SEC: Cuban Traded on Inside Info

By Marcy Gordon

WASHINGTON -- Federal regulators on Monday charged Dallas Mavericks owner Mark Cuban with insider trading for allegedly using confidential information on a stock sale to avoid more than $750,000 in losses.

The Securities and Exchange Commission filed a civil lawsuit against Cuban in federal court in Dallas. The agency alleged that in June 2004, Cuban was invited to get in on the coming stock offering by Mamma.com Inc. after he agreed to keep the information private.

The SEC said Cuban knew the shares would be sold below the current market price, and a few hours after receiving the information, told his broker to sell his entire stake of 600,000 shares in the search engine company before the public announcement of the offering.

By selling when he did, Cuban avoided losses exceeding $750,000, according to the SEC. At the time of the offering, Cuban was the largest known shareholder in the Montreal-based company, which later changed its name to Copernic.(CNIC Quote)

The SEC is seeking a court judgment against Cuban finding that he violated the antifraud provisions of the federal securities laws, an injunction against future violations, an unspecified civil penalty and restitution of the losses Cuban allegedly avoided.

Unless he is subject to an injunction, Cuban "is likely to commit such violations again in the future," according to the SEC suit.

Attorneys for Cuban in Washington and Dallas didn't immediately return telephone calls seeking comment.

Cuban, 50, also owns Landmark Theaters, a large national chain dedicated to independent films, and the HDNet cable television channel.

He is one of the richest people in the world, according to Forbes magazine, which pegged his net worth at $2.3 billion as of March 2007.

The following is the text of an SEC press release detailing the charges:

Washington, D.C., Nov. 17, 2008 -- The Securities and Exchange Commission today charged Dallas entrepreneur Mark Cuban with insider trading for selling 600,000 shares of the stock of an Internet search engine company on the basis of material, non-public information concerning an impending stock offering.

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 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% 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.

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