Dallas Mavericks Owner Mark Cuban’s Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report

According to the US Securities and Exchange Commission’s Inspector General, billionaire Mark Cuban’s allegations of misconduct against the federal agency’s enforcement staff are unfounded. The Dallas Mavericks basketball team owner’s accusations stem from the insider trading case that the SEC had filed against him.

In its 2008 Texas securities lawsuit against Cuban, the SEC accused him of selling his stake in Mamma.com after being told in confidence that the search engine company was planning a private investment in public equity transaction. The PIPE transaction was likely going to cause the company’s stock to drop in value, and SEC says that although Cuban had agreed to keep the information confidential he went ahead and sold his shares. This caused him to avoid losing more than $750,000.

The Commission considered this a breach of his confidentiality agreement and an act of insider trading. The SEC based its insider trading theory against the billionaire on its rule defining duties of confidence and trust to include a person agreeing to keep information confidential. In 2009, a federal judge dismissed the case against Cuban on the grounds that he hadn’t been an “insider” in this instance.

Last year, however, the U.S. Court of Appeals for the Fifth Circuit in Texas revived the securities case against him. The court said it was “plausible” that Cuban knew he wasn’t supposed to sell his shares in order to avoid losing money. However, it refrained from deciding whether the billionaire entrepreneur was wrong to sell his stock. A lower court in Dallas has been ordered to review the case for additional discovery.

Cuban has responded with complaints to SEC Inspector General H. David Kotz. He contends that the enforcement agency’s lawyers treated him unfairly and had been “biased and improper.” He also claims that investigators abused the “Wells notice” process and sent one out before finishing his investigation, as well as intimidated one of his witnesses. Cuban also is accusing the SEC of closing its probe into Mamma.com to get the company’s executives to help in the agency’s investigation into the insider trading allegations against him.

Kotz’s office, in its 101-page report following its investigation into Cuban’s allegations against the SEC, said that there is not enough evidence to support the billionaire’s accusations. The OIG included also included its findings into the conduct of ex-SEC trial lawyer Jeffrey Norris, who was suspended after sending emails that may have been politically charged to Cuban (Norris was later fired for similar misconduct). Kotz’s office says that Norris hadn’t been involved in the SEC’s investigation into the Cuban case.

SEC lawsuit against billionaire Cuban revived, Salt Lake Tribune, September 21, 2010
US sports magnate charges against SEC unfounded, Reuters, September 17, 2011
Mark Cuban’s Grudge Match With the S.E.C., NY Times, April 30, 2011
SEC Watchdog Finds Little to Support Cuban’s Allegations of Improper Conduct, BNA Securities Law Daily, October 3, 2011
Read the OIG Report (PDF)


Related Web Resources:
After District Court Dismisses Texas Securities Fraud Against Billionaire Mark Cuban, SEC Appeal Can Now Move Forward, Stockbroker Fraud Blog, August 17, 2009
Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011
Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011
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