More on Cuban and the SEC

So Mark Cuban dares to challenge the smartest men in the room (Paulson, Bernanke, Frank, et al.), about the bailout. First he offers an alternative, privately-financed bailout plan that many think would work better, and he offers to put up the first $50 Million. His little company, sharesleuth.com, which does the SEC's job for them, sets up another watchdog site, bailoutsleuth.com to provide private oversight to the treasury and how they use the bailout money.

From Wired.com:

Already the site has lots of goodies. A contract between the Treasury Department and PricewaterhouseCoopers is blacked out over portions discussing the firm's bid as well as the name of the partner who signed the deal. Also blacked out is the executive compensation in the first contract handed out in the $700 billion bailout, to Bank of NY Mellon Corp.

On his blog, Cuban promised to try to roll out reports and exposes every day. "Without complete transparency, we will get from our government what we always get when it comes to finances, confusion."

Now, out of the blue, Cuban is facing insider trading charges from a stock sell he made 3 years ago, and wrote about on his blog:

I wanted to reference Mamma.com. I had purchased stock in Mamma.com in hope that it could be an up and coming search engine. I thought I had done some level of due diligence. Talked to the company management. Talked to some employees who worked in sales. Read the SEC Filings. I knew that they had a checkered past and had been linked to stock promoter Irving Kott, and that their law firm still handled some of Kotts business, but the CEO, Chairman, lawyers all said that things were reformed and the company was focused on its business.

Then the company did a PIPE financing. Im not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I dont want to own stock in companies that use this method of financing. Why? Because I dont like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants. So I sold the stock.

If the PIPE financing hadn't been announced when he made the sale, it meets the requirements for insider trading, and it's illegal. He should probably repay the $750,000 that he would have lost had he waited until after the PIPE financing was completed. That doesn't change my opinion that Cuban isbeing targeted for daring to challenge the almighty Treasury. The SEC looked the other way while hundreds of bank executives, with no disernable entrepreneurial skills looted the public for billions, and then the Treasury gives them a reward of trillions in taxpayer money when they blow it all. But if an upstart billionaire dare challenge their authority and ask for a little sunlight, they'll attack him for the most minor infraction. It's like the Puritans and stocks all over again. Maybe we should subject him to a public beating.

As a matter of preference, Mark Cuban annoys me. I think he's a whiner, and I blame his complaining about referees for the Mavericks stealing game 5 from the Rockets in the first round of the playoffs in 2005. (Michael Finley was out of bounds.) Still, I cannot deny the fact that he is a great entrepreneur and savvy investor, and brave for standing up

Bailout Madness

The smartest men in the room all told us that if we didn't bail out the banks/mortgage companies/insurance companies, the credit system was going to collapse. I thought that the question that no one was asking was if we do bail out the banks, what would happen? Well the answer to that came sooner rather than later. Some examples:

Newly nationalized AIG burns through $50 Billion of the $80 Billion in taxpayer money in just a couple of months, asks for, and receives $70 Billion more. To me, this is emblematic of the difference between private corporations and socialist entities. Governments tend to give money to those who "need" it most. Private investors tend to give money to those who are likely to make the most money with that investment. At times, the companies who need it most are in that position because of poor management, and are likely to lose more.

The Federal Reserve refuses to identify recipients of $2,000,000,000,000.00 in emergency loans. This was a bailout that wasn't voted on, and since the Fed is a government sponsored entity and not really a part of the Federal Government, it is exempt from Freedom of Information Act requirements. God bless him, Mark Cuban has funded a website called BailoutSleuth.com that attempts to track where the bailout money is going. (I still hope his team loses, but this makes me really respect the man. Edit: I just found out he has been sued for insider trading. I hope justice, whatever that is, is served. I tend to think that the Treasury has contacts within the SEC.)

Now every other struggling industry is lining up to receive their bailout. GM and Ford are first in line, and moreso thant the banks, they have a plausible claim that if they aren't bailed out, their failure will make a bad economy worse. The question that must be asked is: "If they are bailed out, will they survive?" The same issues that make GM and Ford uncompetitive will remain. I wonder if bankruptcy or bargain basement buyout wouldn't be a step toward sustainability.

What industry is next? I know that state and local governments have lined up for their share. Then what? Steel? If automakers can't sell cars, that kills the market for steel. Chemicals? Huntsman is up to its neck in debt. Retailers? Sears could say it's too big to fail. Restaurants? If wages start falling or unemployment goes up, people will start eating at home more.