SEC Slaps Billionaire Mark Cuban With Insider Trading Charges

The charges, filed Monday in the U.S. District Court in Dallas, allege that Cuban in 2004 sold his entire stake of 600,000 shares of Montreal-based Web search-engine company Mamma.com based on nonpublic information. "By selling when he did, Cuban avoided losses in excess of $750,000," according to the nine-page complaint.

The SEC is seeking an injunction against Cuban to prevent him from engaging in future violations of federal securities laws, to pay back the amount of losses avoided by his actions and payment of an unspecified civil penalty.

Former owner of Dallas-based systems integrator MicroSolutions and CRN contributor, Cuban made his fortune in the heyday of dot.com euphoria by founding, and then selling, Broadcast.com to Yahoo in 1999 for $5.9 billion.

Following that, he bought the Mavericks in 2000, and more recently starred in reality TV program, The Benefactor, competed in Dancing With the Stars, had a spot on singing game show Don't Forget the Lyrics! and is listed as the executive producer of several films, including George Clooney's Good Night, and Good Luck. Cuban also owns HDNet, a national high-definition television network, and Landmark Theaters.

The SEC Monday alleged that in June 2004, Mamma.com was about to raise capital through a private investment in public equity (PIPE). When the Mamma.com CEO contacted Cuban, the company's largest shareholder prior to the PIPE offering, and prefaced his conversation with the warning that the information was confidential and could not be shared, the indictment alleges that Cuban agreed to keep the information confidential.

The indictment says that upon hearing of the PIPE offering, "Cuban became very upset and angry," saying he did not like PIPE because, 'They dilute the existing shareholder.'"

Following that conversation and a subsequent one the same day with a salesman from Merriman Curhan Ford & Co., the investment bank handing the PIPE, Cuban instructed his Dallas broker to sell his entire stake of 600,000 shares in Mamma.com, according to the SEC.

The SEC alleges that Cuban completed sales of his shares on June 29, 2004, and the public announcement of the PIPE offering didn't come until the markets closed later that same day. "By selling his Mamma.com shares prior to the public announcement of the PIPE, Cuban avoided losses in excess of $750,00," the complaint alleges.

But on his blog, Cuban issued a written response to the charges. "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."