In person, billionaire Mark Cuban stands taller and seems calmer than most TV viewers would guess. That disparity between his reputation and reality helped the Dallas Mavericks owner beat the government in court earlier this month, says his lawyer Tom Melsheimer.
A managing principal in the Dallas office of Fish & Richardson, Melsheimer ranks as the top Texan on a team of six partners and at least four associates that successfully defended Cuban against the U.S. Securities and Exchange Commissions’ civil allegations that he engaged in insider trading.
After deliberating for five hours, a Dallas federal jury on Oct. 16 rejected SEC claims that Cuban acted on confidential information—on which he had promised not to trade—when selling his stake in a Canadian Internet company nine years ago to avoid a $750,000 loss.
SEC spokeswoman Christina D’Amico writes in an email that the agency and its counsel decline comment about the case, beyond a written statement by SEC spokesman John Nester: “We respect the jury’s decision. While the verdict in this particular case is not the one we sought, it will not deter us from bringing and trying cases where we believe defendants have violated the federal securities laws.”
Cuban’s much-photographed disagreements with referees during basketball games have led some TV viewers and web surfers to assume he’s short and excitable, since he’s often pictured standing next to ball players or yelling, hands on his hips and mouth agape.
In light of those widely held impressions, Melsheimer says Cuban underwent extensive preparations for months before appearing at the trial, to ensure his demeanor on the witness stand didn’t send the wrong signals to jurors. Cuban’s lawyers—including Christopher Clark, a partner in the New York office of Latham & Watkins, and Stephen Best, a partner in the Washington, D.C. office of Brown Rudnick—assisted Cuban with those trial preparations.
But Cuban, who also owns the high-definition television network HDNet and the Landmark Theatre chain, never balked, say Melsheimer and Best.
“We all took turns cross-examining Mark. We were harder on him than the government lawyers were at trial. Mark took the time. He made himself available and subjected himself to that,” Best says.
Cuban “wanted to spend as much time as he could” preparing, “because he knew that he was going to be the most important witness,” Melsheimer says.
Early on, Cuban understood that “[t]here was a way of answering questions in court that was different than the way he would answer them in an interview or with a Mavericks fan,” Melsheimer says.
As the trial unfolded, Melsheimer says, Cuban “was really our secret weapon” as a calm, not excitable, witness. As the plaintiffs in the civil suit, the SEC lawyers presented their case first at the trial and questioned Cuban “extensively about his motivation for selling” shares of Mamma.com.
Cuban on Trial
In its complaint filed in 2008, the SEC alleged that Guy Fauré, then the CEO of Mamma.com, a company in which Cuban was the largest shareholder, emailed Cuban in 2004 and asked him to call. When Cuban dialed from the American Airlines Center in Dallas, the Mavericks’ home court, the SEC alleged, the Mamma.com CEO told Cuban he had confidential information to share. Cuban then allegedly agreed to keep it confidential, and the CEO told him about a planned private placement of equity to which Cuban reacted negatively.
During the next two days, Cuban allegedly sold all his shares in Mamma.com, avoiding $750,000 in losses and trading on inside information. The SEC’s complaint brings two civil causes of action: one for the sale of stocks based on inside information and another for the purchase of stocks also on inside information.
In an answer filed in 2011, Cuban denied the SEC allegations and, as an affirmative defense, stated that “[H]is 600,000 shares in Mamma.com were sold in good faith in conformity with the rules and regulations of the Securities and Exchange Commission. …”
Faure’s lawyer, Jason Brown at Ropes and Gray in New York, did not return a call for comment.
Melsheimer says Cuban needed to explain to the jury why his emails—which the government presented as evidence—did not entirely explain his motivations for selling.
Because the government lawyers, perhaps surprised by Cuban’s low-key demeanor on the stand, gave Cuban room to explain himself, “He was able to do that pretty effectively,” says Melsheimer.
Melsheimer also believes it hurt the government not to have a Texas-based lawyer—a card the defense played to its advantage. Melsheimer handled the opening, voir dire and direct examination of Cuban.
As the trial got underway, Melsheimer, Clark and Best say their team re-evaluated who would do the closing.
Best originally planned to do it, the DC lawyer says, but adds “The way it played out in court, Tom became the face that the jury recognized, simply because the case was going so well for us we didn’t call a lot of witnesses that we had intended. So, the jury had seen more of Tom than it did of me. Maybe 10 years ago my ego would have gotten more in the way. But I was in this for one purpose: to have justice served. It just made better sense to have Tom doing the closing,” Best says.
He told Melsheimer that midtrial, and the two agreed the Dallas lawyer would handle closing.
As the trial unfolded, the team had recognized that, as a native Texan, Melsheimer’s manners sat well with the Dallas jury, even though Clark and Best had both worked on the case longer than the Fish & Richardson lawyer. Emphasizing the Texas link on the defense team bolstered Cuban’s argument that government lawyers were overreaching.
“Had the closing been in New York, I probably would have done it,” says Clark. “I’d be lying if I said we didn’t factor in” Melsheimer’s Texas bona fides, he says.
Melsheimer agrees his Texas roots mattered: “We decided we needed more of a Texan voice.” He added Texas touches to his trial presentation but avoided becoming “excruciatingly Texan,” Melsheimer says.
When one of the government’s key witnesses, a Canadian resident who couldn’t be subpoenaed and forced to testify, didn’t show up for the trial, Melsheimer joked to the jury about how they could have invited him to the State Fair of Texas. He told the jury the government failed “to prove a lick of their case.” But Melsheimer says about his Texas ways: “I did not dial it up.”
In contrast, Melsheimer and Best say, the government lawyers “reeked” of Washington, D.C.—not a good thing, since the trial coincided with two weeks of the federal government shutdown when the nation’s capital seemed nothing if not dysfunctional.
“I argued in closing that the litigation machine of the SEC grinds on even when the rest of the federal government is shut down,” Melsheimer says.
With their post-verdict celebration at the Rattlesnake Bar at The Ritz-Carlton, Melsheimer, Best, and Clark all say that the defense team concluded they had gotten along well, despite having so many veteran lawyers and high-powered law firms engaged, a scenario that often leads to clashing egos.
It didn’t hurt the harmony that the pay scale among the lawyers remained even, with Melsheimer, Clark and Best billing at more than $1,000 an hour.
But all three say that, during the trial, everyone’s top priority was winning, not individual opportunities to hot dog.
“That’s pretty rare,” says Clark.