Scattered Clouds 34° Good Afternoon
Scattered Clouds 34° Good Afternoon

Mark Cuban insider trading trial, over shares, begins

Mark Cuban, owner of the Dallas Mavericks basketball

Mark Cuban, owner of the Dallas Mavericks basketball team, left, exits federal court in Dallas, Texas. (Sept. 30, 2013) Photo Credit: Bloomberg News

Lawyers for Mark Cuban and the U.S. Securities and Exchange Commission will deliver opening statements tomorrow in the billionaire basketball team owner’s insider trading trial.

A jury of seven women and three men were selected today from a pool of 64 prospective panel members in Dallas federal court. Cuban is accused of trading on confidential, non-public information about a Canadian Internet search company in 2004.

“I am excited about this, to finally come to court,” Cuban 55, said today before entering the courthouse. “I won’t be bullied. That’s the key element.”

While lawyers for both sides have told U.S. District Judge Sidney A. Fitzwater they expect the trial to last eight to 10 days, the judge said today it could be interrupted by a federal government shutdown over a budget impasse in Congress.

The U.S. in 2008 accused Cuban of acting on confidential information when he unloaded his 600,000 shares of four years earlier, just before it announced a private placement of shares. A federal appeals court revived the case in 2010 after Fitzwater had dismissed it.

‘Close’ Decision

In a March ruling, the judge characterized as “close” his decision then to let the case be heard by a jury.

Cuban, who is chairman of the high-definition television network HDNet, has owned the National Basketball Association’s Dallas Mavericks franchise since 2000 .

The team, which lists him as “head honcho” on its website, won the NBA championship in 2011, beating the Miami Heat four games to two.

Cuban 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, a multimedia web service he founded, to Yahoo! Inc. for $4.7 billion.

Many questions put to prospective jurors by Fitzwater and the parties’ lawyers concerned Cuban’s fame, as well as his presence court-side at Mavericks games and on television.

Defense lawyer Thomas Melsheimer of New York-based Fish & Richardson PC asked one woman what she remembered from his client’s “Dancing with the Stars” appearance.

‘Mouth Open’

“I think they said he dances with his mouth open,” she said of judges on the program.

An attorney for the SEC, Jan Folena, acknowledged Cuban’s fame and asked jurors if they could set it aside.

While most questioned said they could do so, one juror who said he could not was dismissed from the panel.

Fitzwater said today he intends for the jury to start deliberating by Oct. 17. That schedule may be affected by a federal government shutdown, 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 securities.

“The record shows that nothing could be further from the truth,” the attorneys wrote.

Biggest Shareholder

Cuban was the biggest stockholder of Montreal-based, 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 alleges that in April 2004, one month after he bought 600,000 shares of 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.

Avoiding Loss

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. 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 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.

Client’s Vindication

“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). 

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