Mark Cuban vs. The SEC

Normally when the SEC comes up in a sports conversation, it’s in reference to the Southeastern Conference.  Not so this week, as Mark Cuban has gotten himself into some potential trouble with the U.S. Securities and Exchange Commission.  You can hit Google News to find all the formal details, but in summary, it seems that back in 2004, Cuban sold off his shares in the search engine company the day before the company was going to offer a public sale of low-price shares.  This decision saved him about $750,000, as the stock value dropped the next day with the public sale announcement.  This would appear to be a case of insider-trading, but Cuban is denying it.  Here are some of my thoughts on the situation:

  • Some people are not believing the story is true because, after all, it’s only $750L, which is nothing for Cuban.  However, history tells us that people in positions of power and authority get overconfident in determination of what they can and cannot get away with (e.g. Martha Stewart).  Cuban strikes me (and everyone else) as the type of person who does not like to lose at anything, so the story seems very believable to me.  The truth will ultimately come out in the investigation.
  • I’ve been asked how similar this is to the Martha Stewart case, where she did end up in jail.  The stories start out similar, but the key difference as of now is that Martha lied and falsified information, which pushed it over the top.  If she had been honest about everything, she would have simply been fined by the SEC.  If Cuban is wrong and doesn’t do anything else to complicate the situation, he’ll just be facing a steep fine without jail time.  Of course, if he didn’t do anything wrong, this will eventually become a non-issue.
  • There is no way that Cuban will be able to purchase the Cubs.  Baseball did not want to see him as an owner, but the league didn’t necessarily have a good reason to reject his bid.  Now they have a very good reason.

The most interesting situation from a sports perspective is, what happens with his ownership of and involvement with the Mavericks?  There is precedent for an owner to be suspended from his own team in situations like this.  George Steinbrenner was suspended for 15 months for illegal campaign contributions, and even more recently, Ducks co-owner Henry Samueli was suspended indefinitely after pleading guilty to lying to the SEC in an options backdating investigation.  Stern has never been hesitant to take quick, decisive actions regarding any negative issues, so he might not wait for the investigations to get resolved.  On the other hand, if he does suspend Cuban now and he’s innocent, I wouldn’t be surprised to see a counter-suit of some kind.  Stern’s best bet is to wait-and-see for now, and if Cuban is guilty, I think we’ll ultimately see something along the lines of a 12-18 month suspension.