Probably the most stunning part of the SEC’s allegation that Mark Cuban dumped shares of Mamma.com after learning of an impending stock offering from company executives is that it seems massively stupid for a billionaire to risk the wrath of the Securites and Exchange commision to avoid just $750,000 losses. Cuban’s obviously not a stupid guy, so why would he trade on inside information? It seems so implausible that many are already sceptical about the SEC’s charges.
But it isn’t really that implausible. Even very wealthy people have been known to be strongly averse to avoidable financial losses. When faced with what must have seemed an easily avoidable loss on his Mamma.com holdings, Cuban may very well have found the temptation to trade irresistable.
Ironically, in an interview with NPR’s “Planet Money” a few weeks ago, Cuban made some comments that are very revealing of the kind of psychology that can lead to troubled trading.
“When you are sort of in the world where you’rer going to have a good life no matter what happens, and you sound happy…you’re glad that you made smart choices that got you more money, I bet you’d be upset if you lost money,” interviewer Adam Davidson asked. “What is it at that point when it doesn’t actually affect you?”
“You know, I’m a very, very competitive person, so money is a unique way to keep score,” Cuban said.
But Cuban went on to say that he doesn’t define himself by the size of his bank account. He warned that many other rich people have been “wiped out” by greed.
“You can’t get greedy. You can’t want more, more, more. Because if you are just squeezing for the next basis point or the next dollar, and you take on leverage you put yourself at risk. And there’s just no reason to risk everything to get more,” he said.
So we know Cuban knew that the wealthy can be tempted toward risk by greed. The question the SEC has brought before us is whether he knew this from personal experience or just watching others.
Listen to the entire interview here.
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