Federal regulators charged billionaire Dallas Mavericks owner Mark Cuban with insider trading Monday, saying he used confidential information on a stock sale to avoid more than $750,000 in losses.
Cuban denied the allegations by the Securities and Exchange Commission and said he would contest them.
The SEC filed a lawsuit against Cuban in federal court in Dallas. The agency alleged that in June 2004, Cuban was invited to get in on a coming stock offering by Mamma.com Inc. after he agreed to keep the information private.
At the time, Cuban owned 6.3 percent of Mamma.com's stock and was the largest known shareholder in the search engine company, according to the SEC.
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The agency said Cuban knew the shares would be sold below the current market price, and a few hours after receiving the information, he told his broker to sell all 600,000 shares before the public announcement of the offering. By selling when he did, Cuban avoided losses exceeding $750,000, the SEC said in its lawsuit. Montreal-based Mamma.com changed its name to Copernic Inc. in June 2007.
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.
Cuban's attorney said in a statement that the SEC's case “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 (SEC's) claims are infected by the misconduct of the staff of its enforcement division,” Ralph Ferrara wrote in a note posted on Cuban's blog.
Cuban, in his own statement, said, “The government's claims are false, and they will be proven to be so.”
Cuban, 50, also owns the HDNet cable television channel and Landmark Theaters, a large national chain dedicated to independent films.
He also runs a Web site called Sharesleuth.com, which bills itself as providing “independent Web-based reporting aimed at exposing securities fraud and corporate chicanery.”
Cuban is one of the richest people in the world, according to Forbes magazine, which pegged his net worth at $2.3billion as of March 2007.
Mamma.com decided in spring 2004 to raise capital in a so-called “private placement in public equity” offering, known as a PIPE, according to the SEC suit. In late June, as the PIPE moved toward closing, Mamma.com's investment bank suggested the company invite Cuban to participate.
On June 28, Guy Faure, chief executive officer of Mamma.com, e-mailed Cuban asking him to call him “ASAP,” the SEC said. Cuban called four minutes later from the American Airlines Center in Dallas, home of the NBA's Dallas Mavericks, and spoke to Faure for about eight minutes.
Faure, who resigned last year, began the conversation by telling Cuban he was about to give him confidential information. Cuban agreed to keep it to himself, the SEC said.
Cuban became upset and angry during the conversation, saying he didn't like PIPEs because they dilute the value of company stock for existing shareholders, according to the SEC.
At the end of the call, Cuban said, “Well, now I'm screwed. I can't sell.”