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BUSINESS: Mark Cuban is Playing the Market

Mark Cuban is known for attention-grabbing antics. But with, he’s exploiting an SEC loophole and violating the first rule of journalism. (And he could do some real damage).

When news about Mark Cuban cascades through the headlines—whether because he ran onto the court to hurl F-bombs at NBA Commissioner David Stern or he waved around money in an unsuccessful attempt to gain entrance to a fancy New York nightclub—the thought must occasionally arise: is he capable of a truly adult act of boorishness?

I’m here to report that Mark Cuban has grown up. This time he is not throwing a tantrum on a basketball court. This time he may do some real damage.

Cuban has begun a web site called that has cut a wide swath through the business world since it launched in July. It was created to publish tough financial journalism on the Internet. That makes it an online version of the kind of skeptical—sometimes quite negative—articles about companies that you read in the Wall Street Journal, Barron’s, or Forbes.

Cuban announced the idea in a May 31 item titled “Why Journalism Matters” on his blog, In his usual proofreader-be-dammed style, he wrote: “I just hired a young, award winning journalist to partner with me on a blog that will do nothing but try to uncover corporate fraud. Young, energetic, fired up and damn the stuff i have seen so far is good.” The fired-up young man in question was a respected former St. Louis Post-Dispatch reporter by the name of Chris Carey.

Now, if that were all there was to it, old-school journalists like me would have cheered. (I was on the investigative and stock fraud beat at Business Week for many years.) But working journalists and ivory-tower journalism profs alike are not jumping up and down and yelling zowie over Sharesleuth. In fact, quite the opposite. The reason comes down to a little twist that Cuban put on his idea. He described it in his May 31 post: the aim, he wrote, is to “not only create great stories of interest for the webite [sic] and HDNet World Report, but also allow me to buy and the sell the stocks of the company. A journalistic conflict you say? Not any more. Not in this world. It will be fully disclosed and explained. This site is for the profit of its owners and we will buy and sell stocks that are discussed, before they are made available on the site.”

This was a bombshell. No journalism enterprise had ever done that before. Not even the most far-out yellow journalists of the 19th century had ever thought of profiting in the stock market on articles they published. Every journalism institution in America, from the Fox News Channel to Mother Jones, has strict rules prohibiting journalists—or anyone associated with the news outlet, from janitor to CEO—from trading stocks in advance of news articles.

It’s not that it’s morally wrong—which it is. It’s just plain stupid. That kind of trading destroys a journalist’s only asset: credibility. Not to mention that, in most cases, it’s illegal. (More on that in a second.)

Cuban’s “business model” is also something of an insult. Remember that one reason a lot of us got into the business is that we want to serve the public. We’re inspired by journalism heroes like Ed Murrow, the famed CBS newsman who was the subject of the recent Mark Cuban-produced movie Good Night and Good Luck.

Sharesleuth’s first article was a mallet-on-flea trashing of a little company called Xethanol. It was journalistically a middling effort—Forbes had gotten there first—with Sharesleuth unearthing a lot of red flags from the public record. The article appeared August 7. The shares immediately tumbled and have kept tumbling, down 40 percent within a month.

Before publication, Cuban disclosed, he had “shorted” 10,000 shares of Xethanol when its price was about $12.65. In other words, he bet the price would fall. That means he had a paper profit of $90,000 by early September, because the stock was down $9 per share. But that was offset by another trade in a Xethanol-related stock that hasn’t done so well. It’s not clear how much he lost in that stock, so it’s far from certain if he’s made a nickel on the trading.

Profitable or not, it’s a fair question to ask whether the trade was legal. Many will remember the famous case of Wall Street Journal reporter R. Foster Winans, who was imprisoned in the early 1980s for trading ahead of “Heard on the Street” articles he wrote for the Journal. How is what Cuban did any different from Winans’ transgression? Both traded on non-public information that would be published in a market-moving news outlet.

The difference comes down to a breach of fiduciary duty to a publisher. In the Winans case (and others), the Securities and Exchange Commission could show that information was misappropriated from a publisher that considered the information confidential and that had a policy in place to protect the information prior to publication. In effect, the insider trading laws give a newspaper’s code of ethics the sting of the law, when trading in advance of stories in concerned.

Ironically, it’s precisely the traits that make Sharesleuth contemptible from a journalistic standpoint that make it legally hunky-dory. Cuban has made it clear that he is going to engage in pre-publication trading. No duty to be breached so—voila!—he did not break the law.

What he’s doing is definitely legal, but it is not the kind of thing that gets you a nice clap on the back from the SEC, as he is exploiting a loophole in the law. Bruce Carton, a former enforcement attorney with the SEC, noted on his Securities Litigation Watch blog that Cuban had “found the previously unexploited Achilles’ heel of the insider trading laws and fired an arrow deep into it.” It’s a gap, he noted, that the SEC may decide to fill if others follow.

I e-mailed Winans, whose career was ruined by his misdeeds at the Journal, to ask his opinion of Sharesleuth. His response: “[I]n a world of institutional thievery, hidden fees, undisclosed conflicts of interest, ‘legal’ insider trading, engineered and misleading mutual fund returns, false and rigged analyst rankings, and all the other self-dealing behavior that is business-as-usual in the investment racket, Mark Cuban is by comparison a goddamned Mother Teresa. At least you know he’s screwing you.”

So despite claptrap in his blog about Sharesleuth’s being a great advance in “newsenomics,” Cuban is not being “more innovative” than the rest of us schlubs in the news biz. He is being “less scrupulous.”

After the Xethanol article came out, critics in the news biz lined up to take potshots. The Star-Telegram said in an editorial: “Why is Mark Cuban so … well, so Mark Cuban? Why is he so focused on Mark Cuban all the time? The latest example of this is really disappointing because it sullies what otherwise is a noble effort on his part.”

Cuban reacted to the mounting criticism with his customary arrogance and disdain. He wrote in one blog post that business journalists should be “grateful” because he was opening up new job opportunities with hedge funds and short-sellers. “Thanks but no thanks” was the response of Loren Steffy of the Houston Chronicle.

But there’s even more to this. I checked through historical price records and found, based on Cuban’s disclosure, that he had shorted Xethanol back in mid-May, before Cuban even announced he was launching Sharesleuth. So the target of the first story was already in the crosshairs at the get-go, as was Cuban’s position in Xethanol. I published that tidbit on my blog. I published other tidbits and spoke out against Sharesleuth on CNBC.

Soon it became clear that Cuban was getting a little tired of all the brickbats. And the entire debate over Sharesleuth devolved into a rather entertaining online fracas that spilled over into that arena where all good online fights eventually wind up these days: Wikipedia.

Cuban fired his first salvo at me on his blog on August 10, equating my publicizing my book Wall Street Versus America with his prepublication trading scheme. Andrew Ross Sorkin of the New York Times called this “a labored attempt to equate his methods with the simple acts of advertising and promotion.” Sorkin noted in a Times blog what was obvious to the entire planet except Cuban, that “having a direct financial stake in the articles published—especially investigative articles that tend to be negative—is about as basic an ethical violation as there can be, whether that stake is disclosed or not.”

Then Jeff Jarvis, a journalism professor who runs the popular Buzzmachine blog, really twisted the knife. He wrote: “By turning this into a personal and shady profit center, by trying to play the bad boy in this arena as he does in the basketball arena, he harmed his endeavor, his reputation, and even the nascent movement in independent journalism. Just so he could make a few bucks. Now that’s what I call dumb money.”

Jarvis reported that Cuban was to be the keynote speaker at the Online News Association. I commented on my blog that this was akin to Jeffrey Dahmer being guest speaker at the Culinary Institute of America.

Cuban flailed back at Jarvis, a respected academic, and a day later he went ballistic again, this time with me as his target.

He wrote on his blog that he had received an e-mail—anonymous, I presume—accusing me of editing his Wikipedia bio. These were minor edits, saying that Sharesleuth’s trading scheme had been “widely criticized.” (A statement that, while true, was not made by me.) In any case, Cuban felt that it would be better if Sharesleuth merely “raised controversy,” and so he edited the article himself to rectify this affront, which is against Wikipedia rules. But Cuban’s edits were changed back! Well, that was obviously me.

Without bothering to find out from me if that were true—such journalistic SOP being unknown to him—Cuban published the e-mailed smear in his blog, adding his own sneering innuendo. He noted that this same person who had edited his Wikipedia article had edited other subjects of interest to me—while leaving out that this person’s online profile identified him as an MBA candidate and veteran editor who had shaped articles on a half-zillion subjects, including Lutheran theology, prominent Jesuits, and the lives of Fordham University alumni. Cuban also omitted that he had cut out unflattering stuff—links to negative publicity—from his Wikipedia bio.

To make the whole thing even more idiotic, it was obvious that the e-mailed smear had come from sleazy elements of Wall Street—stock promoter types who dislike Cuban as much as they do me.

Cuban once said that Ayn Rand’s novel The Fountainhead was an early inspiration. That’s always struck me as baloney, a billionaire’s “philosophical” justification for acting like a jerk. After all, Howard Roark, the central character, was a rugged individualist who didn’t care about public opinion, not a thin-skinned publicity hound who spends a day at Dairy Queen to atone for a dumb remark. But there’s one part of the Fountainhead story that appeals to me: when a housing project Roark designed was not built to his specifications, he blew it up.

I’ve read that Cuban has decided to use his trading profits not for “the profit of its owners,” as he said on May 31, but to finance the site. Ethically that would be a distinction without a difference—a bit like running a hotel on earnings from a whorehouse. Still, I hope he doesn’t do it. My hope is that Cuban will imitate his hero Howard Roark.

Don’t compromise your “vision,” Mark. Plant some dynamite and blow up the wretched thing. Maybe then a public-spirited billionaire will start an investigative journalism web site to serve the public interest—like that guy Murrow in the movie you produced.

Just be sure to get somebody who knows about dynamite to set the charges.

Former Business Week reporter Gary Weiss blogs at

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