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Enron Litigator Comments on SEC Insider Trading Filing Against Mark Cuban
 TMCnet Contributing Editor
Mark Cuban, celebrity entrepreneur and sports owner, has won the spotlight again. Cuban is facing SEC ( News - Alert)-filed insider trading charges as a result of allegedly dumping shares of Internet search company Mamma.com. According to the SEC, Cuban avoided losses of more than $750,000 by selling his stock prior to the public announcement of the offering.
This alleged move happened in June 2004 after Cuban learned about private financing that the company was proposing. The SEC is asking that 50-year old Cuban be forced to give up the money plus interest and pay a penalty. Depending on the court’s decision, those costs could add up to as much as $3 million.
“Since Cuban did not actually work for the company, this is not a classic insider trading case,” said John. Hueston, Irell & Manella litigator and former federal prosecutor in Orange County who co-chaired the Enron task force. Hueston noted that Cuban "has a number of possible defenses at his disposal, ones that are not available in the usual insider trading suits.
“He may be able to successful claim that he came to an independent judgment on the stock, one that had nothing to do with what he learned from the company," Hueston added. "Cuban may also argue that he did not have an obligation to the company, as he is just a shareholder.”
When such filing arise against celebrities, it is easy to point to and compare the insider charges brought against Martha Stewart. Hueston noted that there is a difference between the civil action proposed against Cuban and the criminal prosecution of Steward.
“Stewart was brought up on criminal charges based on lying to investigators during a debriefing. This type of insider trading action does not usually rise to a criminal complaint.” Cuban may do well to learn from Stewart’s mistakes.
In his blog, Cuban stressed that he plans to fight the case and the SEC will have to prove that Cuban knew that the information about the sale was private and confidential and yet traded on it.
While this may be a challenge, the SEC is reportedly ready to argue its case. Knowing the attention the filing would bring, the SEC was sure to practice due diligence first and believes it has a strong case. At the same time, Cuban believes he is innocent – only time will tell which party emerges on top.
Hueston serves as co-chair of Irell & Manella’s Corporate Crisis and White Collar Criminal Defense practice. He was widely praised for what the Los Angeles Times described as his “devastating” cross-examination of Enron CEO Ken Lay.
Susan J. Campbell is a contributing editor for TMCnet and has also written for eastbiz.com. To read more of Susan's articles, please visit her columnist page.
Edited by Jessica Kostek
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