Mavericks owner accused of insider trading

updated 9:42 p.m. ET Nov. 18, 2008

WASHINGTON - Since buying the Dallas Mavericks eight years ago, Mark Cuban has turned the team around and made himself one of the most visible owners in pro sports. Along the way, he’s picked up his share of critics.

Some say he’s a nuisance to the NBA, with more than $1 million in fines held up as evidence. Some Mavs fans say his constant baiting of officials merely leads to more calls against the team. Even his dancing skills have been panned, drawing an early round ousting from “Dancing With The Stars.”

But now Cuban is facing a much more serious allegation: The government saying he’s an inside trader.

Federal regulators filed a civil lawsuit Monday accusing Cuban of using confidential information to bail out of an investment and avoid about $750,000 in losses. Cuban denies doing anything wrong and insists his name will be cleared.

Even if he loses in court, Cuban’s penalties would be strictly financial — perhaps close to $3 million. Martha Stewart settled the civil part of her insider-trading case, but ended up going to prison for criminal charges related to it. Cuban isn’t facing criminal charges.

“It is a fascinating case,” said Harold Degenhardt, who spent nine years prosecuting securities fraud as head of the Fort Worth office of the Securities & Exchange Commission and another 25 defending them in private practice. “This is a very difficult case for the SEC. I don’t think they brought it lightly.”

According to the SEC case, Cuban told his broker to sell all his shares of Mamma.com after the company’s CEO confidentially told him of a stock offering that would dilute the value of all existing shares, including Cuban’s. By selling before the information became public and the price fell, Cuban avoided losses exceeding $750,000, the SEC said in its lawsuit.

However, on Cuban’s blog Tuesday was a statement from his attorneys that cites an interview with the CEO in which he says there was no agreement to keep information confidential.

Thus, Degenhardt said late Tuesday, this could turn into a he-said, she-said trial, and those are always risky.

“What was he told and what did he agree to?” Degenhardt said. “It’s all going to boil down to who is believed.”

However this plays out, it’s a hit on Cuban’s reputation as the Everyman fan who hit the Internet lottery, became a billionaire and bought his favorite team.

He’ll certainly have to endure a new round of trash-talking from rival fans, even if NBA sanctions are uncertain. The league isn’t commenting, but other owners who’ve brought the NBA shame through personal or professional actions haven’t been punished by commissioner David Stern.

To fans of the Chicago Cubs, this case is likely another strike against Cuban’s chances of buying the club. That is, if he hadn’t already struck out.

While plenty of Cubs fans think an infusion of Cuban’s cash and passion is exactly what the team needs to end its now 100-plus-year championship drought, there have been questions ever since Cuban submitted his bid about whether the exclusive club of MLB owners would allow him to join them. They have the power to keep him out, too, because it takes a three-fourth vote to approve any sale — even if Cuban is the highest bidder and current owner Sam Zell wants to sell to him.

Red Sox owner John Henry told The New York Times this summer that “the commissioner’s office abhors owners who speak their minds and fight for the rights of their respective franchises.” But he also told the Times there was “no one better suited to reverse the fortunes of the Cubs for the long term” than Cuban.

Lately, reports have indicated Cuban’s offer is no longer being considered, and the lack of response from the baseball world in the wake of Monday’s accusations suggests that Cuban’s case may not matter because he is not an owner-in-waiting.

“Something like this, those that are against him can use it as additional fodder,” said Phillip L. Stern, a Cubs fan who spent 10 years with the Securities and Exchange Commission in Chicago and now specializes in white-collar crime as a partner for Chicago law firm Neal, Gerber & Eisenberg.

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