The insider-trading lawsuit against Mark Cuban will continue after a federal judge turned down the billionaire Dallas Mavericks owner's attempt to dismiss the government's case as unproven.
U.S. District Court Judge Sidney Fitzwater's ruling late Monday means that the case is likely to be decided by a jury of seven women and three men who heard Cuban testify for two days.
The Securities and Exchange Commission charges that Cuban violated a confidentiality agreement and unloaded his shares in a Canadian search-engine company in 2004 after learning that the company planned a stock offering that would reduce the value of his $7.5 million stake. The government says Cuban avoided $750,000 in losses by selling his shares before the offering was announced.
Much of Cuban's testimony Monday repeated what he said last week -- that he never agreed to keep information about the offer confidential and saw no reason why he couldn't sell his shares in Mamma.com Inc.
Cuban detailed his concern over connections between the company and a convicted stock swindler, Irving Kott. Cuban's lawyer offered emails indicating that Cuban had raised questions about Kott with company officials.
The Kott story matters because Cuban's version is that he had many reasons for selling the stock. He testified that FBI agents spoke to him in April 2004 about Kott and Mamma.com, and he confronted company officials about it.
The SEC, however, argues that no matter what Cuban thought of Kott, he sold his shares only after learning privately about Mamma.com's plan to issue additional shares in late June 2004. He sold all his shares within two days of learning about the stock offer.
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"We're not saying he fabricated his concern about Kott," SEC lawyer Jan Folena said in court. "We're saying his concerns about Kott are not the reason he sold his stock. There's a difference."
The SEC called Cuban as a witness, and rested its case when he was done testifying, a move that seemed to catch courtroom observers off-guard. That's when Cuban's lawyer asked Fitzwater to dismiss the case, saying the SEC had failed to prove insider trading. The judge had dismissed the case in 2009, only to be overturned by an appeals court. After he rejected Cuban's motion, his lawyers began their case by calling Cuban's longtime stockbroker. The trial is expected to run into next week.
Cuban testified that he learned he was being sued for insider trading in 2008 when he turned on CNBC one day "and I was the headline."
He said that he could have settled the case -- he's not likely to face more than $2 million to $3 million in fines and penalties if he loses -- but he hired lawyers and fought back because "I did nothing wrong and I refuse to be bullied."
The trial seems destined to come down to the word of Cuban -- an Internet, sports and movie-business mogul whose wealth has been estimated at $2.5 billion and who appears regularly on ABC's "Shark Tank" -- against the testimony of Mamma.com CEO Guy Faure. The CEO said that the company believed Cuban wouldn't trade on the information.
Cuban said he couldn't recall details of the phone conversation, but that he would not have agreed to refrain from trading on what the CEO told him.
"I didn't feel I was under any limitations whatsoever," Cuban testified. "So it makes no sense ... that I can't sell my stock."
Cuban added, "I just don't do oral confidentiality agreements," partly because people can later dispute what was agreed upon.
In the most memorable line of the trial so far, Faure claimed that after being told about the stock offer on the condition that he keep it confidential, Cuban answered, "Now I'm screwed. I can't sell." Cuban flatly denied ever saying that.
Last week, jurors saw Faure in recorded testimony. As a Canadian citizen, he can't be compelled to testify in a civil case in U.S. court. Both Cuban and the SEC lawyer said their sides tried to convince Faure to come to Dallas for the trial, but the CEO declined.