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November 17, 2008
Mark Cuban and hating to lose
The SEC has filed suit against Mark Cuban, alleging he engaged in insider trading in 2004 with mamma.com to avoid a $750,000 loss. At the time, Cuban was the largest shareholder in the company.
On his blog, Cuban denied the allegations, saying "the Commission’s claims are infected by the misconduct of the staff of its Enforcement Division."
Given how little we've heard from the SEC the past few years, save for how its overwhelming lack of enforcement during the financial industry meltdown, this is a curious case. Then again, Cuban "hates to lose," as he says in a separate blog post about the NBA team that he owns. That post immediately precedes his terse post about the SEC suit.
Cuban hates to lose and, as we learned profiling him and the Dallas Mavericks for a case study in "Creating Customer Evangelists," he sometimes struggles with the competing interests of long-term winning thinking and short-sightedness that can erase winning margins.
His long-term winning thinking is showcased in how he converted one of the worst franchises in professional sports to become one of the most valuable. He did so by making the opponents of his team feel just as welcome at the Mavs' arena with a visitors locker room that's as comfortable and well-appointed as his own team's; after all, opposing players may one day join your team. He made it OK for homemade signs to be brought into the arena (a stern no-no of the previous owners), and encouraged crazy fan loyalty by constantly demonstrating his own. He invested heavily in technology for the coaches and players and a statistician, two largely unexplored areas prior to Cuban's investments. He told us back in 2002 how much he admired the Chicago Cubs and the passionate loyalty of its fan, a loyalty cultivated by its honest, "loveable loser" spirit.
On the other hand, during our conversations with him, Cuban talked extensively of his time of being a daytrader prior to buying the Mavs and how he loved shortsellers "because they keep companies honest." Shortsellers, it turns out, have been partially blamed for the demise of a number of financial institutions this year. Cuban also defined ultimate success in business by being summoned to Congress amid accusations of holding a monopoly on an industry. Microsoft, of course, has spent billions paying fines and perhaps billions more in legal fees extracting itself from monopolist charges. It has taken many years to rebuild the goodwill from the damage caused by its previous win-at-all-costs mentality.
No doubt, Cuban will probably surprise a number of people with the way he defends himself against the SEC's charges. Ever since he was kid selling garbage bags door to door, he's been unafraid to win. The question about the mamma.com case, though, did he go too far to avoid losing?
Nothing against the watchdogs at the SEC, but I hope they're wrong.
Update: Cuban has posted a memo from his attorney, who excerpted his "interview" (unclear if it's a deposition) with the former mamma.com CEO. As we might have expected, this will probably evolve into a good example of a high-profile lawsuit first tried in the court of blog-driven public opinion. The stakes are high.
Other blogs that reference Mark Cuban and hating to lose:
What is so stupid about this is the fact that, like Martha Stewart, the amounts to them personally are so insignificant. If he did, it was just kinda dumb on his part. As you point out the damage done from a PR perspective is probably worse than the financial loss.
There is some interesting chatter on this at http://techdirt.com/articles/20081117/0927032852.shtml
BTW - Ben, did I just agree with you on something? ;)
I don't understand... what's your take? It seems like you are being negative towards Cuban but have nothing to back it up. I've found Cuban to be very generous. Lots of great insight on his blog and a very productive innovator. Shouldn't he be given the benefit of the doubt?
I agree. No need for the negative tone against Cuban.
1."during our conversations with him, Cuban talked extensively of his time of being a daytrader...how he loved shortsellers "because they keep companies honest." Shortsellers, it turns out, have been partially blamed for the demise of a number of financial institutions this year."
How can you blame the demise of ANY institution for failing because of short selling? Did AIG or Lehman go under because of shorts? seriously?
2. Cuban BLOGGED about have sold Mamma.com based on PIPE information. He was incredibly transparent to the public that he sold on mamma.com when he found out that the new equity sale took place. The SEC is claiming that the information, prior to when he sold the stock, was deemed confidential. I'm sure this will be called into question by Cuban's lawyers. Either way, this is clearly not the case of someone going too far because they "hate to lose."
Ed -- Heh! I think you did.
Ben -- No viewpoint on this topic, actually. Just some background on what I see as the angel-devil struggle that Cuban immerses himself in. And of course he should be given the benefit of the doubt on this legal matter. I'm not advocating or implying otherwise.
Matt -- Aggressive, calculated short-selling to hasten the demise of a company or competitors is about as wrong as it gets. There's some evidence that short-selling contributed to the collapse of Lehman: http://www.nytimes.com/2008/09/15/business/15short.html
Like I mentioned in the post, I'm sure Cuban will mount an interesting and spirited defense. I hope the SEC is wrong.
Cuban is really an American entrepreneur. Personally, I think that they need a bad guy during this crisis and he's the perfect famous person to distract the US public while they steal, I mean, spend our money anyway they want.
The interesting case study is how he treated his legal battles with former Mavs coach Don Nelson. Cuban was clearly in the wrong, but he didn't want to admit it, and he wanted to drag Nelson through the drawn-out process of proving it in court. In the end, he wiped his hands clean of it after he technically lost the battle. I just wonder how much of that attitude will be present in this more serious round with the SEC
> Shortsellers, it turns out, have been partially blamed for the demise of a number of financial institutions this year.
Being blamed is not the same as being responsible. Cuban was absolutely correct about the essential role of shortselling in the marketplace.
just want so say some thing "great job"
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