Mark Cuban, billionaire, loudmouth, and owner of the Dallas Mavericks, loves a good fight, whether the beef be with NBA referees, Donald Trump, or the Federal Communications Commission. And this week he managed to insert himself into a new dispute, this time between U.S. Attorney Preet Bharara and two men he accuses of insider trading.
Cuban, stepping in on behalf of the accused, delivered a lengthy written sermon arguing against what he sees as intrusive and damaging government oversight of financial markets. In a filing Thursday, Cuban's attorney submitted an amicus brief in the ongoing court fight between Bharara and two former hedge funders, whose insider trading convictions were vacated following a court ruling that could potentially redefine insider trading law.
"In an attempt to effect yet another expansion of insider trading proscriptions – this time to cover remote (by several layers) tippees – the Government in this case has misread and cherry-picked favorable dicta from prior cases to claim that mere friendship is sufficient to turn a perfectly legal transaction into criminal insider trading," the brief says.
The filing describes Cuban as "a successful businessman, an investor, the owner of several business ventures, including the NBA's Dallas Mavericks, and one of the stars of the popular television show Shark Tank." The brief dwells on what Cuban sees as his own experience with unjust, overreaching authorities: a six-year court fight with the Securities and Exchange Commission over Cuban's sale of stock in a startup technology company he invested in.
Cuban declined to settle the case (or as his lawyers put it, "Mr. Cuban chose to defend himself against the SEC's baseless charges rather than cave into its demands to settle") and ended up spending "multiples" of the proposed $2 million worth of fines to fight the case in court. Ultimately, in the words of his lawyers, Cuban got "full vindication" after being cleared last year.
Cuban's interest in the current case, the brief says, is altruistic. He is a successful businessman who was turned into a billionaire by America's vibrant capital markets (Yahoo bought Cuban's Broadcast.com for $5 billion worth of Yahoo stock 1999).
"Mr. Cuban considers himself fortunate to have had the wherewithal to defend himself...He recognizes, however, that not everyone is able to take that route...For that reason, Mr. Cuban has a keen interest in expressing his views on this important issue and endorsing this Court's rejection of the Government's 'gotcha' tactics."
In December, an appeals panel for the Second Circuit threw out the insider trading conviction of two hedge hedge funders, Todd Newman and Anthony Chiasson, after it ruled that in both cases, prosecutors couldn't meet a crucial criteria for proving that trading based on nonpublic information is illegal: that the person making the trade got the nonpublic information from someone in exchange for a "personal benefit."
Newman and Chiasson, the prosecutors argued, were at the end of a chain of tips regarding upcoming earnings announcements from Dell and NVIDIA. The appeals court said they were "several steps removed from the corporate insiders and there was no evidence that either was aware of the source of the inside information" and that the prosecutors case was based on a "doctrinal novelty."
Bharara, the U.S. attorney for the southern district of New York, challenged the appeals court's ruling and asked for a hearing before the entire appeals court, not just the three-judge panel. Bharara argued in the filling that the appeals panel's stricter standard for showing there was a "personal benefit" to the people passing out information "will dramatically limit the Government's ability to prosecute some of the most common, culpable, and market-threatening forms of insider trading."
The panel's ruling has already started to have an effect on other insider trading cases — last month, prosecutors dropped charges against a group of people accused of insider trading in IBM stock.
The two men whose convictions were vacated in December, Chiasson and Newman, saw their respective hedge funds (Level Global and Daimond) shut down following FBI raids of their offices. Their reputations were severely damaged even before they were convicted, fined, and sentenced to lengthy prison terms.
Cuban too saw his reputation dinged by what he sees as unclear insider trading laws, living "under the bright light of the SEC's allegations while the case was pending," according to the brief. "For example, he was jeered when attending Dallas Mavericks games by chants of 'insider trading.'"
Cuban's brief argues that Congress should more clearly define criminal insider trading: "No one should be prosecuted for conduct that Congress is either unwilling or unable to define... there is a patchwork of judicial decisions cobbling together, on a case-by-case basis, what conduct gives rise to liability."
Chiasson's attorneys also filed a brief, one far more pointed and personal than Cuban's. "The government's rehearing petition echoes Chicken Little's complaint, though its tone is less that of a frightened hen and more that of a petulant rooster whose dominion has been disturbed."