Insider trading charge could get more serious for Cuban
In a civil complaint filed Monday in federal court in Dallas, the U.S. Securities and Exchange Commission accused Dallas Mavericks owner Mark Cuban of insider trading in the sale of his stock in Mamma.com, a search engine company, in June 2004. The SEC's allegations raise legal questions that may affect Cuban's future, his attempt to purchase the Chicago Cubs and his ownership of the Mavericks. Here are some of the questions and their answers:How important are these charges of insider trading against Cuban? Although the charges involved only $750,000 and a few minutes of Cuban's life, his sale of this stock could become a life-altering event. The insider trading charges are remarkably similar to the SEC charges against Martha Stewart. In her case, Stewart also was charged with obstruction for lying to FBI investigators, leading to a jury trial, a conviction and five months in a federal penitentiary.
The legal action filed Monday is a civil action that seeks only an injunction and a repayment of the money Cuban allegedly saved with his insider information. But the fact alleged by the SEC easily could become a set of criminal charges in Dallas or in New York. Like Stewart, Cuban used private insider information to avoid losing money on a stock investment. He promised Mamma.com that he would keep information about a new stock offering confidential. The new stock offering would reduce the value of his investment. Moments after he promised he would not use the information, Cuban arranged to sell his stock.
Will there be criminal charges against Cuban?At this point, we don't know. It is entirely possible that the U.S. attorney in Dallas is already investigating. The SEC complaint states that Cuban sold his stock on June 28 and 29, 2004 after learning of company actions that would reduce its value. A spokesman for the federal prosecutor in Dallas has not yet responded to an ESPN.com query, but federal authorities rarely discuss an investigation until a formal charge has been made. If there are to be criminal charges against Cuban, they must be filed within five years of the 2004 trade. The deadline for charges is June 27, 2009.
Cuban's lawyer, Ralph C. Ferrara, said in a statement on Cuban's blog, blogmaverick.com, that the SEC is guilty of a "gross abuse of prosecutorial discretion" and "misconduct" in filing its complaint against Cuban. Will the comments help or hurt Cuban?
The statements can only hurt. At a time when Cuban should be trying to settle things with the SEC, this is an attack on its integrity. It does not take much to trigger Cuban's righteous indignation, but these statements might be a big mistake. Unlike NBA referees, federal investigators and prosecutors are not accustomed to melodramatic attacks on their decision-making. They do not take kindly to any kind of criticism, and they do not forget it. It would be in Cuban's interest to find a way to compromise with the SEC and bring this to an end. Whatever chance he might have had to settle things amicably disappeared when he and his lawyer decided to accuse them of misconduct.
Lester Munson, a Chicago lawyer and journalist who reports on investigative and legal issues in the sports industry, is a senior writer for ESPN.com.