Mark Cuban Can't Help Himself, He's Going To Fight The SEC In Public

When the SEC charges someone with insider trading or any other crime, most lawyers will advise them that the best course of action is usually to keep their mouth shut and fight it in court. But some people just can’t help themselves. Martha Stewart, for instance, tried to fight her insider trading case in the court of public opinion, and it didn’t do her much good. Now another high-profile billionaire, Mark Cuban, is in the SEC’s sights. He knows that from a legal standpoint he should save his arguments for the judge, but he just can’t help himself. Cuban is fighting this case on his blog.

Or rather, he is letting his lawyers fight the case publicly on his behalf by printing their memos on his blog. Yesterday, he posted a response from his lawyer to the SEC complaint in which stated:

This matter, which has been pending before the Commission for nearly two years, has no merit and is a product of gross abuse of prosecutorial discretion. Mr. Cuban intends to contest the allegations and to demonstrate that the Commission’s claims are infected by the misconduct of the staff of its Enforcement Division.

He prefaced that with the single line:

I wish I could say more, but I will have to leave it to this, and let the judicial process do its job.

Yet today, he kept at it, posting another memo from his lawyer, hinting at how he plans to defend himself:

The SEC knows their case centers on one telephone conversation between two individuals- 4 years ago. The SEC claims there was an agreement between these parties to the conversation to keep certain information confidential. We interviewed Guy Faure, the former CEO of Inc., with whom the SEC claims Mr. Cuban made an agreement. We had a court reporter transcribe the interview. There was no agreement to keep information confidential.

The case revolves around 600,000 shares Cuban sold in 2004 after being alerted by the CEO of search-engine that it was planning an offering that would dilute Cuban’s stake in the company. Cuban was not a board member or corporate officer, but that doesn’t really matter. As far as the SEC is concerned, insider trading occurs whenever anybody trades shares based on information about a company that is not yet public.

It appears that is exactly what Cuban did. But there is also a rule that would seem to apply here that it is only insider trading if the “person agrees to maintain information in confidence.” Judging from the questions Cuban’s lawyers asked the CEO at his deposition, his argument will likely be that he never made such an agreement.

The SEC might counter that he is sophisticated investor, he knew it was insider information, and he traded on it anyway, adding to his immense wealth while all the poor schlepps out there who also owned the stock had to take the hit.

There seems to be enough wiggle room here for a court to decide either way. And if it does go to court, there is one more factor that complicates matters in Cuban’s favor. According to an e-mail obtained by Andrew Ross Sorkin at the New York Times, an SEC staffer unaffiliated with this investigation harangued Cuban for being “unpatriotic” because he funded the conspiracy-theory documentary Loose Change, which was critical of the Bush White House.

Cuban’s lawyers might argue that this lawsuit is politically motivated retribution against Cuban in the dying days of the Bush administration.

So if this ever goes to court, the choice presented to jurors could be of a greedy billionaire versus a vindictive President. Either way, Cuban doesn’t want to end up in court. If he keeps laying down his cards in public, maybe he can bluff the SEC into folding.