The U.S. Securities and Exchange Commission was handed a high-profile loss in a low-stakes case with Mark Cuban’s trial lawyers outmaneuvering those for the regulator.
A federal jury in Dallas yesterday rejected SEC claims that Cuban engaged in insider trading when he sold his stake in a Canadian Internet company nine years ago to avoid a $750,000 loss. Jurors found the information Cuban acted on wasn’t confidential and that he hadn’t promised not to trade on it.
The jury of two men and seven women, in a trial that began with their selection on Sept. 30, deliberated for less than five hours before reaching a verdict.
“Not surprising,” Stuart Slotnick, a white-collar criminal defense lawyer, said of the SEC’s loss.
“They had a case with no confidentiality agreement,” Slotnick said in a phone interview. “They had a case without a live star witness. They had a case in which the jury had to listen to someone on a TV screen.”
The SEC’s case hinged in part on the prerecorded testimony of Guy Faure, the former chief executive officer of Montreal- based Mamma.com. Before selling his 6.3 percent stake in the company, Cuban had been the company’s biggest investor.
Jan Folena, the SEC lead trial lawyer in the case, called Faure a “key” witness for the government. Residing in Canada, Faure was beyond the agency’s subpoena power.
Eight-Minute Call
Jurors were shown a recording of questions he answered in a 2011 deposition, during which he recounted an eight-minute phone conversation in June 2004. Faure said he told Cuban confidentially that Mamma.com was planning a stock offering called a private investment in public equity, or PIPE, that would dilute the value of his shares.
“Now I’m screwed. I can’t sell,” Cuban replied, according to Faure.