News Analysis
BusinessWeek.com
June 16, 2006
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Cuban's Maverick Stocks Site

The tempestuous NBA team owner aims to expose corporate shenanigans with a new Web site. Raising eyebrows: He'll base stock plays on that info before making it public

Tech billionaire Mark Cuban may soon go from making the news to breaking it. The high-profile owner of the NBA's Dallas Mavericks is throwing his financial clout behind a new Web site aimed at ferreting out corporate fraud. This time, though, he may be out of bounds.

The reason: Cuban has said he'll buy and sell stocks based on scoops the site uncovers, even before they're published. “There are a million ugly stories in the financial underground,” Cuban told BusinessWeek.com in an e-mail. “We plan on finding and sharing and profiting from them.” He declined to comment further.

The fledgling Web publication will have an experienced journalist at the helm. St. Louis Post-Dispatch business reporter Christopher Carey is leaving the newspaper after 17 years to become the editor of the site, called Sharesleuth.com. Carey was a finalist in 2005 for the Gerald Loeb Award, business journalism's highest honor, and he recently completed a prestigious fellowship at the University of Michigan.

CONFLICT OF INTEREST.  While Cuban's Mavs seem close to an NBA championship, his online venture is hardly a slam-dunk. Cuban's plan to buy and sell stocks based on Carey's reporting should pose inevitable conflicts of interest, and the site's business model remains unclear. Further, Carey says he and the famously mercurial Cuban—whom the NBA has fined more than $1 million for his sideline behavior—have only communicated via e-mail.

“At first blush, it just sounds so weird it's kind of hard to get my mind around,” says Dean Mills, dean of the School of Journalism at the University of Missouri-Columbia. “Whether online or in print or any other form, the main mission of journalism is to give the best, most accurate, most objective news it can to its readers. You just have to think that this kind of personal individual investment motive would contaminate the journalism.”

On his blog, Blog Maverick, Cuban has swept aside questions of journalism ethics. “A journalistic conflict you say?” he wrote May 31. “Not anymore. Not in this world. It will be fully disclosed and explained.” Neither he nor Carey would reveal the amount of Cuban's investment in Sharesleuth.com.

Meanwhile, Carey maintains that Cuban's trading decisions won't affect his reporting, hinting that the rules are different online. Critics “are viewing this as a traditional journalistic enterprise,” Carey says. “I am going to do things the way I always do things. Our stories are going to be based on facts. Let's face it, when you write these kinds of stories, it's pretty high-risk stuff. You need to be right -- otherwise you're likely to get sued.”

WHISTLE- BLOWING.  Ethical questions aside, the site's aim in itself seems laudable. Searchsleuth.com will focus on investigative journalism, seeking to find unsavory companies and share the tales behind their malfeasance, Carey says. The stories will take an “anti-fraud, pro-investor” point of view and will likely steer away from the “he-said, she-said” approach of much contemporary journalism.

Nor is Cuban's plan necessarily illegal. Under the law, Cuban must disclose his interest in the securities Carey covers and Carey's stories must be true, according to Mike Missal, a partner at Kirkpatrick & Lockhart Nicholson Graham specializing in securities regulatory matters. “Then they'll probably be OK,” Missal says.

As an enforcement attorney for the Securities & Exchange Commission in the 1980s, Missal prosecuted a landmark case of journalist insider-trading. Then-Wall Street Journal reporter Foster Winans was convicted of fraud in 1985 for passing tips to stock brokers about information that would appear in upcoming Heard on the Street columns. The brokers allegedly reaped about $675,000 from the arrangement and paid about $31,000 to Winans and his partner. However, one key element in that case was that Winans didn't disclose the trading up-front, according to Missal.

BUSINESS PLAN.  It's uncertain whether Sharesleuth.com has a feasible economic model. The site was originally conceived as a subscription-based service intended for traders, money managers, and other high-end users, according to Carey. “Then Mark decided that, rather than cast about for subscriptions without a track record, we should just put it all up there in a blog-style format for a year or so.” After the site proves its value, so the plan goes, its founders will look for ways to generate revenue.

Cuban's multimedia empire could give the business a boost. His film-production companies backed the Oscar-nominated biopic Good Night, and Good Luck and documentary Enron: The Smartest Guys in the Room, and he owns the high-definition television network HDNet (see BusinessWeek.com, 4/24/06, "Almost Ready for Prime Time"), a movie distributor, and the Landmark Theatres chain. Sharesleuth.com would take advantage of those capacities, as reporting done for the website could be adapted to other media, such as video.

It also helps that overhead will probably be low. Carey says he'll do most of the reporting, aided by some paid stringers. He also expects help from a network of amateur researchers, “people with whom I've been corresponding for years,” he says. “In essence, they provide tips and some supporting documentation and I take it from there.”

THE NEW JOURNALISM.  This collaborative vision of the future of online journalism may not even be far off the mark. “Does anyone in mainstream media honestly believe user-generated content stops with parodies of “Lazy Sunday” [a popular Saturday Night Live sketch]?” (see BusinessWeek.com, 4/3/06, "Designs on the Disaffected") Cuban wrote on his blog. “Troll through MySpace (NWS ). It's not only for personal branding.”

Still, even if NBA officials long ago stopped calling traveling violations, credibility remains the cornerstone of the journalistic endeavor. Carey says doing business with Cuban solely through e-mail “is not uncommon.” Nevertheless, their virtual relationship will soon become a working relationship. It will be worth watching how long a veteran reporter and an entrepreneur notorious for his tantrums can continue to break the news before the news breaks up their partnership.