Billionaire Cuban Goes to Trial in SEC’s Mamma.com Case
By Andrew Harris & Tom Korosec - Sep 30, 2013 12:00 AM ET
Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team, faces trial over U.S. regulators’ claims he engaged in insider trading when he sold his stake in a Canadian Internet search company nine years ago.
The Securities and Exchange Commission in 2008 accused Cuban of acting on confidential information when he unloaded his 600,000 shares of Mamma.com four years earlier, just before it announced a private placement of shares.
Entrepreneur Mark Cuban maintains he did nothing wrong. Photographer: Daniel Acker/Bloomberg
The case was revived in 2010 after U.S. District Judge Sidney A. Fitzwater in Dallas dismissed it. Fitzwater came close to throwing it out again in March. Jury selection is scheduled to start today and the trial, with Fitzwater presiding, is expected to last eight to 10 days.
Cuban, 55, maintains he did nothing wrong.
“The SEC has alleged that Mark Cuban defrauded Mamma.com Inc. by unlawfully misappropriating confidential information for Mr. Cuban’s personal use in his sale of Mamma securities,” his lawyers said in a court filing “The record shows that nothing could be further from the truth.”
Cuban, who is chairman of the high-definition television network HDNet, has owned the Mavericks since 2000. The National Basketball Association franchise, which identifies him as “head honcho” on its website, won the league championship in 2011, beating the Miami Heat four games to two.
He also owns the Landmark Theatre chain, has been a contestant on the television program “Dancing with the Stars” and appears regularly on the television show “Shark Tank.”
In 1999, he sold Broadcast.com, a multimedia web service he founded, to Yahoo! Inc. for $4.7 billion.
Cuban was the biggest stockholder of Montreal-based Mamma.com, holding 6.3 percent of its shares, and had offered to use his fame to promote the company and assist it with possible acquisitions, according to a Sept. 25 pretrial filing by Fitzwater summarizing each side’s claims.
The SEC claims that in April 2004, one month after he bought 600,000 shares of Mamma.com stock, Cuban told then-Chief Executive Officer Guy Faure, “Obviously what you tell me is confidential,” according to Fitzwater.
In a June 2004 phone conversation, Faure allegedly told Cuban he had confidential information for him and asked if he was interested in participating in a new offering that diluted the company’s shares by 8.5 percent, the judge wrote. Near the end of the conversation, Cuban allegedly told Faure, “Now I’m screwed. I can’t sell.”
That day, one minute after ending a phone conversation with a sales agent for the share offer, Cuban called his broker and told him to sell all his shares, according to the summary.
The next day, before the placement was made public at the market close, Cuban’s broker sold all the shares enabling Cuban to avoid a $750,000 loss, according to the SEC.
Mamma.com fell 8.5 percent on June 30, 2004, the first trading day after the private placement was announced, and 15 percent the day after the investor’s sales were disclosed in a regulatory filing made public on July 2, according to data compiled by Bloomberg.
The company is now known as Copernic Inc.
Cuban contends the SEC can’t prove a confidentiality agreement was formed between him and Mamma.com and says he made no agreement that he couldn’t trade on information about the private share offering, Fitzwater wrote.
Cuban’s lawyers have said the commission’s proof falls short in several other areas, including whether he was reckless, whether he disclosed he was going to sell his stock and whether he used the offering information to sell, according to the summary statement.
“We look forward to a fair trial,” Chris Clark, one of Cuban’s attorneys, said in an interview. “We think the truth will come out and Mr. Cuban will be vindicated.”
Judy Burns, a spokeswoman for the SEC, declined to comment on the trial.
The government is seeking “disgorgement of all ill-gotten gains” and undisclosed civil monetary penalties, prejudgment interest and a permanent injunction prohibiting Cuban from “further violations of the relevant provisions of the Exchange Act.”
The case has stretched to five years with disputes over insider trading law, SEC conduct and other matters. After the judge dismissed the case in 2009, a U.S. appeals court in New Orleansreversed that ruling and revived it.
In March, Cuban lost another bid to end the case. Fitzwater stated that while his ruling was “a close one,” the SEC was entitled to present its case to a jury.
The case is Securities and Exchange Commission v. Cuban, 08-cv-02050, U.S. District Court, Northern District of Texas (Dallas).
To contact the reporters on this story: Andrew Harris in federal court in Chicago firstname.lastname@example.org; Tom Korosec in federal court in Dallas email@example.com
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