July 17 (Bloomberg) -- Mark Cuban, the billionaire owner of the Dallas Mavericks, won his bid to toss the U.S. Securities and Exchange Commission’s insider-trading lawsuit against him.

U.S. District Judge Sidney A. Fitzwater in Dallas, in an order today, granted Cuban’s request to dismiss the case, without ruling on the merits of the SEC’s accusations. He left room for the agency to refile its case.

In its Nov. 17 lawsuit, the SEC claimed Cuban promised during a 2004 telephone call with Mamma.com Inc.’s chief executive officer to keep confidential a planned private offering of company stock at a below-market price. Later that day, Cuban avoided more than $750,000 in losses by ordering the sale of his 6.3 percent stake in the Montreal-based Internet search company, the agency said.

“The SEC has failed to allege that Cuban undertook a duty to refrain from trading on information about the impending PIPE offering,” Fitzwater wrote in his opinion, referring to the so- called private investment in public equity offer.

“We are reviewing the court’s ruling and weighing our options,” said Scott Friestad, an associate director of SEC enforcement who’s overseeing the agency’s case against Cuban.

In his ruling, Fitzwater said the SEC didn’t allege that Cuban, 50, agreed not to trade on the information, only to keep it confidential.

“While the SEC adequately pleads that Cuban entered into a confidentiality agreement, it does not allege that he agreed, expressly or implicitly, to refrain from trading on or otherwise using for his own benefit the information,” the judge wrote.

‘Somewhat Novel’

The judge’s ruling is “somewhat novel” in how it defines a confidentiality agreement, said John Sylvia, a litigation attorney at Mintz, Levin, Cohn, Ferris, Glovsky & Popeo PC in Boston. “Ordinarily, one would assume that if you agree to come under the tent, that agreement would implicitly entail not using that information as well,” he said.

Sylvia, who’s not involved in the case, said he’s sending his partners a memo suggesting they amend confidentiality- agreement language to note it also prohibits trading on the information.

“I think the SEC now knows it will be a very difficult case going forward,” Ralph Ferrara, a lawyer for Cuban, said today in a phone interview. “What he did was refine the argument down in a very sophisticated way.”

Cuban argued that the SEC’s complaint failed to show he was barred from selling the shares and that the agency was trying to expand the definition of insider trading. Ferrara argued at a May 26 hearing that the alleged confidentiality agreement didn’t make his client Mamma.com’s “fiduciary,” or someone required to act for the benefit of another.

Duty to Refrain

The promise to keep information secret doesn’t create a duty to refrain from acting on it, Ferrera said. An SEC rule at issue in the case pertains only to family or other personal relationships, said Ferrara, a former SEC general counsel now with Dewey & LeBoeuf LLP in Washington. In his ruling, Fitzwater disagreed with that contention.

Kevin P. O’Rourke, an SEC lawyer, disputed both contentions at the hearing.

“This case, we believe, is based on a straight-down-the- line application of insider-trading law,” O’Rourke said.

In his ruling, Fitzwater said the SEC could refile the case if it can allege that Cuban agreed not to trade on the information. Cuban says he made no such agreement.

Multipronged Fight

Cuban has waged a multipronged fight against the SEC’s claims, attacking the agency on his blog and in complaints to the regulator’s inspector general. The agency is probing Cuban’s contention that SEC staff broke internal rules while investigating him, two people familiar with the matter said in June.

In May, Cuban sued the SEC in federal court in Washington, claiming the agency improperly refused his request for documents, including information on internal probes of a staff attorney in Texas who had argued with him by e-mail over his ties to a film, “Loose Change,” about the Sept. 11 terrorist attacks. The SEC lawyer wasn’t involved the probe of Cuban.

Cuban was at the American Airlines Center in Dallas, home of the Mavericks, in late June 2004 when he got an e-mail from Mamma.com’s CEO asking that he phone as soon as possible, the SEC said. During an almost nine-minute call, Cuban promised to keep the information secret before learning the company planned the PIPE offer.

Cuban became upset and said he didn’t like PIPEs because they dilute existing shares and drive down the stock price, the SEC said.

‘I’m Screwed’

Cuban told the CEO, “Well, now I’m screwed. I can’t sell,” the SEC said.

Fitzwater said the comment “cannot be reasonably understood as an agreement not to sell based on the information.”

Mamma.com changed its name to Copernic Inc. in 2007.

Fitzwater said that, by law, an outsider in a fiduciary relationship to the information source can’t secretly trade on it. The judge disagreed with Cuban that a fiduciary relationship must exist to bring an insider-trading case based on the so- called misappropriation theory, which was the basis of the case against Cuban. The misappropriation theory was developed by courts as distinct from classic insider trading by someone who works for a stock issuer.

The duty not to trade on information could be created through an agreement not to do so, even if the person isn’t a fiduciary, Fitzwater said.

Investor Confidence

“The goal of protecting the integrity of the securities markets and promoting investor confidence would be achieved just as effectively by enforcing duties of nondisclosure and non-use that arise by agreement as by enforcing duties that flow from the nature of the relationship between the information source and the misappropriator,” Fitzwater wrote.

The government may not have effectively presented the most compelling argument, that “implicit in the duty of confidentiality is a duty not to trade,” said Jacob Frenkel a former SEC lawyer now with Shulman, Rogers, Gandal, Pordy & Ecker PA in Rockville, Maryland.

“Because of the other theatrics that have surrounded the SEC-Cuban relationship, the SEC may just drop this case despite the fact that this decision belongs in the appellate court because it goes to the heart of the agency’s application of insider-trading enforcement theory,” Frenkel said.

Cuban owns the HDNet high-definition television channel and the Landmark Theater chain. He made his fortune through the sale of Broadcast.com, the multimedia Web service he co-founded and that Yahoo! Inc. bought for $4.7 billion in 1999.

The next year, Cuban purchased the Mavericks from Ross Perot Jr. for $280 million, a record at the time for a National Basketball Association team.

The case is SEC v. Cuban, 08-cv-2050, U.S. District Court, Northern District of Texas (Dallas).

To contact the reporters on this story: Thom Weidlich in New York at tweidlich@bloomberg.net; David Scheer in New York at dscheer@bloomberg.net.

Last Updated: July 17, 2009 14:54 EDT