Legal News

Cuban Strikes Back: Maverick?s Blog Post Tries to Undercut SEC Charges

By Amir Efrati

By now you’ve probably heard about the insider trading charges filed by the Securities and Exchange Commission against Dallas Mavericks owner Mark Cuban. (Click herefor the WSJ Page One story.)

As a recap, the SEC alleges that in 2004 Cuban was informed by the chief executive of Mamma.com, a company in which Cuban held a substantial amount of stock, that the company would raise money by issuing low-priced shares, a move that would probably hurt that value of Cuban’s shares. Cuban then allegedly sold his stake in order to avoid getting hit by the stock price drop after the low-priced share offering became public.

The key question in this case, as it turns out, is whether Cuban agreed that the information the CEO gave him would be confidential. Lawyers have told us that if he did, he wouldn’t be able to make securities trades based on the information. If Cuban’s assertion is correct, and the SEC fails to show he agreed to keep the information confidential, Cuban could win, says David Seide of Curtis Mallet-Prevost.

In its complaint, the SEC provides two examples that allegedly shows he did. First, the former CEO said Cuban agreed to keep the information confidential. Second, the company’s executive chairman sent an email to board members recapping that conversation, and wrote: “As anticipated [Cuban] initially ‘flew off the handle,’ and said he would sell his shares (recognizing that he was not able to do anything until we announce the [offering])….”

Cuban’s lawyers say he made no such promise, and today the Maverick posted what appears to be supporting evidence on his blog. It’s a transcript of an interview one of his lawyers, Chris Clark of Dewey & LeBoeuf, did with former Mamma.com CEO Guy Faure, in connection with the case:

Clark: We spoke earlier about you . . . telling Mr. Cuban in words or substance : “I have confidential information for you”.

Faure: No, I do not.

“The SEC knows this-they have the transcript, yet they brought the case anyway,” Cuban writes in his post. He adds: “Why did the SEC end their multi-year investigation of Mamma.com Inc. for alleged securities laws violations days before interviewing present and former Mamma.com Inc. executives about this matter? Was the timing a coincidence? We think not.”

Scott Friestad, deputy director of the SEC’s enforcement division, said, “We’re not going to comment on anything Mr. Cuban or his lawyers have to say on Mr. Cuban’s blog and we look forward to presenting our case in court.”

A lawyer for Faure declined to comment.

Photo: AP

Full post as published by Law Blog - WSJ.com on November 18, 2008 (boomark / email).