The Case Against Cuban Smells Fishy

It’s all over the business news today that the SEC has charged the billionaire Internet entrepreneur and owner of the Dallas Mavericks, Mark Cuban, with insider trading. GigaOm’s Kevin Kelleher explains why it smells fishy:

The SEC’s complaint against Cuban outlines some pretty compelling evidence: Cuban bought 6.3 percent of Mamma.com in March 2004. Three months later, the company CEO told him it was issuing a controversial, and heavily dilutive, private placement. “Well, now I’m screwed,” Cuban told Mamma’s CEO. “I can’t sell.” But he did, before the offering’s official announcement, sparing himself $750,000 in losses.

Whatever the outcome of the case — Silicon Alley Insider discusses some possible wriggle room — the timing of this news is fishy. Cuban’s attorney said the investigation has been pending for nearly two years, yet it’s only being announced now, less than a month after SEC chair Christopher Cox was raked over the coals at a House committee hearing.

Cox has hardly been a champion of investors. Back in April, some Senators asked the General Accounting Office to investigate the SEC’s enforcement division. Years of budget cuts had left a lean crew, prompting many talented staffers to leave. Disgorgements — repayments of ill-gotten profits — fell 50 percent last year. With a credit crisis looming, Cox’s 2009 budget called for a 1 percent increase in funds — not enough to account for cost of living increases, so another 32 jobs were cut from the enforcement division.

Kelleher notes that the Martha Stewart insider trading case came on the heels of the last round of financial scandals. The SEC was vulnerable to charges of lax enforcement then too:

Cuban may or may not be guilty, and as I said it’s not looking good. My point is that it’s very suspicious that the SEC tends to wheel out a big, headline-grabbing case whenever its chairman is on the ropes.

Whatever happens to Cuban, this case will do absolutely nothing to prevent the SEC from falling asleep at the wheel again.

The SEC press release, via Memeorandum.