What Mark Cuban, A Dead Guy, And 'The Wolf Of Wall Street' Have In Common
Mark Cuban, the billionaire investor who owns the Dallas Mavericks, will doubtless watch Leonardo DiCaprio in "The Wolf Of Wall Street" with intense interest.
He might not enjoy it though, because "Wolf" gives an at least somewhat celebratory portrayal of a guy who was backed by a guy — now dead — who was linked to a search engine startup that later entangled Cuban with insider trading charges a few years ago.
Yes, it's complicated.
That insider trading case — in which Cuban was found not liable for dumping stock after he was told by the search engine's CEO that its price was about to be driven down by a sale of new shares — only ended in October. "This is a horrific example of how government does work," Cuban said at the time.
The Cuban-Wolf backstory is interesting, however, for anyone who wants to know how small companies can get their stocks puffed up and then suddenly deflated by Wall Street.
The dead guy in this story is Irving Kott. He passed in 2009. Kott was a lifelong stock promoter who once ran a stock brokerage called JB Oxford. JB Oxford cleared trades for Stratton Oakmont, the stock pumping firm run by Jordan Belmont, the protagonist in "Wolf." According to USA Today:
... Kott negotiated JB Oxford's biggest deals, including an agreement with Stratton Oakmont founder Jordan Belfort to clear trades for Stratton Oakmont and several other boiler-room outfits, according to the government official and Baldwin, the attorney for the Ohio investors. Belfort was sentenced last year to four years in prison on fraud charges.
In 2004, while Kott was still alive, Cuban held 600,000 shares in Mamma.com, "the mother of all search engines." He began to have doubts about the wisdom of his stake when he heard that the company was linked to Kott, according to The Dallas News:
“I was doing some homework, and I saw on a Yahoo message board that there was a connection between this convicted stock swindler and Mamma.com,” Cuban told jurors.
A few weeks later, in April 2004, an FBI agent contacted Cuban, informing him that the government was investigating the relationship between the Canadian Internet company and one of its board members and Irving Kott, a stockbroker who later pleaded guilty to fraud charges.
The Dallas billionaire said he immediately confronted Mamma.com executives about the connection.
“My getting a call from the FBI was more than a little bit unsettling,” he wrote in an email to Mamma.com officials.
“They told me that they didn’t know who the guy is, but [later admitted that] they did know about the relationship,” Cuban said under oath. “They were dealing with crooks. It was a huge red flag for me.”
In a May 1, 2004, email to Mamma.com chief executive Guy Fauré, Cuban wrote, “What if I’m not comfortable with him [referring to a board member] having a relationship with Mr. Kott. That is enough for me to dump the stock.”
Cuban sold his stock, avoiding a larger loss. The SEC alleged he made the sale based on insider knowledge gained from a conversation with Mamma's CEO, but the jury didn't agree.
Cuban was vindicated a second time when the Kott link came up in a class action lawsuit brought by other investors, according to the Wall Street Journal:
In 2006, long after Cuban sold his stake, the company paid $3.15 million to settle class-action litigation. Plaintiffs accused the company of taking a significant investment and advice from Irving Kott, the scandal-plagued investor behind First Commerce Securities and J.B. Oxford, who had been accused of stock fraud.
Kott died after pleading guilty to felony fraud charges that he hid his ownership of JB Oxford while the company was promoting stocks he had an interest in.
As for Jordan Belfort, he served 22 months in prison for a 2003 stock fraud conviction. Later, he received a $1 million fee for the rights to the movie. Today, "He drives a Mercedes SL convertible and lives in an oceanfront mini-mansion on Manhattan Beach," according to New York magazine.