Mavs owner Mark Cuban charged with insider trading

Nov 17, 2008 - 7:42 PM WASHINGTON (Ticker) -- Dallas Mavericks owner Mark Cuban was charged with insider trading by the Securities and Exchange Commission on Monday.

The SEC charge is in relation to Cuban allegedly selling 600,000 shares of the Internet search engine Mamma.com in 2004, which occurred just hours after he received information that the company was set to raise money in a private stock offering.

A Commission official said Cuban "betrayed" the trust of the company with the sale of his shares after he promised to keep the non-public information confidential.

"The Commission's complaint, filed in the U.S. District Court for the Northern District of Texas, alleges that in June 2004, Mamma.com Inc. invited Cuban to participate in the stock offering after he agreed to keep the information confidential," the SEC said in a statement. "The complaint further alleges that Cuban knew that the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders.

"Within hours of receiving this information, according to the complaint, Cuban called his broker and instructed him to sell Cuban's entire position in the company. When the offering was publicly announced, Mamma.com's stock price opened at $11.89, down $1.215 or 9.3 percent from the prior day's closing price of $13.105. According to the complaint, Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the offering."

Cuban responded to the charges in a statement on his blog.

"I am disappointed that the Commission chose to bring this case based upon its Enforcement staff's win-at-any-cost ambitions," Cuban said. "The staff's process was result-oriented, facts be damned. The government's claims are false and they will be proven to be so."

Cuban's Washington-based lawyer, Ralph C. Ferrara of Dewey & LeBoeuf, said his client intends to contest the allegations and said the case has "no merit and is a product of gross abuse of prosecutorial discretion."

The complaint alleges that Cuban violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The Commission's complaint seeks to permanently enjoin Cuban from future violations of the federal securities laws, disgorgement (with prejudgment interest), and a financial penalty.

"Insider trading cases are a high priority for the Commission," said Linda Chatman Thomsen, the director of the SEC's Division of Enforcement. "This case demonstrates yet again that the Commission will aggressively pursue illegal insider trading whenever it occurs."

Cuban, the controversial billionaire owner of the Mavericks, made his fortune through Broadcast.com, which he co-founded with a former Indiana University classmate and sold to Yahoo! for $5.9 billion in Yahoo! stock.

"As we allege in the complaint, Mamma.com entrusted Mr. Cuban with nonpublic information after he promised to keep the information confidential," said Scott W. Friestad, the Deputy Director of the SEC's Division of Enforcement. "Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all of his shares. It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market."

Cuban has been named as one of the potential buyers of the Chicago Cubs.