Why the Case Against Cuban Smells Fishy

Mark Cuban by Brian SolisUpdated: It’s a classic PR play: When you start to look like the bad guy, call out a bigger bad guy. And it seems to be the strategy that the Securities and Exchange Commission — besieged by accusations of lax enforcement before and during the credit crisis — is using in going after Mark Cuban for insider trading. It’s too early to say definitively whether Cuban is guilty of insider trading in Mamma.com (now called Copernic), a search also-ran whose management has, in Cuban’s own judgment, “a checkered past.” On his blog, the normally voluble Cuban simply accused the SEC of acting on “win-at-any-cost ambitions” and a process that “was result-oriented, fact be damned.” Still, it’s not looking good for him at all.
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.
There’s no quicker way to show your watchdog has teeth than to bite a big name. The Cuban story is dominating business news today, just as the Martha Stewart insider trading case did in the wake of the last round of financial scandals — Enron, WorldCom, Tyco, etc.
Martha Stewart did regulators a big favor: She kept the story alive by making statements that prosecutors deemed false. The SEC had been facing charges of lax enforcement back then, too. Stewart’s stock sales saved her only $46,000, but her trial and jail time not only eclipsed other financial fraud cases, it left many people thinking the SEC had learned its lesson and was getting tough.
To be clear, I’m not defending insider selling. 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 it’s 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.
Update: Cuban is fighting back, as VentureBeat sums up. Cuban’s blog has a memo attempting to refute evidence in the SEC ‘s complaint; and the NY Times has a purported email from an SEC staffer accusing Cuban of being unpatriotic because of his involvement in a documentary critical of President Bush. Very odd, but it suggests Cuban may run a media-savvy counter-campaign.
Photo Courtesy of Brian Solis via Flickr.

June 5: What’s Interesting Today:

  • Mark Cuban has an exact opposite view of Tiered Broadband than mine. What can I say… I state my case here.
  • TeliaSonera To France Telecom: You want to buy us for $41 billion? Talk to the hand, mon ami!
  • “Going green” means new kind of chips and better chip design. Seriously, as one of my editors said: Everything starts and ends with silicon.
  • MegaFon, Mobile TeleSystems (MTS) and VimpelCom — three wireless majors in Russia — are going to roll out WCDMA and WCDMA-HSPA (aka 3G) networks later this year, according to GSMA Mobile World Congress’s Wireless Intelligence Report. Russia is the fourth largest mobile market behind China, India, and the United States. Wow, how quickly the world of wireless changes.
  • Fiber to the home is helping Minneapolis, Minn.-based network equipment maker ADC Communciations overcome its recent setbacks. The company reported blockbuster sales and profits for second quarter 2008, and CEO Robert Switz said things will get better. “Our customers are investing in the infrastructure that delivers broadband services to business, residential and mobile subscribers,” he said.
  • Small carriers are banding together and asking the FCC to block Qwest price hikes. I have written about this forbearance folly before, so you know how I feel about it.
  • 6 reasons why you shouldn’t be a web worker. Oh man… I can think of one reason for being a web worker: working at home 😉
  • Newteevee slowly gaining on oldteevee. I am not surprised.

Mark Cuban: Low-Budget Doom and SEO Gloom for Web Video

When all that’s worth watching on a network is one show, or all that’s worth watching in a show is one scene, or all that’s worth watching in a scene is one line, just take us straight to the good stuff, right? But Mark Cuban, in an apocalyptic blog post, says online video will be destroyed by its ability to cater to these a la carte watching habits, because the economics don’t support them. He seems to thinks this will lead to the eradication of quality content.

Inspired by a Bernstein Research report that’s not publicly available, the cranky Cuban (who’s often blogged about his dissatisfaction with web video) quotes Bernstein analyst Craig Moffett,

Five years into the video-over-the-Internet revolution, we have learned two things. First; consumers won’t pay for content on the web, so it will have to be ad supported. And second; it won’t be ad supported.

Moffett’s math: Even if web video got the same CPMs as TV, because online viewers will tolerate less advertising, “a 30-minute program on the web with two minutes of advertising yields approximately 1/8th as much revenue per viewer.”

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Preparing for the Recession: ‘Mahalo’ for Tips on How to Save $$

Founders can never get enough advice on how to save money. Last week Weblogs founder Jason Calacanis wrote a handy post about how he’s done this over at Mahalo, where he is currently CEO. Jason took some TechCrunch flak for one tip in particular (“fire non-workaholics!”), but his post still makes a nice addition to our new series on How to Prepare for the Recession. (See also: Preparing for the Recession: How to Market Your Way Through It, and How to Turn Your Revenues Up As Economy Goes Down.

I should’ve put Jason’s post, How to save money running a startup (17 really good tips), in Found|LINKS over the weekend — but you’re more likely to read it on a Monday anyway! A few highlights follow. Read the whole thing at Jason’s blog.

I’ve got a bunch of tips on how to [save money] for business. Among them:

1. Buy Macintosh computers, save money on an IT department
2. Buy second monitors for everyone, they will save at least 30 minutes a day, which is 100 hours a year… which is at least $2,000 a year….
3. Buy everyone lunch four days a week and establish a no-meetings policy.
4. Buy cheap tables and expensive chairs…
5. Don’t buy a phone system. No one will use it…
6. Rent out your extra space…
7. Outsource accounting and HR…
8. Don’t [use] Microsoft Office. [Do] use Google Docs.

and for tip #11, the one that got Jason into trouble,
and which he’s tried to amend on his blog (unsuccessfully) … Read More about Preparing for the Recession: ‘Mahalo’ for Tips on How to Save $$