Mark Cuban’s Sharesleuth Takes Business Reporting to Ethical Edge

    by Mark Glaser
    August 22, 2006

    i-5c691cd6260c709b7b0ac70071450c3a-Mark Cuban.jpg
    Billionaire entrepreneur Mark Cuban has one of the best named weblogs, Blog Maverick, because he is nothing if not a maverick in the technology, sports and online worlds. He shepherded his Broadcast.com streaming multimedia company through a successful initial public offering in 1998 and sold it to Yahoo in 1999 for more than $5 billion. Cuban used the proceeds to start high-definition TV networks, HDNet, buy Landmark Movie theaters and buy the Dallas Mavericks NBA team. He’s probably the only major team owner who asks fans to email him feedback.

    Lately, Cuban (pictured here) has shown an interest in shaking up the media world, hiring former CBS anchor Dan Rather for HDNet, helping to fund Jason Calacanis’ Weblogs Inc. (later sold to AOL) and founding Sharesleuth.com, to provide “independent Web-based reporting aimed at exposing securities fraud and corporate chicanery.” Cuban hired St. Louis Post-Dispatch investigative business reporter Christopher Carey to be editor of Sharesleuth.

    Carey’s first report was an exhaustive look at Xethanol, an ethanol company that purported to make alternative fuel from materials such as wood chips— but Carey could find no evidence it had found that Holy Grail of fuel.


    But while Carey will not own any individual stocks, Cuban has decided to make investments based on the companies Carey is investigating. These investments are the sole source of income for the new site, which has no advertising and is free of charge to read. But there’s a Catch 22 in the business plan of Sharesleuth: If the site predictably produces journalism that hurts companies’ stock prices — and Cuban trades on that by shorting the stock (betting it will go down) — then he might be investigated for securities fraud by the SEC. But if company stocks fluctuate without predictability after being the subject of Sharesleuth reports, then there will be no fraud — but Cuban won’t make as much money.

    In my lengthy email debates with Cuban, he told me that he wasn’t out to manipulate the market and wasn’t looking for short-term gains after publication of the investigative reports on Sharesleuth. So if he keeps his short position in a company such as Xethanol for the long term, how can Sharesleuth make money now?

    “It doesn’t, but that’s OK,” Cuban said. “Hopefully I never have to cover [my short trades], if the quality of work is good and we uncover more companies and situations like Xethanol, the return can be lucrative. It just doesn’t have to be fast. We don’t have a staff of 900. I can afford to be patient.”


    On the day that the Xethanol report was published on Sharesleuth, its stock went down 14% to $5.95 — and that’s way down from the price of $12.65 when Cuban shorted 10,000 shares of Xethanol stock back in May. Yesterday, the stock was at $5.09. Sharesleuth promises to be a strange journalistic venture, where the site’s owner will profit on information he gets ahead of publication. Various bloggers and journalists already are calling it an ethical mess (see “The Ugly” section below).

    The Good

    But before we pass summary judgment on the site after it’s barely even started, let’s consider some of its better qualities. Sharesleuth is one of the rare breed of independent investigative websites that lives outside of the commercial business-journalism world. As Sharesleuth editor Chris Carey pointed out to me, the type of work he’s doing investigating scam-type companies has been in decline at major magazines and business sites.

    Carey can now stretch out, take his time with investigations, and not worry that his investigative budget will be cut because he’s not producing sexy work. Without advertising or subscription fees, there’s also less chance for outside pressure on his work from advertisers or paid subscribers.

    “I’m free to pursue stories without concern for beat, geography or anything else that tends to limit your worldview when working for a local or regional news organization,” Carey said via email. “There’s no bureaucracy to navigate, so I can move more quickly. And my audience is not only national but global. I also have more resources than I did in my previous job [at the Post-Dispatch] — more money for travel, more money for online information services, more money for other tools of the trade. The only thing that could remotely be considered bad is that, as a one-man operation, there’s no way I can get to all the promising stories that our readers have suggested to us.”

    Being basically a one-man editorial operation, Carey did end up having to hire an outside fact-checker to make sure he got everything right in the Xethanol story. He told me he relies on an ad hoc group of “amateur stock detectives” who he could convert into a citizen journalism crew to help his cause — and there are plans to expand and add more reporters in the future.

    “I’ve been swapping information for more than five years with a global network of amateur stock detectives,” Carey said. “They’re great at sifting through SEC filings, digging up documents, connecting dots and developing timelines to explain the trajectories of particular companies. I’m convinced that many of them could produce journalism-quality pieces with the help of a strong editor. I think ‘citizen journalism’ that is based on documents or irrefutable visual evidence stands the best chance of winning public acceptance.”

    The Bad

    But first Sharesleuth has to convince skeptics and regulators that it’s not manipulating the markets and profiting off of that. The SEC would not comment about the site’s unusual business model, but one source with intimate knowledge of SEC operations told me the government enforcement agency was aware of Sharesleuth, but wouldn’t act until the site establishes a track record.

    The source noted that Sharesleuth isn’t breaking insider trading laws because they don’t work inside the companies in question, and are being transparent about their trading. However, transparency alone won’t save Cuban from possible prosecution, according to the source.

    “There are anti-fraud statutes that say you can’t manipulate people,” the source told me by phone. “You can’t manipulate stock prices to your benefit. If you wrote scathing reports, and the stock continued to go up, and you were losing money, it would be hard to say you were defrauding somebody. On the other hand, if consistently and predictably, your reports caused stocks to go down, even if you told people that, ‘by the way I shorted this yesterday,’ that could get into fraudulent behavior.”

    Cuban was defensive about this scenario, and says he isn’t out to manipulate the markets. He mentioned that many other stock traders and hedge fund managers go on cable TV every day to tout their positions, and no one raises a stink about them.

    “We aren’t writing reports to move stocks,” Cuban said. “We are writing reports to report the facts. Chris [Carey] hears that from me all the time. If I traded on price movements, then there might be an issue. I don’t. I don’t pump and dump [tout the stock, then sell it], and we don’t skunk and dump. I put on a position and stay with it till there is a material change in operations of the company. I don’t cover or sell my position based on reaction to this or any article in the media.

    “The price of Xethanol could go down further, it could go up further. It won’t matter. What matters is whether the management shows they have changed their stripes from their past and whether they can produce ethanol from biomass cost effectively and do so before they run out of money. Nothing we wrote changes those base facts. I was short months before the article came out, I’m still short and plan on staying short.”

    i-3b6229a433b309468a4690a619745bcc-Bruce Carton.jpg

    Bruce Carton (pictured here), a former lawyer with the SEC, wrote on his Securities Litigation Watch blog that Cuban was exploiting a loophole of sorts with insider trading laws. Carton wrote that the Achilles’ Heel of the law is that it excuses trading on material, non-public information if there is no legal “duty” not to trade. “Prior to Sharesleuth.com, there has not been, to my knowledge, a ‘replicable-on-demand’ model that avoids the insider trading laws while permitting an investor to trade on nonpublic information,” he wrote.

    Carton contends that if Sharesleuth succeeds in its business plan, then many other people will try similar sites in order to exploit this Achilles’ Heel of the law, which might lead Congress or the SEC to change security laws.

    The Ugly

    But even if Sharesleuth’s method of betting on its subject matters’ stocks is totally legal, business journalists and prominent bloggers have said the conflict of interest undermines the site’s credibility with the public. Houston Chronicle business columnist Loren Steffy wrote that Sharesleuth isn’t about a new way to do journalism but is simply a website to tout and increase profits for Cuban’s investments.

    The Fort Worth Star-Telegram wrote an editorial attacking Cuban’s venture for shoddy ethics, as well:

    [The stock trade] damages Sharesleuth’s credibility, which is a big thing in journalism — in fact, it’s the whole thing. Cuban and Carey disclosed when they launched Sharesleuth on July 1 that Cuban would be doing this sort of thing. Cuban also attached a note to the end of the Xethanol story disclosing his investment dealings related to the company, and another such disclosure was embedded in the story itself. Full disclosure helps, but it doesn’t heal all wounds.

    It’s too bad that Cuban couldn’t let his investment in Sharesleuth stand on its own. He had to use it as a tool in a side deal to make himself a few more bucks to add to the gigazillion that he already has. In the process, he cast doubt on Sharesleuth’s efforts.

    Then came the news that the Online News Association will have Cuban as its keynote speaker at this year’s convention, setting off an apoplectic response from media blogger and former old media guy Jeff Jarvis. Jarvis notes that many Xethanol shareholders were angry at Cuban for publishing his report. The question from Jarvis is who is Cuban serving? Not the little guy who got scammed by the stock and will lose money, he contends.

    “If Cuban had just started a new journalistic endeavor to show the way and shame the business press into reporting and investigating — not to mention to create jobs for reporters — he might have been welcomed with open arms,” Jarvis wrote. “I’ll bet that there are plenty of ripped-off shareholders out there who’d have gladly contributed to make this a success. And advertisers would want to talk to an audience of smart investors. But 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.”

    Perhaps over time Cuban might see the error of this business model and consider something different that would take away the ethical smudge. He could make it a non-profit with foundation funding, and he’s not a stranger to foundations with his experience with the Fallen Patriot Fund for families of soldiers who were injured or killed in Iraq. Perhaps there’s a way to lose the bad and ugly aspects of Sharesleuth without throwing out the good.

    For more reading on Sharesleuth, check out these blog posts by Cuban on the subject, as well as takes from other bloggers and media outlets:

    Responsible Journalism [Mark Cuban’s Blog Maverick]

    Business journalists should be thankful [Mark Cuban’s Blog Maverick]

    Why Journalism Matters [Mark Cuban’s Blog Maverick]

    Mark Cuban’s Excellent Trade [Gary Weiss blog]

    Winans on Cuban: At Least You Know He’s Screwing You [Gary Weiss blog]

    Full Disclosure: Shortchanging Financial Journalism [FindProfit.com’s Ben Silverman]

    ShareSleuth Targets Ethanol Company [DealBreaker blog]

    Xethanol Responds to ShareSleuth.com Posting [BusinessWire]

    Cuban’s Maverick Stock Site [BusinessWeek]

    Media Orchard Interviews Chris Carey of Sharesleuth.com [Media Orchard blog]

    What do you think? Is Sharesleuth an ethical way to do investigative journalism or is there an inherent conflict of interest for the publisher? Can you think of other ways the site might bring in money without having ethical problems? Share your thoughts in the comments below.

    Photo of Mark Cuban by Kris Krug.

    Tagged: business ethics journalism law

    21 responses to “Mark Cuban’s Sharesleuth Takes Business Reporting to Ethical Edge”

    1. Nice roundup of the issues, Mark. I’m a journalist and blogger as well — I wrote something about Cuban and Sharesleuth here: http://www.mathewingram.com/work

    2. Dave says:


      I am confused. Martha Stewart was convicted of insider trading and she did not work for the company. Likewise, those that raided the BusinessWeek articles at the printer before they were published were not employees of the company they traded but instead were employees of BusinessWeek.

      I am told that there are many different types of insider trading that can be brought to enforcement and that “insider” does not always mean “Inside the company”.

      I also find it amusing that the SEC is willing to sit back and monitor teh situation to determine how much abuse may take place before they decide whether to step in. In this case, lets say Cuban’s site was responsible for the $6.00 drop in share price. The SEC could go after Cuban for his profits but in reality, how much overall market cap (investor losses) took place? That would be the real damages.

    3. Hi Dave,
      I am not an expert on insider trading laws, but from what I understand, the BusinessWeek cases were stretches from what the law intended. In those cases, people were trading on information secretly before publication. With Cuban, he is trading before publication but also being transparent about the transactions at publication. That’s the difference, and some people believe it’s enough to make it legal. Plus he says he isn’t making short term trades but staying in for years.

      I’m not sure how much the SEC is actually monitoring the situation. They say they are aware of the site, but can’t really act until it has more of a track record than one investigative report. Not until the site has been proven to be manipulating the market will they act — at least according to my source. The SEC won’t comment about hypothetical situations.

    4. Haydn says:

      Great detail (wish I had the time to devote to it).

    5. TLark says:

      There’s sort of a key problem you’ve failed to point out with Bruce Carton’s ridiculous comment about Sharesleuth.com’s business model of trading on “nonpublic information.” All of the information Carey gathered is PUBLIC information. This is an interesting business model to watch, certainly, but much of the crying and belly-aching being done about ethics is, clearly, based on — and fueling — misinformation.

      Not only is the information public but, in addition, Xethanol has been unable to successfully refute any of Carey’s claims. Thus, it appears the information is also TRUE. So we’re threatening SEC action over true, public information? That’s one for the books.

      Carey’s track record deserves more than one story before everyone condemns the effort at its outset.

    6. Jpalladino says:

      I am a little confused here. If a person or company does research on another company and the research is legal and subsequently reports upon it, they are journalists. If an investor does similar research and acts upon that research, they are considered wise investors. (I was always told to only invest in what you have some knowledge of.) Then why is it illegal to hire someone to do the research for you and report on it?

      I understand that the information has to be public, but is there any knowledge or proof that the information gathered is not public knowledge? If TLark’s comment is true, then not also is the information public but it is also true.

      There are many sites that gather information for the user. Take the many sites that are using Zillow.com’s API. While I personally wonder about the privacy concerns about such sites, does using these sites mean you are breaking the law as well? Other house buyers have access to the same sites, I just knew of the sites and how to find them and use them. Is this not the same as with Mark Cuban?

    7. Dave says:

      Funny how this issue comes up with actions being taken by the SEC just today.

      According to the WSJ:

      “Kristjan Lepik, of Tallinn, settled without admitting or denying allegations that he traded on corporate information obtained through sneak peeks at information distributed by Business Wire, a leading commercial distributor of business news owned by Berkshire Hathaway Inc.”

      Sneek peeks at information to be distributed by Business Wire? Was the information accurate by Business Wire? Was Mr. Lepik an insider to the company or did he obtain such information from an insider of the company?

      I can only wonder what the difference is between Cuban and Lepik other than Cuban tells people he is going to do it and Lepik did not.

      Now some will argue that Lepik traded on corporate information and Cuban did not but, it is clear by the sharesleuth article that the information obtained by Carey was generally corporate information [information about teh business, etc…] that would most likely be unavailable to the general public.

      I guess if a murderer tell you they plan on killing you before they kill you then it is not a violation of the law.

    8. Stephen says:

      Let me get this straight. It’s a little dodgey to constantly publish true reports of a companies practices with the results that a bad report causes a fall in stock price that the report maker benefits from.

      Isn’t this the converse of the glowing reports from Stock Analysts of the late ’90’s who it turns out were paid by said company for glowing reports?

      It was acceptable for them, but not for Mark Cuban. Who has to go through the trouble of actually investigating the company. By acceptable, how many went to jail? If it wasn’t all then it must have been a little ok.

    9. Dave says:

      Funny how this issue comes up with actions being taken by the SEC just today.

      According to the WSJ:

      “Kristjan Lepik, of Tallinn, settled without admitting or denying allegations that he traded on corporate information obtained through sneak peeks at information distributed by Business Wire, a leading commercial distributor of business news owned by Berkshire Hathaway Inc.”

      Sneek peeks at information to be distributed by Business Wire? Was the information accurate by Business Wire? Was Mr. Lepik an insider to the company or did he obtain such information from an insider of the company?

      I can only wonder what the difference is between Cuban and Lepik other than Cuban tells people he is going to do it and Lepik did not.

      Now some will argue that Lepik traded on corporate information and Cuban did not but, it is clear by the sharesleuth article that the information obtained by Carey was generally corporate information [information about teh business, etc…] that would most likely be unavailable to the general public.

      I guess if a murderer tell you they plan on killing you before they kill you then it is not a violation of the law.

    10. TraderGrl says:

      “it is clear by the sharesleuth article that the information obtained by Carey was generally corporate information [information about teh business, etc…] that would most likely be unavailable to the general public.”

      Sorry, but as a one-time journo, I have to say that’s simply not true. The vast majority of information in the report seems to have come from SEC filings and other legal documents, all of which are accessible to the public. Whether or not they know how to go about finding it is another matter.

      You may not like the ethics of Sharesleuth.com’s owner, but the cries of “insider trading” are just making the criers look foolish and ill-informed.

    11. According to my source who understands SEC thinking:

      “Suppose all your information was from public sources, and you were the one who put the damning mosaic together, well the defense might be, ‘I did the same thing that anyone else could have done. I went to the Internet sites and I pulled all this, so I didn’t really do anything but bet smart, and I let everyone in on it afterwards. That might be a defense, but it’s not necessarily an effective defense because the different element is now having created the mosaic, that created its own little momentum and direction.”

      What I think this source is saying is that even if the information is all public, you still are putting together a new picture of the company, and then possibly trading on that information and using it to manipulate the market. In the case of Xethanol, Carey might be using largely public info, but he also has photos of a plant in disuse and other info gleaned from reporting.

      But remember: These are all hypothetical situations, and the SEC hasn’t taken any action. We should indeed give the site the benefit of the doubt and see what happens before totally condemning it. I agree that what Carey and Cuban are doing — unearthing corporate misdeeds — is great, necessary work. It’s just the way they’re profiting that is bringing up conflict concerns.

      Whether illegal or not, this site and its journalism depends on credibility and if people don’t trust the motives of the journalist and the publisher behind the journalist, then that will hurt them both in audience and in impact — thereby hurting their bottom line.

    12. WC says:

      Talk of sharesleuth.com being insider trading or otherwise illegal is dangerous to free speech and irrational at best. If sharesleuth.com is deemed illegal, thousands of other blogs and commercial sites will need to be shut down on that precedent. This includes sites such as the Motley Fool and TSCM, on which writers often own or short the stocks they publish on (as with Cuban, with full disclosure). It also includes individual blogs, commentators and guests on financial news channels, and even message board posters. Basically, there can be no exchange of information or dissemination of opinions among parties with economic interests in stocks discussed. To be fair, it will have to kill all discourse about investing – about good companies, bad companies, long positions, or short positions. All sharing of fact and opinion will have to end.

      For example, from a recent positive post about salesforce.com on seekingalpha.com (http://software.seekingalpha.com/article/15884): “At the time of this writing I, and/or funds I maintain discretionary control over, maintained a long equity position in CRM…”

      This writer has just written positively about salesforce.com, and, according to his disclosure, he holds a long position in the stock. By writing this piece, he is potentially persuading a reader to buy this stock, driving the share price higher and providing him with economic benefit. There is no different than sharesleuth.com publishing negatively on Xethanol while disclosing that Mark Cuban holds a short position in the stock.

      From an investors standpoint, ending the free flow of information is not good idea. As long as items presented as fact are true, opinions couched as such, and full disclosure understood or in place, I believe we should encourage more sites like sharesleuth.com. The more information and opinions the better, regardless of whether or not the source stands to gain by dissemination of the information.

    13. siouxzi says:

      It is my understanding that Chis Carey approached Cuban as a backer for the sharesleuth site.

    14. Hi, I have invested several thousand dollars from a company called Kalaco Scientific, Inc. based in Arizona, and with offices in California. After many years after I have made my investment I have yet to see a dime in return, even though they promised the world to me when they pitced it to me. These guys have never had a website, I makes me nervous This is what they have now: http://www.kalacoscientific.com

      How can I get my money back? I am concerned I got dupped I just got this e-mail from their formal IT guy. I know enough about business to know that the IT has access to everything.. So I am concerned because I know he has seen sensitive communications and records. This is the letter that he sent me and other Kalaco Scientific investors.


    15. Mary Turino says:

      False information has been posted to this site. This information that has been posted hurts innocent people. False personal attacks should not be tolerated on this site. The rules state that the post will be removed. I request this information be removed.

    16. forest enchanted says:

      Where do I start Mark.

    17. I really enjoy his blogs as well, he always has really good posts

    18. Gas Prices says:

      I didn’t know that he was a billionaire

    19. Interesting article. As a securities fraud litigation attorney, I see a lot of uses for risk capital. Generally, if someone is going to communicate new views over the air, and investigate new subject matters, I am all for it. News today is too narrow in scope. For more information about me, please see my website at


      Attorney Daniel Bakondi

    20. Thanks for the post! Mark Cuban may not be the most likable guy, but he is an amazing businessman.

    21. Mary says:

      I believe Mark Cuban has taken on one of the most dangerous jobs to be found.

      People kill husbands, wives, total strangers for greed
      –read money — and now possibly an ethical person (shock) has the guts to stand up against evil. Evil as in reporting, “out loud,” unethical doings by supposedly the big guys, all for greed.

      Whew. In my lifetime no less.

      If Mr. Cuban comes around let him know I truly pray to God to give him blessings and constant care.


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