Mark Cuban Cleared of Insider Trading

LM Otero/Associated Press

A federal jury in Dallas ruled on Wednesday that Mark Cuban did not commit insider trading when he dumped his stake in an Internet company, clearing the billionaire entrepreneur of wrongdoing and dealing a blow to the federal agency that Mr. Cuban battled tooth and nail for five years.

The agency, the Securities and Exchange Commission, was hoping to build on the momentum it gained from the recent trial win against Fabrice Tourre, a former Goldman Sachs trader at the center of a toxic mortgage deal.

But the loss in the Cuban case could reignite concerns about the agency's struggles in the courtroom, where some crucial cases stemming from the financial crisis crumbled. The loss on Wednesday might also undercut the S.E.C.'s campaign to hold more individuals accountable at trial, a policy championed by its new chairwoman, Mary Jo White.

The S.E.C., however, played down the significance of the verdict.

'We respect the jury's decision,' John Nester, the agency's spokesman, said in a statement. 'While the verdict in this particular case is not the one we sought, it will not deter us from bringing and trying cases where we believe defendants have violated the federal securities laws. '

After just four hours of deliberation, a nine-person jury concluded that Mr. Cuban was not liable under federal securities laws, capping a more than two-week civil trial for one of the few celebrities to land on the S.E.C.'s radar. The 55-year-old reality TV personality, best known as the owner of the Dallas Mavericks basketball team, was facing a roughly $2 million fine.

With a net worth pegged at $2.5 billion, and a track record for paying millions of dollars in fines for his courtside antics and tirades against N.B.A. referees, Mr. Cuban's battle was not about the money. Instead, he fought the case to clear his name and humble an agency that accused him of trading on confidential information when dumping his stake in an Internet company.

The S.E.C.'s case stems from Mr. Cuban's decision in June 2004 to dump his stake in the search engine Mamma.com. He did so after learning from Mamma.com's chief executive that the company was planning a private offering of its stock - a deal likely to hurt the stock price and dilute the holdings of existing shareholders like Mr. Cuban.

The S.E.C. lawyer leading the case, Jan M. Folena, argued that Mr. Cuban agreed to keep the information confidential in a call with the firm's chief, Guy Fauré.

In response to hearing that Mr. Fauré had 'confidential information' to share, according to the S.E.C., Mr. Cuban replied, 'Um hum, go ahead.' And at the end of the call, Mr. Cuban expressed frustration that 'I can't sell' the existing shares because he now had access to inside information.

And yet, Ms. Folena said, Mr. Cuban traded anyway, just hours before the information was made public. That move, she said, meant that Mr. Cuban avoided $750,000 in losses.

But Mr. Cuban's lawyers had little trouble casting doubt on Mr. Fauré. There was no recording of Mr. Fauré's call with Mr. Cuban. And Mr. Cuban, who maintained his cool in two days on the witness stand, did not recall the nine-year-old conversation.

In closing arguments Tuesday, Mr. Cuban's lawyers took direct aim at Mr. Fauré. One of the lawyers, Thomas M. Melsheimer, argued that Ms. Folena can repeat Mr. Fauré's testimony 'until the cows come home,' but, he added, 'that doesn't make it true.'

Mr. Melsheimer also noted to the jury that, despite being the S.E.C.'s star witness, Mr. Fauré declined to appear in person. Instead, he appeared via a taped video.

And during his initial interview with the S.E.C., Mr. Fauré did not mention that Mr. Cuban immediately agreed to keep the information confidential. It was not until his second interview with the S.E.C. that Mr. Fauré recounted how Mr. Cuban said 'something to the effect' of 'um hum, go ahead' in response to hearing that Mamma had 'confidential information' to share.

He changed his story at a curious time - about two weeks after learning that the S.E.C. dropped an unrelated investigation into Mamma.com.

There were early indications that the case might not pan out. The judge assigned to the case, Sidney A. Fitzwater, dismissed the case in 2009. Although the United States Court of Appeals for the Fifth Circuit reversed the judge's dismissal a year late, Judge Fitzwater continued to strike a skeptical tone, saying his decision to allow the case to proceed to trial was 'in some respects a close one.'