The SEC filed an insider trading charge against Mark Cuban, who became a billionaire selling Broadcast.com to Yahoo! and is now best known as owner of the Dallas Mavericks NBA team. Cuban is accused of selling stock in an Internet search engine company based on confidential information. The move, according to the SEC, kept him from losing about three quarters of a million bucks. That’s loose change for a guy whose net worth is estimated at $2.8 billion. Cuban said late yesterday that the charge is "without merit" and he will fight it.
What’s alleged is that Cuban traded on inside information about Mamma.com in June 2004. Cuban already owned 600,000 shares of the Internet search engine start up when he allegedly received a call from its CEO inviting him to buy more shares in a private placement that was going to be priced below the public trading price. Cuban was reportedly angry about the move, which would likely lower the stock price, and also because he could not trade on the confidential information. But the SEC charges that he did anyway, selling his entire stake before the news became known and the stock dropped over 9%.
“As we allege in the complaint, Mamma.com entrusted Mr. Cuban with nonpublic information after he promised to keep the information confidential. 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,” said Scott W. Friestad, Deputy Director of the SEC’s Division of Enforcement.
Cuban has not yet issued a response to the SEC charge. If found to have violated securities law, he could be ordered to hand over his illicit gains and pay a fine.
Mamma.com still exists as an Internet search engine. After its stock fell sharply, the company merged with Copernic, whose own stock – once a high flier above $140 – is now trading for around 25 cents.
Cuban, an active blogger, posted this late yesterday:
I wish I could say more, but I will have to leave it to this, and let the judicial process do its job.
November 17, 2008
RE: SEC Civil Action in the United States District for the Northern District of Texas, Dallas Division
Mark Cuban today responded to a civil complaint filed by the United States Securities and Exchange Commission in the United States District for the Northern District of Texas, Dallas Division. In its complaint, the Commission charges that Mr. Cuban engaged in violations of the federal securities laws in connection with transactions in the securities of Mamma.com Inc.
This matter, which has been pending before the Commission for nearly two years, has no merit and is a product of gross abuse of prosecutorial discretion. Mr. Cuban intends to contest the allegations and to demonstrate that the Commission’s claims are infected by the misconduct of the staff of its Enforcement Division.
Mr. Cuban stated, “I am disappointed that the Commission chose to bring this case based upon its Enforcement staff’s win-at-any-cost ambitions. The staff’s process was result-oriented, facts be damned. The government’s claims are false and they will be proven to be so.
Ralph C. Ferrara, Esq.
Dewey & LeBoeuf LLP
1101 New York Avenue, N.W., Suite 1100
Washington, D.C. 20005