Mark Cuban says he’s a follow-the-rules investor who checked with his broker to make sure that his 2004 sale of stock in an Internet company was legal.
Cuban testified Thursday that he was upset when the CEO told him news that would reduce the value of his shares, for which he’d paid $7.5 million. But he said he did nothing improper when he sold those shares over the next two days.
But the Securities and Exchange Commission is suing Cuban for insider trading. Its lawyers painted him as a win-at-all-costs businessman who broke a promise of confidentiality and traded on private information that gave him an advantage over other investors.
A jury in federal district court is hearing the civil lawsuit, which doesn’t involve criminal charges.
Cuban clashed with SEC lawyer Jan Folena, who tried to use Cuban’s own words to undermine his defense that he had many reasons for selling his stake in Mamma.com Inc., including possible associations with a convicted stock swindler. But Cuban didn’t mention those other reasons in emails and blogs that Folena produced. In those writings, Cuban only said that he sold his shares because he didn’t like a private stock offering that the Canadian company was planning.
Mamma.com CEO Guy Faure testified that Cuban agreed to confidentiality at the outset of a critical phone call in which Faure detailed the offering. The CEO said Cuban became angry because he didn’t like such offerings — they diluted the shares of earlier investors like himself — and the promise of confidentiality meant that he would be prohibited from selling his shares until the offering was publicly announced.
Asked about the call, Cuban acknowledged, "I was upset." He said he couldn’t recall other details of the conversation but was certain that he never agreed to confidentiality or to refrain from trading on whatever he would hear.
Cuban’s lawyer, Thomas Melsheimer, asked why he wouldn’t have accepted a no-trade clause.
"Nobody’s going to tell me" when to trade, Cuban answered. He said that he told a Mamma.com banker that he would sell his shares, "and that’s exactly what I did."
Folena, the SEC lawyer, charged that Cuban cheated because he couldn’t stand the idea of losing on an investment.
"You look at every loss in your life as a huge failure," she said to Cuban.
"Absolutely not," Cuban answered.
Folena then quoted from a business article that Cuban wrote in which he said he took every loss as a huge failure.
Cuban said he had reasons beyond the stock offering for selling his shares, including concern over ties between Mamma.com and a convicted stock swindler, Irving Kott. But Folena produced an email exchange from early 2004, before Cuban sold his stock, in which he appeared to dismiss another investor’s worries about Kott.
Folena also suggested that Cuban assigned a former reporter to dig up dirt on Faure so that he could discredit Faure’s recollection of the critical 2004 phone call.
Cuban was Mamma.com’s biggest shareholder, owning a 6 percent stake. The SEC says Cuban avoided $750,000 in losses by selling on insider information before the shares fell by nearly 10 percent once the private stock offering was announced. The SEC wants Cuban to give up that money and pay a fine.
When court was called into session Thursday, Cuban was relaxed on the witness stand, smiling and making a few jokes about the Los Angeles Lakers and other topics. He smiled less often as he jousted throughout the day with Folena.
In the afternoon, guided by one of his lawyers, Cuban told the jury his life story — growing up in Pittsburgh, graduating from Indiana University, moving to Dallas and sharing an apartment with five other guys, starting his first company at 25, becoming a billionaire in 1999 when he and his business partner sold Broadcast.com to Yahoo for $5.7 billion.
Cuban looked directly at the jurors as he recounted buying the Mavericks. His wife no longer sits with him because he screams too much, and he misses some games to spend time with his three kids.
"I’m the luckiest guy in the world," he said. The jurors paid rapt attention. A few of them smiled.