Mavericks owner Mark Cuban has been charged with insider trading by the Securities and Exchanges Commission relating to the sale of his shares in search engine company Mamma.com in 2004. Cuban is one of the most accessible owners in sports, and blogs about finance matters rather often. This is of interest because back in 2005, Cuban wrote about the Mamma.com sale. (Note: To avoid typing sic 3,000 times, I'll note that all misspellings and improper grammar come from the original blog post.)
I had purchased stock in Mamma.com in hope that it could be an up and coming search engine. I thought I had done some level of due diligence. Talked to the company management. Talked to some employees who worked in sales. Read the SEC Filings. I knew that they had a checkered past and had been linked to stock promoter Irving Kott, and that their law firm still handled some of Kotts business, but the CEO, Chairman, lawyers all said that things were reformed and the company was focused on its business.
Then the company did a PIPE financing. Im not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I dont want to own stock in companies that use this method of financing. Why? Because I dont like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants. So I sold the stock.
Here, Cuban said he sold because of the PIPE financing (basically a stock dilution which affects existing stockholders but keeps a company afloat). The SEC also believes Cuban sold for this reason. The problem, according to the feds: Cuban sold for this reason before other stockholders or the trading public knew about the PIPE financing decision. That's the basic defintion of insider trading.
The question becomes the chronology. In the post, Cuban wrote that "the company did a PIPE financing ... So I sold stock." That vaguely indicates a clean transaction. Now, your judgment on how vaguely Cuban's written chronology was stated might inform your opinion of Cuban's blog dishonesty going forward. I mean, I assume Cuban will cop a plea on the SEC suit -- the evidence seems rather stacked, and money isn't much of a matter for the owner.
But Cuban has built a persona centered on trust and transparency -- I mean, he just founded Bailout Sleuth, a website devoted to tracking the flow of money generated by the massive Wall Street bailouts. The very blog post the discussion of the Mamma.com sale is found in dealt with the question of whether naked short sales were a big problem for Wall Street. Cuban professes to be a straight shootin' honest broker of ideas. And he basically lied about the conditions of a sale which now has him facing federal charges, which saved himself $750,000 at the expense of other traders who lost money on his shady sale. Can Cuban reasonably be seen as a reasonably honest pundit any more? And does that hurt whatever causes he champions when it comes to the NBA, foremost his crusade to fix the league's officiating?
In 2005, Mark Cuban Blogged About His Illegal Mamma.com Stock Sale originally appeared on NBA FanHouse on Mon, 17 Nov 2008 13:30:00 EST . Please see our terms for use of feeds.