Hmmpost

This morning when I learned that Dallas Mavericks owner Mark Cuban is being charged by the SEC for insider trading that allegedly occurred on June 28, 2004. The complaint involves his selling of his 6% stake in mamma.com. The first thing I thought was: wonder what Mark was blogging about around this time?  What did he write specifically, if anything, about Mamma.com?

For those not familiar, Mr. Cuban blogs somewhat regularly and passionately at BlogMaverick.com and on June 28, 2004 at 9:13am he wrote a post titled "Mishegaas…again" offering a rant against a Tribune news writer: If they [Tribune Company] only knew how many times I have told brokers and possible investors that they shouldn’t buy Trib stock because if they can’t get simple details on their sports pages right, how can you trust their accountants? Corporate culture either values accuracy or it doesn’t. The Tribune Company obviously doesn’t.

This might invoke a ‘who cares’ response, but a search through his blog reveals he had written specifically about Mamma.com. Let’s rewind the tape to Cuban’s post "Today was a very good day" on March 17, 2004 which is the first time he mentioned mamma.com on his blog: To start things off, the SEC filing for my purchase of shares in Mamma.com hit the tape. Everyone wanted to know why. Why this stock. Particularly when I usually am opposed to investing in any non dividend paying stocks at all. … I invested in mamma.com for the same reason I invested in Netidentity.com back when it was known as mailbank.com. I love businesses with low overhead, that don’t need to be technology leaders to succeed, that generate cash that they can put in the bank, and at some point, hopefully payout to shareholders. I think mamma.com has that potential.

This was some three months before he sold the Mamma stock. Fast forward approximately nine months after selling Mamma.com to March 2, 2005 when Cuban blogged about "Naked Shorts … What I have learned" and provides specific detail why he sold the Mamma stock: I wanted to reference Mamma.com. I had purchased stock in Mamma.com in hope that it could be an up and coming search engine. I thought I had done some level of due diligence. Talked to the company management. Talked to some employees who worked in sales. Read the SEC Filings. … Then the company did a PIPE financing. Im not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I dont want to own stock in companies that use this method of financing. Why? Because I dont like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants. So I sold the stock.

Through Cuban’s blog, we get a curious glimpse of what he was thinking at the time. Will be interesting to see what happens. I’m kind of surprised that none of the mainstream news reports of the incident mention Cuban’s blog posts around the time. Wired does point out that Cuban is a majority partner in the site sharesleuth.com which is an independent web-based site that exposes securities fraud. D’oh.  Innocent until proven guilty It’s important to keep in mind that these are only charges by the SEC (read full PDF here) at this time, Mr. Cuban has not been found guilty of any wrongdoing yet.  As we allege in the complaint, Mamma.com entrusted Mr. Cuban with nonpublic information after he promised to keep the information confidential. Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all of his shares. It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market.

If Cuban is found guilty, then he’ll join Martha Stewart who used information gleaned privately for financial gain. Stewart did jail time. Would Cuban face jail time too? This is serious business. The $750,000 Cuban saved by selling before the stock price plummeted allegedly with insider knowledge would not be worth the risk.