Insider trading charge sours Cuban’s advice

Sophomores Brian Bollinger and Daniel Essman were looking for help and guidance when they went to Mark Cuban, an IU alumnus and owner of the Dallas Mavericks.

They were searching for advice or a donation to a club they formed and operated as co-presidents, the Kelley Portfolio Management Club – a club that manages money in the stock market to earn returns that can be put back into other Kelley School of Business clubs.

“Right now, we’re seeking donations, and we’re trying to exhaust every resource we can,” Bollinger said.

What they received was a dose of irony.

The day after Bollinger and Essman contacted Cuban, he was charged with insider trading, allegedly saving more than $750,000 in investments through the use of confidential information.

“I thought that was kind of funny,” Bollinger said. “I was kind of surprised to hear it after what he had just told me. It seemed like his advice was not what he was doing himself. That was kind of disappointing. But at the same time, it shows you have to be careful in everything that you are doing and play by the rules because anything you do can come back to bite you and make you look silly.”

The Securities and Exchange Commission filed a civil lawsuit against Cuban on Monday and alleged that in June 2004, Mamma.com Inc. asked Cuban to get in on its coming stock offering after he agreed to keep the information private.

Cuban owned 6.3 percent of Mamma.com’s stock at the time and was the largest known shareholder in the search engine civil company, according to the SEC’s lawsuit.

The agency said Cuban knew the shares would be sold below the current market price, and a few hours after receiving the information, he told his broker to sell all 600,000 shares before the public announcement of the offering.

Cuban said in a statement on his blog, “I am disappointed that the (SEC) chose to bring this case based upon its enforcement staff’s win-at-any-cost ambitions. The staff’s process was result-oriented, facts be damned. The government’s claims are false, and they will be proven to be so.”

Essman said he is not upset by the allegations.

“More than anything, it was just ironic,” Essman said. “We heard from him literally the day before it came out. I found it kind of ironic and interesting.”

In e-mail conversations between Cuban and Bollinger, Cuban expressed his dislike of students entering the market to make money. Cuban said in the e-mail he would rather see the group working toward being “great at something,” instead of spending its money investing.

“He’s always been a guy who goes against society’s norm,” Bollinger said. “He’s more of an entrepreneurial spirit. If you look at professional investors working in hedge funds, they struggle to make a return any given year, whereas if you become great at one thing, such as running a company, you can guarantee yourself success no matter what the economy’s doing.”

But Essman said he took Cuban’s advice with a grain of salt.

“We had a pretty specific idea in mind of what we wanted the club to be and what we wanted to accomplish,” Essman said. “So, related to the club, his ideas weren’t exactly going to match.”

Essman and Bollinger said they learned from the experience.

“You need to be careful and think things through all the way,” Essman said. “Somewhere down the line, even if you don’t think you’re going to get caught, you never know.”