The SEC has charged internet entrepreneur and NBA Dallas Mavericks owner Mark Cuban with insider trading over shares of Mamma.com. The high-profile complaint — the press release is highlighted on SEC.gov at the moment — alleges that in June 2004, Cuban sold 600,000 shares of the search engine company’s stock within hours of receiving confidential information that the company was about make a stock offering that would dilute existing holdings. The stock went down after the PIPE (private placement in public equity) was announced publicly; the government alleges that Cuban “avoided losses” of more than $750,000 by selling early. The suit has been filed in the U.S. District Court for the Northern District of Texas (full pdf).
No matter how it ends, at the very least, the charges will make Cuban’s effort to buy the Chicago Cubs even more difficult. The government wants to enjoin Cuban from
future trading future infractions and get the usual financial penalties — “disgorgement” of gains plus interest and a civil fine. (The SEC explains that the injunction, if granted, would add another layer of potentially more serious sanctions for future infractions.) I’ve asked Cuban for his response. Cuban denies the charges. In the meantime, after the jump, read what Cuban wrote on BlogMaverick in March 2005 about selling the shares.
(punctuation his): “I had purchased stock in Mamma.com in hope that it could be an up and coming search engine. I thought I had done some level of due diligence. Talked to the company management. Talked to some employees who worked in sales. Read the SEC Filings. I knew that they had a checkered past and had been linked to stock promoter Irving Kott, and that their law firm still handled some of Kotts business, but the CEO, Chairman, lawyers all said that things were reformed and the company was focused on its business. Then the company did a PIPE financing. Im not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I dont want to own stock in companies that use this method of financing . Why? Because I dont like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants.So I sold the stock.”
The government alleges it wasn’t that simple, that Cuban sold the stock before he was supposed to despite acknowledging to the CEO that he knew he couldn’t sell his holdings before the public announcement of the PIPE financing: “Cuban knew or was reckless in not knowing that he had received material, non- public information from Mamma.com and that he breached a duty of trust or confidence that he owed to Mamma.com when he sold on the basis of that information.” Mamma.com changed its name to Copernic in 2007 after acquiring that company.
Cuban also wrote about it when his purchase of a 6.3 percent stake in Mamma.com went public in early 2004: “I invested in mamma.com for the same reason I invested in Netidentity.com back when it was known as mailbank.com. I love businesses with low overhead, that don