“It’s about the right of every investor to trade in a market that’s fair,” SEC lawyer Jan Folena told a jury of seven women and three men in her opening statement on Tuesday. “He cheated and, above all investors, he knew better.”
Cuban is accused of selling his 600,000 Mamma.com shares in late June 2004, soon after learning from Chief Executive Guy FaurÃ© that the company was planning an equity offering that could dilute his stake.
The share price of the Montreal-based company dropped 9.3 percent on the morning after the offering was announced.
Thomas Melsheimer, one of Cuban’s lawyers, countered in his opening statement that the offering was already public information and Mamma.com had waited to tell Cuban about it, because they knew he would not like it.
Cuban has also said in court papers that he had been concerned about Mamma.com’s possible links to a known stock swindler, and Melsheimer told jurors that his client had multiple reasons not to remain the company’s largest outside shareholder.
“He didn’t deceive Mamma.com, he didn’t deceive anyone,” Melsheimer said. “He no longer trusted the company. He no longer wanted to be involved with this company.”
Through the civil case, the SEC is seeking to recoup ill-gotten gains, impose fines and obtain a permanent injunction to bar Cuban from similar alleged misconduct.
Cuban and FaurÃ© are both expected to testify.
Folena said the SEC would present evidence to prove Cuban sold his stake because of confidential information from FaurÃ©.
“Insider trading is a form of cheating,” Folena said. “It’s like knowing the answers to a test before you take it.”
She also urged jurors, who are hearing the case in Cuban’s hometown, not to be swayed by his fame or popularity.
“Our laws apply to everyone – the rich, the poor, the famous and the unknown,” Folena said.
According to SEC court papers, after Cuban learned of the offering plan, he told FaurÃ©, “now I’m screwed. I can’t sell.”
Cuban has maintained that any information he may have received was neither confidential nor material enough to trigger an insider trading violation.
On Monday, before jurors were chosen, Cuban told reporters repeatedly, “I won’t be bullied.”
The government shutdown that began on Tuesday is not expected to affect the trial before U.S. District Judge Sidney Fitzwater in Dallas. The trial is expected to last eight to 10 days, possibly stretching into mid-October.
Cuban, a star of the ABC television show “Shark Tank,” has appeared on ABC’s “Dancing with the Stars” and on HBO’s “Real Time with Bill Maher.” Forbes magazine estimates Cuban’s net worth at $2.5 billion.
The SEC brought the case against Cuban in November 2008. Fitzwater dismissed the SEC lawsuit in 2009, but a federal appeals court revived the case the following year.
Cuban previously accused SEC enforcement staff of targeting him because of his fame and because they disliked his politics, but an SEC watchdog in 2011 cleared the regulator of misconduct.
The case is SEC v. Cuban, U.S. District Court, Northern District of Texas, No. 08-02050.
(Reporting by Jana J. Pruet; Writing by David Bailey; Editing by Carol Bishopric)