The Clio Awards to Honor Mark Cuban, Alleged Insider Trader

Last Updated Mar 13, 2009 2:14 PM EDT

The CLIO Awards organizers have made a mystifying decision to give Mark Cuban an honorary award at its 50th anniversary gathering in Las Vegas, in May.

Cuban is currently the subject of a complaint by the SEC, alleging insider trading. It was filed Nov. 17, 2008. Cuban denies the allegations.

The complaint alleges that Cuban, a major shareholder in Mamma.com, had a confidential phone call from the CEO of that company in which he learned that a new stock offering would substantially dilute existing Mamma stock. Realizing his stake was about to plummet in value, Cuban allegedly sold off, avoiding losses of $750,000. When the news was announced officially, Mamma's stock did indeed crash -- 9.3 percent in the first day of trading following the release.

Despite the allegations, Clio -- the premier U.S. ad awards show -- thinks it's time to recognize Cuban's achievments in media:
The CLIO Awards will present entrepreneur Mark Cuban with an honorary Emerging Media Award at its 50th anniversary gathering in Las Vegas May 12-14.
Cuban is best-known as the owner of the Dallas Mavericks. His achievements in media, however, leave a lot to be desired. Cuban made his name by selling Broadcast.com to Yahoo for $5.9 billion. That business no longer exists. While Cuban was smart to make that sale, it was more an example of dot-com idiocy than it was of media savvy.

He also launched Sharesleuth.com, but that has been inactive since the SEC charges. That site has essentially been replaced by Bailoutsleuth.com, a traditional deliverer or news and blog items about TARP funds. He's also the chairman of HDNet TV.

But it is his activity around search engine Mamma.com that is really puzzling about Clio's desire to attach its brand to Cuban's "achievements." He stands accused of exactly the kind of self-enriching, self-dealing activity that typifies the cause of this recession.

The FDA's complaint is worth reading. The feds allege that Mamma.com CEO Guy Faure hatched a plan to offer new shares at a discount to an investment bank, Merriman Curhan Ford & Co. New, discounted shares would likely bring down the price of existing stock, in which Cuban was heavily invested. The complaint:
On June 28,2004, the CEO sent an email message to Cuban titled "Call me pls," in which he asked Cuban to call him "ASAP" and provided both his cellular and office telephone numbers. Cuban called four minutes later from the American Airlines Center in Dallas, home of the NBA's Dallas Mavericks, and spoke to the CEO for eight minutes and thirty-five seconds.

The CEO prefaced the call by informing Cuban that he had confidential information to convey to him, and Cuban agreed that he would keep whatever information the CEO intended to share with him confidential
Faure told Cuban of the plan, and Cuban's reaction was predictable: Knowing his shares were about to fall, he hated it. Moreover, as Faure had informed Cuban that the news was confidential, Cuban was now bound by anti-insider trading laws that would prevent him from selling his stock ahead of the dilution. This, allegedly was Cuban's reaction:
"Well, now I'm screwed. I can't sell."
He then made another call, to Merriman, where his fears were confirmed:
... One minute after hanging up with the Merriman sales representative, Cuban called his broker in Dallas and told the broker to sell his entire 600,000 share Mamma.com position. He told the broker "sell what you can tonight and just get me out the next day."

... On June 30,2004, the first trading day following the public announcement, trading in Mamma.com opened at $1 1.89 -down $1.215, or 9.3%.

... By selling his Mamma.com shares prior to the public announcement of the [new share offer], Cuban avoided losses in excess of $750,000.
Cuban denies he was bound by insider confidentiality. He wrote this on his blog about an interview his lawyer did with Faure:
Q- We spoke earlier about you were telling Mr. Cuban in words or substance : "I have confidential information for you".

A- Right.

Q- Do you recall anything Mr. Cuban said in response or reply to that statement by you ?

A- No, I do not.
If Cuban did not acknowledge the confidentiality, he believes, then he was not bound by insider trading law.

Whether or not there was an acknowledgement, Cuban received insider information and traded on it. He certainly didn't publicize the new offering, giving other investors a chance to get out with him.

Why is this worth a Clio trophy?

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