enough appraised of the “Loose Change” matter to be deemed to have a conflict?) is also odd.

Put it this way: the judicious Floyd Norris also thinks this may be an instance of political persecution, but based on “Loose Change” rather than the bailout provocation (this would make sense if, say, the powers that be thought going after Cuban could be a double-edged sword, that it might bring more attention to the movie, so they went dirt-gathering and had it ready. In this theory, they decided the movie did not develop enough of a following the risk of going after him, but the bailout showed him to be a continuing possible threat to Bushies and he needed to be put in his place).

Mind you, I do not know enough to have a point of view here. I welcome informed reader input.

Update 12/19, 1:00 AM: Some alert readers have pointed out in comments that the SEC’s case is not as airtight as the press reports suggest. It is not clear that Cuban was an insider. He was not an officer or a director, nor was his stake large enough for him to be deemed to have controlling influence. Thus it is not clear he had any fiduciary duty to the company. Just because the CEO told Cuban not to act on the information did not mean he had the authority to do so. And if Cuban was not an insider, there was no SEC violation.

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  1. Anonymous

    Guilty or not, doesn’t the SEC have more pressing matters? Like perhaps the hundreds of billions of dollars of fraud that have occurred over the last few years?

  2. bg

    Mr Cuban does not deserve the benefit of the doubt. His only real claim to fame is being an accidental dot com billionaire, and he shows a tremendous lack of judgement.

    The government, however does deserve the benefit of doubt on the simple score that prosecutorial abuse for political retaliation is difficult to do, and I suspect more common in peoples imagination than in real life.

    The fact that the evidence is pretty clear seems like a good reason to believe the evidence.

    Talking about Mark Cuban is not wholly different than talking about Paris Hilton. And they both thank you for the attention.

  3. Anonymous

    From what I understand about Internal Texas Republican politics, George Bush is not a popular person as some people might think. He chose Dallas as his library, and its unlikely he would spend time anywhere else.

    Mark Cuban might have gave some money to Loose Change, but there are other projects that he has helped finance, including HDNet the only place I know of that still has Dan Rather reporting.

    Wether his investigation is peculiar or not, no one would rationally believe that this is NOT politically motivated. GWB has used every branch of government for partisan purposes, and that is on record repeatedly.

  4. Anonymous

    everyone gets the benefit of doubt, regardless of their past or how you feel about it. Lets let this one play out, should be very interesting, ether way.

    I for one don’t put anything past the present administration, anything. The reports I’ve received regarding the present admins handling of Iraq and Afghanistan operations are woeful.

    One of my fave’s is Haliburtons, gearing up, at the onset of this last operation in Iraq. Dam near invaded Iraq before the troops went in. People really do forget a lot now days.


  5. bg



    of course Mark Cuban deserves his day in court, and were I to sit in a jury I would give every benefit of every doubt. I meant he doesn’t deserve it on the P.R. front. He is milking this situation.

    I generally agree that Paulson, for example, has made overreaching sound modest. But I would not connect arrogance with silly conspiracy theories.

  6. Max

    Even though I like Mark Cuban, he practically invited the charges, and ran off his mouth about insider dealings on more than one occasion. Just dig up some of his tales of how he sold and shorted back in the days.

    We’re becoming kinda paranoid here, not everything is about politics. Plus, with the radically different Obama administration coming in in two months, you gotta be kidding to think the current admin will do anything politically controversial.

    Mark, being Mark, tries to spin it, but come on.

  7. KAckermann

    I am incensed that you would suggest retaliation is not beneath the Bush administration.

    Don’t be surprised if you get a call from Cheney asking you to go hunting.

  8. fresno dan

    I have a dumb question: Is the CEO guilty of any misconduct for devulging the stock issuance?

    Can the CEO inform any stockholders of the sale of more stocks? Could the CEO ask all stockholders of a company (without making it public) if they agree that more stock should be held?

  9. Anonymous

    One need look no further than the firing of the SEC staff member investigating John Mack for insider trading at Pequot simply because the guy was actually doing his job.

  10. Anonymous

    The crime struck me as so absurdly petty for a man with 5 billion dollars. He would have lost 750K if he had not made the trade. No one with that much to loose would knowingly break the law. I do think this is retribution.

  11. River

    After watching as Spitzer stepped into a cow pie that was left in precisely the right place, I would not put pay backs out of the question.

    Watching Paulson pry $750 Billion out of the Gov to ‘do with as he sees fit’, can anyone question the power of Wall St, the SEC, et al?

    On the other hand TPTB are looking for distractions to take the attention off the real problems and their own mishandling of same. Stepping on one upstart billionair that has ruffled some feathers could fill the bill.

  12. Independent Accountant

    I follow the SEC daily. It’s part of my day job. I hope Cuban beats the SEC senseless on this. First, the amount involved is less than $6.7 million, my Blankfein test. On that basis alone the SEC should have passed on this. Next, the SEC is not above payback. It engages in it regularly. I’m so old I remember the Ray Dirks fiasco of 1973. Eventually Dirks fought his way to the Supreme Court, I’ll get you the citation later and beat the SEC on an insider trading case. The SEC could better spend its time investigating say Citigroup’s books, which I believe are cooked. Go Cuban, kick the SEC’s arse!

  13. Ginger Yellow

    ” person close to Mr. Cuban provided what he said was one of a series of e-mail messages from Jeffrey B. Norris, an S.E.C. lawyer in Fort Worth, who accused the billionaire of being unpatriotic for helping to finance a movie named “Loose Change.” In the e-mail message, Mr. Norris described the movie as a “vicious and absurd documentary” that “posits that President Bush planned the demolition of the World Trade Center as a pretext for going to war against Iraq.””

    Um, this doesn’t suggest political retaliation to me. It suggests that Cuban is a conspiracy theorist.

  14. Independent Accountant

    Dirks v SEC 463 US 646 (1983). Ray Dirks fought the SEC’s bully boys to the Supremes and won! Cuban’s a billionaire. I hope he spends the money, which might be $5-10 million, and takes the SEC to the mat and cleans them up.

  15. Anonymous

    Max 3:51 am wrote:
    “We’re becoming kinda paranoid here, not everything is about politics. Plus, with the radically different Obama administration coming in in two months, you gotta be kidding to think the current admin will do anything politically controversial.”

    Whoa, dude. Evidently you do not know the Bush family. And as to ‘doing anything politically controversial’ during the next two months, all decisions going forward will be made with an eye to minimimizing possible prosecution for family and friends after they leave office. These people are the Snopes from Faulkner, writ large.

  16. Lee

    In addition to payback for “Loose Change” I also think the charge is a way to preempt (i.e. disqualify) Cuban from buying the Chicago Cubs. Major League Baseball does not want this guy, but Sam Zell does.

  17. Anonymous

    Cuban more recently started and funded, a website dedicated to uncovering the the more unseemly aspects of the bailout. It’s just getting national attention. Interesting timing. $750k 4 years ago seems petty when you have 100s of billions of fraudulent transactions destroying the country right now. Conspiracy or not, this government has f’d priorities.

  18. Iconoclast421

    You might not be aware of this, but Loose Change has come a long way since the original version. If you have not seen Loose Change: Final Cut, and dont intend to just because you saw 5 minutes of the original film. then you’re just an idiot who is never going to know wtf is going on in the real world. Just drink your koolaid and call it all a conspiracy. And wonder why the country is being flushed down the toilet. There is very little in LC:Final Cut that isnt proven and admitted fact. The official verison is the Conspiracy Theory.

  19. charlie

    What I suspect is Cuban is being made an example of by the SEC. It’s is kind of like the annual drama when the government stages a major enforcement action in late March to remind everyone that they really need to pay their taxes (Branch Dravidians, that Cuban kid in Miami, etc.

    The bit about the Ft. Worth SEC lawyer seems like a sideshow. I don’t have a SEC org chart, but I suspect that a SEC attorney in Ft. Worth is NOT going to be a political appointee. Said attorney may have an axe to grind, but it is not coming from the White House.

    WH’s power to pull a move like this is pretty limited in an agency like the SEC. They sounds much more like the SEC taking a very small matter and trying to get a big PR boost.

  20. miguel_swanstein

    It seems like the true value to the government is to discredit Cuban as a populist voice (at a time when he’s exercising it more and more) by branding him in the eyes of the people as a “typical crook playing a rigged game at your expense.” That’s worth far more than the $750k collected in the enforcement. And it’s pretty chilling.

  21. Jesse

    There are really two issues here.

    The first is whether or not Mark Cuban is indeed guilty of blatant insider trading. The case looks to hinge on the source of the record the CEO of has of the phone conversation with Mark Cuban. The sale of the shares was not inconsequential, 6.3% of the shares as I recall. If the two can be linked unimpeachably and reliably then Cuban will pay his fine and so forth. The defense will be interesting, and will most likely to suggest the record of the conversation is faulty, and that the sale was previously planned. Remember, there were extensive verbatim quotes included in the charges story.

    Second, was this retaliation? Can it be proved? It was likely that it was just based on the facts at hand. But can it be proven? Not likely without a smoking gun testimony.

    But this does not detract from the case against Mr. Cuban.

    There should be little doubt that in the recent presidential administration the investigative powers of the government have been used to find misdeeds of critics. This also applies to the Clintons, and certainly back to Nixon and his famous ‘enemies list.’ The Bush administration is full of Nixon retreads.

    Certainly reform is required, and will be difficult to accomplish. The use of warrants is essential to prevent abuse, but as the government grows larger, and the presidency more imperial, the abuse will be there and is real.

    So, if you wish to be an outspoken critic, try not to do blatantly dumb things in breaking the law, and keep your house in order.

    Sad, but a fact of life.

  22. Peripheral Visionary

    As someone who is not very far from this (although I have no specific information on this case), I believe that Charlie’s answer is probably closest to the truth.

    First, the SEC is predominantly permanent government employees, and as such they are not politically aligned with the administration. Only the Commissioners and their staff are politically appointed and politically aligned, and even then the Commission is split between Republicans and Democrats. Congress and the President have enough influence to affect certain policy decisions (e.g., the short-selling rule), but the Commission’s day-to-day business has a certain level of insulation from the political process. But anybody who thinks that the SEC–or any other Federal entity outside the White House, for that matter–is in lock-step with the administration has clearly never worked in government.

    My own observation is that the enforcement entities of the government–the Justice Dept, the FBI, and the SEC’s Enforcement division–are to a certain extent secretive, black-box entities. For a number of reasons, enforcement personnel do not like talking about their work (they have wide protections against FOIA) and are resistant to pressure from the outside, even from within the government. That can be seen as a potential cause for concern, but at the same time, it also insulates the process from meddling–including, I would suggest, meddling from above. I have seen politically motivated requests come down from above, and they are not always well received. If there had been a politically motivated push for an enforcement action, it would have hit several barriers on the way (including the two Commissioners who are Democrats), not least of which being enforcement, who does not like being told what to do.

    But even if this had been a politically motivated push, it makes no sense to do it so close to the transition of power. This case will inevitably carry over to the new administration, and once the Commission is realigned with the new administration, if there is evidence for a politically motivated prosecution it will swiftly come to light. If even half the things the conspiracy theorists assert are correct, this administration would be working overtime burning the evidence, not starting new projects that won’t be completed before it leaves office.

    But Charlie’s point about somebody being made an example of is right on. The SEC, in particular, loves to make very public examples; it is significantly understaffed, and without the ability to pursue every case, or even some of the more difficult and complex cases, it will not pass up an open-and-shut case against a public figure as an opportunity to send a clear message to the general public. Yes, Cuban has a lot of money and good lawyers, but then, so did Martha Stewart. O.J. Simpson complained that the law was singling him out for punishment, and he may very well have been right. Law enforcement particularly enjoys justice against the wealthy and influential, and the SEC is no exception.

    I suspect the question among the Commission was: what if they hadn’t have acted on clear information of insider trading? If Cuban had got away with it (or if he does get away with it), that would have reinforced every suspicion about the system being crooked. I would recommend tuning out the Sith Lord conspiracy ravings, and looking at the facts in question and asking what choice the SEC had but to prosecute.

  23. Carlosjii

    This can morph to sounding like ‘just because I’m paranoid doesn’t mean they’re not out to get me’ but this administration HAS definitely been involved in many payback schemes for its critics. I have known several people who felt they were specifically targeted. Those who escaped won’t talk about it. I know – it’s like the Al Qaeda conspiracy I broke up I can’t talk about.

    Frankly, this ‘thing’ – best described as a corrupt State suppressing its critics – has been SO forceful and scary most won’t talk about it. I personally read emails from one person’s brokerage firm’s tech support saying they were not able to navigate to the pages and URLs apparently spoofed from their site every time he made a trade.
    This person was a severe on-line critic of the FED and Administration. The actual language used was ‘We are not responsible for this’ which would fit the legal requirements of the Terra Act of not disclosing to the person being ‘investigated’ that they are. This person believed when his positions changed ‘they’ would note it and trade against him.

    It appears that the mechanism for some or maybe a lot of the targeted market manipulation has been the Pentagon’s “office of special brokerage services” described
    Clearly, they are able to operate fully behind the cloak of National Security and are pretty much untouchable. Do I know more? Putting it Palinesquely – U betcha!

  24. Anonymous

    I’ll take Mark Cuban at his word. Anyone with his kind of money that spends the day working at a fast food joint, deserves the benefit of the doubt. Cuban had considered distributing “Loose Change”, but reconsidered following what must have been enormous pressure not to do so. The same goes for Charlie Sheen, who had considered narrating the film, and Richard Branson who had considered showing the film between New York and London on his Virgin Atlantic airline flights.

    Since Mr. Norris panned the film as a “vicious and absurd documentary”, we’ll have to assume that he watched it, possibly an unpatriotic act in itself. I have not seem the new version, and will have to withhold judgment.

    As for Mr. Cuban, I wish him the best of luck.

  25. Anonymous

    Anybody that thinks retaliation is beneath the Bush Adminstration needs to read up on the Attorney General firings and the Don Seigelman case.

    These people could give the mafia lessons in vengeance.

  26. A Shrew Cuban

    Cuban is a shrew business man, a man that knows how to use the public to get what he wants…he knew of this investigation and indictment coming.

  27. Bonzer Wolf

    Mark Cuban called the government’s allegations false and indicated a belief that SEC staffers were out to get him. He will will vigorously fight to prove his innocence. IMHO this is just another example of the feds unfairly making an example of a high-profile citizen who has dared to publicly criticize the government. $750,000 is chump change to Mark Cuban and he has never made a secret of his sale of stock when the company decided to go “private” and change direction. Mr. Cuban is a long time critic of both the federal government and the SEC. the secret news given Cuban was essentially “We’re about to F you over, Chump.” I don’t see how that should be considered a matter of fiduciary responsibility.

    I hope that this federal targeting will inspire Mr. Cuban to support the Libertarian Party with some of his billions. Government at all levels is too large, too expensive, woefully inefficient, arrogant, intrusive, and downright dangerous. Democratic and Republican politicians have created the status quo and do not intend to change it.

  28. Anonymous

    As this is starting to move from the accused to more of an open question about the Bushies “modus operandi”. It is wide known how they handle members of the press, non-aligned judiciary, inquisitive minds and so on. They don’t even try to BS people, just laugh in their face.

    I don’t know if its still practice, in the Texas State House, individuals used to curry favor in sided the Assembly with check books in hand, in one case an individual was passing out checks up to the last second before a vote. Hence the rule that no one was allowed in after roll call, banished out side to the lobby, where deals are done at the last moment.

    This was bush’s training ground, and he will protect his family name and his administrations policies by any means. Funny that the SEC lawyer Geoffry B. Norris is a fellow republican Texan. Whether Cuban is guilty not, I think ALL Government agency efforts should be used to reverse the currant melt down. Hell their has to be more important individuals to investigate right now than Cuba shezzz. I smell a smokescreen, slight of hand, hay look over here not over there job.

    Off subject nice roast of the awesome 3 some today, did I really see them shaking with a quiver in their voices or was it the 10+GMT here in Brisbane.


  29. Anonymous

    Since when is an offer to participate in an offering passing on insider information?

    In common sense financial terms, a company was going to dilute shares with a offering. He found out about the offering, which would have or should have been announced. Even if it wasn’t announced, it was dumb. I remember a simpson’s episode where stock certs were tossed around like that.

    If you are a major shareholder of a company, and the company demonstrates incompetence, are you not incompetent yourself if you do not remove yourself from the situation? This is the ultimate form of capitalism, voting with your dollars.

    That’s not allowed either now? Where is all of this capitalism that every one talks about? Free-market? where?

    He seems to have done exactly what so many other shareholders should do when they see this type of behavior. Vote with your dollars.

    As to this administrations use of political force. They have bred over the last few years a very rabid contingent of people who try with all of their might to please the masters. On the surface, this could be one of them.

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