Billionaire Mark Cuban found not liable in SEC insider suit

Mark Cuban, the billionaire owner of pro basketball’s Dallas Mavericks, didn’t engage in insider trading nine years ago, a federal jury decided in a case brought by the U.S. Securities and Exchange Commission.

The jury of two men and seven women in Dallas deliberated for less than a day before reaching its verdict in the trial that started with their selection on Sept. 30.

The SEC accused Cuban, 55, of using inside information from the chief executive officer of a Canadian Internet company to avoid a $750,000 loss in 2004. He denied the allegations.

Holding 6.3 percent of the outstanding shares, Cuban was the biggest stockholder in the company once known as He sold his stake for $7.9 million after learning from then-CEO Guy Faure that the company was planning a private investment in public equity, or PIPE transaction.

The stock sale would have diluted the value of Cuban’s holdings.

To win its case, the SEC was required to prove seven elements, among them that Cuban had received material, non- public information about the PIPE, that he had agreed to keep that information confidential and not act on it, and that he acted on it without telling the company he planned to do so, according to the instructions jurors received from U.S. District Judge Sidney A. Fitzwater.

SEC Argument

“Find Mark Cuban liable,” the SEC’s lead trial lawyer, Jan Folena, told jurors in her closing argument yesterday. “His trade was downright illegal. Of all the investors in the market, Mr. Cuban knew better.”

Thomas Melsheimer, Cuban’s lawyer, countered in his closing argument that the PIPE information was publicly known before Cuban sold his shares.

“Mr. Cuban made no agreement to keep anything confidential,” Melsheimer told jurors. “Mr. Cuban made no agreement not to sell his stock. Mr. Cuban disclosed his intent to sell his stock. Mr. Cuban acted like a man with nothing to hide because he had nothing to hide.”

Faure, in recorded testimony played for the jury, said he told Cuban the PIPE information wasn’t public and that their eight-minute phone conversation in June 2004 ended with the investor saying, “Now I’m screwed. I can’t sell.”

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