Full disclosure: I normally do not take notice of insider trading suits, even when big names are involved. I long thought Martha Stewart made a huge tactical error in fighting the charges on ImClone. She could easily have said, “My broker called me about this, I was in a cab, between meetings, making calls, juggling a lot of different things. I made a reflex decision without thinking of the ramifications, and it was impossible to undo the trade.” Roll over, offer loud mea cuplas, pay the fine, and move on. Instead she chose to fight and wound up doing time.
I will also be the first to say that the line of speculation, at least on the surface, is a stretch. Mark Cuban, billionaire entrepreneur, now Dallas Mavericks owner, loves to mix it up, and once in a while is overmatched. As the New York Times reminds us:
After once saying he would not hire the N.B.A.’s chief of referees to “manage a Dairy Queen,” Mr. Cuban paid a $500,000 fine — and spent a day at a Dairy Queen serving Blizzards to fans.
The insider trading charges, on the surface, seem pretty open and shut. Cuban held shares in a company called Mamma.com. He called in response to an e-mail message from the CEO, who told him that the company was going to sell more shares and asked Cuban if he would like to invest. Cuban allegedly flew into a rage, said he would sell the shares, and apparently did so straight away, despite it being illegal for him to trade on inside information.
Now we will put aside the fact that Cuban may have a defense (if the facts as presented are accurate, it is hard to think of one, unless Cuban can claim that the plans to sell shares were not presented to him as being as far along as they were, that he had the impression, say, that any offer was contingent on a certain percentage of current shareholders subscribing).
A reader e-mailed to point out that Cuban had started campaigning for greater transparency in the bailout process (see and and ) and suggested the indictment was related.
Normally I’d dismiss that sort of thinking as paranoid, except this reader has been very close to the bailout process, not merely on a first name basis with some of the names you saw in the paper during key initiatives, but actively advising them. My take is that based on previous conduct of this Administration, he thinks it is quite plausible that this move is retaliation.
Cuban himself suggested the indictment was payback, but for a different offense. Again from the Times:
In a press release (and in a post on his blog), Mr. Cuban accused the S.E.C. of being “infected by the misconduct of the staff of its enforcement division,” but did not discuss details of the suit.
A person close to Mr. Cuban provided what he said was one of a series of e-mail messages from Jeffrey B. Norris, an S.E.C. lawyer in Fort Worth, who accused the billionaire of being unpatriotic for helping to finance a movie named “.” In the e-mail message, Mr. Norris described the movie as a “vicious and absurd documentary” that “posits that President Bush planned the demolition of the World Trade Center as a pretext for going to war against Iraq.”
In the e-mail message, sent from his S.E.C. e-mail address, Mr. Norris said he was informing Christopher Cox, the chairman of the S.E.C., of Mr. Cuban’s actions.
“If this upsets you, I wonder how George Bush feels,” Mr. Norris wrote. “I assume that Mr. Cox would view your involvement with ‘Loose Change’ much as I do. After all, he served his country as a Republican congressman from Orange County for nearly 20 years and was appointed by President Bush.”
An S.E.C. spokesman said that Mr. Norris had no role in or knowledge of the Mamma.com investigation, which was handled by the S.E.C. in Washington.
He said the e-mail matter was “referred for disciplinary action,” but did not say what action, if any, was taken against Mr. Norris. Mr. Norris did not return a phone call.
The S.E.C. spokesman said Mr. Cox had recused himself when the commission voted to approve filing the complaint.
So the backstory is convoluted, to put it mildly. And the fact that Cox recused himself (because he was well enough appraised of the “Loose Change” matter to be deemed to have a conflict?) is also odd.
Put it this way: the judicious Floyd Norris also thinks this may be an , but based on “Loose Change” rather than the bailout provocation (this would make sense if, say, the powers that be thought going after Cuban could be a double-edged sword, that it might bring more attention to the movie, so they went dirt-gathering and had it ready. In this theory, they decided the movie did not develop enough of a following the risk of going after him, but the bailout showed him to be a continuing possible threat to Bushies and he needed to be put in his place).
Mind you, I do not know enough to have a point of view here. I welcome informed reader input.
Update 12/19, 1:00 AM: Some alert readers have pointed out in comments that the SEC’s case is not as airtight as the press reports suggest. It is not clear that Cuban was an insider. He was not an officer or a director, nor was his stake large enough for him to be deemed to have controlling influence. Thus it is not clear he had any fiduciary duty to the company. Just because the CEO told Cuban not to act on the information did not mean he had the authority to do so. And if Cuban was not an insider, there was no SEC violation.