© 2014 The Texas Lawbook.
By Natalie Posgate – (October 8, 2013) – Mark Cuban’s long-time stockbroker told a federal court jury Tuesday that corporate compliance officials at UBS Financial Services raised no red flags or concerns about the legality of Cuban’s sale of Mamma.com stock in 2004.
But lawyers for the U.S. Securities and Exchange Commission, in a series of heated exchanges with the Dallas-based investment broker, attempted to undermine the witness’ credibility by showing his financial dependency on Cuban.
Charlie McKinney, who has handled more than 40,000 stock trades for Cuban during the past 16 years, testified that the Dallas Mavericks owner sent him an email on June 30 – one day after selling 600,000 shares of Mamma.com stock – asking if the trade was legally okay.
“I wanted to make sure I was 100 pct kosher on that trade,” Cuban said in the email to McKinney, who was then a senior vice president at UBS and is now a director at Credit Suisse Group AG in Dallas. “Can you check with your folks to make sure all is cool?”
McKinney forwarded the email to the firm’s corporate compliance department, which he said would have gotten back to him if there had been a problem.
“If compliance found something wrong, they would have let me know,” McKinney told jurors. “And they didn’t.”
The testimony came in day six of the U.S. Securities and Exchange Commission’s insider trading trial against Cuban. The government accused the billionaire of knowingly obtaining confidential financial information about Mamma.com, agreeing to not trade his stock based on the information and then violating that agreement.
The SEC claims that Cuban avoided about $750,000 in losses when he sold his six percent ownership stake in the Canadian Internet company just prior to the company announcing that it planned a private securities offering – a move that diluted the value of shares of the company’s stock already owned by Cuban and others.
Lawyers for the SEC say the email shows that Cuban knew there were problems with his trade, while defense attorneys say it demonstrates their client’s concerns with due diligence.
Duane Thompson, a lawyer for the SEC, grilled McKinney under cross-examination as a witness who owed much of his financial success to Cuban and was unlikely to say anything incriminating about the man for whom he manages about $695 million.
Thompson: “Do you think you would still be his broker if you said he insider traded [today]?”
McKinney: “I don’t know what he would do.”
Thompson told McKinney that it wasn’t something the broker wanted to put to the test.
McKinney: “That’s incorrect. If I thought that, I’d tell the truth, sir.”
Thompson: “He’s (Cuban) never winked and nodded and said something like that (to not respond to the email)?”
McKinney: “No, that’s ridiculous.”
Thompson showed the witness a previous video deposition taken two years ago when McKinney was asked the same question. His response: “I don’t remember.”
McKinney told jurors that he wished he had seen Mamma.com’s SEC filing from May 2004 – available on the SEC website a month before Cuban heard about it from Mamma.com CEO Guy Fauré – that included plans to conduct a private placement because he knew Cuban didn’t like those kinds of investments.
If UBS officials had determined there was a problem with Cuban’s decision to sell the shares, they would have contacted Cuban’s lawyers to unwind the trade.
McKinney said he’s never seen Cuban do anything improper to avoid a loss, adding that Cuban’s trading habits are extremely conservative.
Jurors also heard the video recorded deposition of former Mamma.com CFO David Bertrand, who testified in French with a translator. He provided fodder for both sides in the case.
Bertrand testified that company leaders agreed to invite Cuban, who was Mamma.com’s largest shareholder, to participate in the private stock offering. He stated, however, that there was never a discussion to have Cuban sign the company’s non-disclosure agreement, which he said was used with any third party receiving insider financial information.
In addition, Bertrand testified that he was unaware of any effort to get Cuban to agree to not sell his stock based on the financial information that Fauré shared with Cuban.
But Bertrand also said that no one else outside of the company was informed of the private stock offering and that the information was confidential.
The defense also called to the stand former general counsel Christopher Aguilar of Merriman Curhan & Ford, the investment bank that advised Mamma.com with its private placement transaction.
Aguilar testified that he found no non-disclosure agreements or non-trade agreements between Merriman and potential investors of the Mamma.com private placement, nor did he find no agreements of the same kind between Merriman and Cuban. He was prompted to look for such agreements after the SEC contacted him in December 2006 to forward all information regarding the Mamma.com private placement.
However, employees at Merriman considered private placement information confidential and were restricted on trading with it, Aguilar said.
Employees at Cranshire Capital, one of the investors of the Mamma.com PIPE, also were restricted from trading on the information, said the company’s president Mitchell Kopin, who also testified in court Tuesday.
Although Kopin didn’t remember Mamma.com officials request that he restrict his trade, he said he developed this internal policy for Cranshire because “nobody knew the answer” to whether it was legal for investors and other parties to trade on information related to upcoming private placement transactions.
“It’s a gray area with the SEC,” he said.
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