Billionaire Mark Cuban Goes To Trial in SEC Insider Lawsuit. SEC accused Cuban of acting on confidential information when he unloaded his 600,000 shares of Mamma.com four years earlier, just before it announced a private placement of shares.
The case was revived in 2010 after U.S. District Judge Sidney A. Fitzwater in Dallas dismissed it. Fitzwater came close to throwing it out again in March. Jury selection started today with a pool of 64 prospective jurors. The trial will probably last eight to 10 days, the parties have told the judge.
Billionaire Mark Cuban 55, maintains he did nothing wrong.
“I am excited about this, to finally come to court,” Cuban said today before entering the courthouse. “I won’t be bullied. That’s the key element.”
Fitzwater said today he intended the jury to start deliberating by Oct. 17. That schedule may be affected by a federal government shutdown due to the congressional spending bill impasse between Republicans and Democrats, the judge said.
Parts of the government may be forced to suspend operations at midnight tonight if the dispute isn’t resolved before then.
“The government shutdown will not affect the trial of this case for at least two weeks,” said Fitzwater, who has allotted four days for it this week and three next week. The judge said he will revisit the issue later in the proceedings.
Cuban’s lawyers said in court papers that the SEC accused their client of misappropriating confidential company information for his personal use in selling Mamma.com securities.
“The record shows that nothing could be further from the truth,” the attorneys wrote.
mARK Cuban, chairman of the high-definition television network HDNet, has owned the Mavericks since 2000. The National Basketball Association franchise, which identifies him as “head honcho” on its website, won the league championship in 2011, beating the Miami Heat four games to two.
He also owns the Landmark Theatres chain, has been a contestant on the television program “Dancing with the Stars” and appears regularly on the TV show “Shark Tank.”
In 1999, he sold Broadcast.com, a multimedia web service he founded, to Yahoo! Inc. for $4.7 billion.
Cuban was the biggest stockholder of Montreal-based Mamma.com, holding 6.3 percent of its shares, and had offered to use his fame to promote the company and assist it with possible acquisitions, according to a Sept. 25 pretrial filing by Fitzwater summarizing each side’s claims.
The SEC claims that in April 2004, one month after he bought 600,000 shares of Mamma.com stock, Cuban told then-Chief Executive Officer Guy Faure, “Obviously what you tell me is confidential,” according to Fitzwater.
In a June 2004 phone conversation, Faure allegedly told Cuban he had confidential information for him and asked if he was interested in participating in a new offering that diluted the company’s shares by 8.5 percent, the judge wrote. Near the end of the conversation, Cuban allegedly told Faure, “Now I’m screwed. I can’t sell.”
That day, one minute after ending a phone conversation with a sales agent for the share offer, Cuban called his broker and told him to sell all his shares, according to the summary.
The next day, before the placement was made public at the market close, Cuban’s broker sold all the shares enabling Cuban to avoid a $750,000 loss, according to the SEC.
Mamma.com fell 8.5 percent on June 30, 2004, the first trading day after the private placement was announced, and 15 percent the day after the investor’s sales were disclosed in a regulatory filing made public on July 2, according to data compiled by Bloomberg.
The company is now known as Copernic Inc.
Cuban contends the SEC can’t prove a confidentiality agreement was formed between him and Mamma.com and says he made no agreement that he couldn’t trade on information about the private share offering, Fitzwater wrote.
Cuban’s lawyers have said the commission’s proof falls short in several other areas, including whether he was reckless, whether he disclosed he was going to sell his stock and whether he used the offering information to sell, according to the summary statement.
“We look forward to a fair trial,” Chris Clark, one of Cuban’s attorneys, said in an interview. “We think the truth will come out and Mr. Cuban will be vindicated.”
“The thing I am really looking forward to is shedding some sunlight on how the SEC really works,” Cuban said today on arriving at the courthouse.
Judy Burns, a spokeswoman for the SEC, declined to comment on the trial.
The government asked for “disgorgement of all ill-gotten gains” and undisclosed civil monetary penalties, prejudgment interest and a permanent order prohibiting Cuban from “further violations of the relevant provisions of the Exchange Act.”
The case has stretched to five years with disputes over insider trading law, SEC conduct and other matters. After the judge dismissed the case in 2009, a U.S. appeals court in New Orleans reversed that ruling and revived it.
In March, Cuban lost another bid to end the case. Fitzwater stated that while his ruling was “a close one,” the SEC was entitled to present its case to a jury.
The case is Securities and Exchange Commission v. Cuban, 08-cv-02050, U.S. District Court, Northern District of Texas (Dallas).