The U.S. Securities and Exchange Commission has lost a high-profile but low-stakes case against billionaire celebrity investor Mark Cuban in a Federal Court in Dallas. The SEC alleged that Cuban engaged in insider trading when he sold his 6.3% stake in Canadian internet company Mamma.com to avoid a $750,000 loss after Mamma.com executives came to him looking for financing. The jury deliberated for less than five hours before reaching a verdict in Cuban’s favor.
Cuban sold his multimedia Web service to Yahoo Inc. for $4.7 billion in 1999. He now owns the NBA’s Dallas Mavericks, the high definition television network HDNet and the Landmark Theater chain.
It would seem reasonable to wonder why the SEC would use its already strained resources to pursue a case that could most accurately be described as immaterial under almost any measure. The $750,000 loss that was allegedly avoided by Cuban was clearly immaterial to his financial statements. The fact that Mamma.com was seeking Cuban’s assistance because he was already the Company’s largest shareholder probably means this was a situation that was unlikely to ever be repeated. The most obvious answer is that Cuban’s celebrity status guaranteed a large volume of media coverage related to the case. Other than the anticipated media coverage, it is hard to see a reason why the SEC would pursue a weak case involving immaterial amounts in a situation where there was no allegation of ongoing harm.
Is anticipated media coverage an appropriate reason for the SEC to pursue a case? Perhaps it is an appropriate reason in a situation where a highly publicized SEC Enforcement action might deter others from engaging in similar misconduct. However, the Cuban case is clearly a unique factual situation where any deterrent effect is hard to envision. Young Law Group believes that the SEC would be better off using its resources to pursue important cases that would serve the purpose of increasing transparency in financial markets and deterring misconduct. One reliable way to achieve this objective would be for the SEC to pursue strong cases based upon inside information it receives from whistleblowers with first-hand knowledge of wrongdoing in financial markets.
Young Law Group, P.C., represents whistleblowers in the United States and abroad, in a variety of cases, including IRS Whistleblowers, False Claims Act (Qui Tam), and SEC related fraud. For a free confidential consultation with one of our SEC whistleblower lawyers, please call Eric L. Young, Esquire at (215) 367-5151 or email to firstname.lastname@example.org.