Mark Cuban Again Seeks End to SEC Insider Trading CaseAndrew Harris and Thomas Korosec
Mark Cuban, the Texas billionaire and pro basketball team owner, went to the federal courthouse in Dallas yesterday to try to persuade a judge to throw out for a second time a U.S. lawsuit accusing him of insider trading.
U.S. District Judge Sidney Fitzwater in Dallas heard arguments on Cuban’s request and on the Securities and Exchange Commission’s opposition. A federal appeals court in New Orleans reinstated the case against Cuban, the owner of the Dallas Mavericks, in 2010, the year after Fitzwater dismissed it.
The SEC, in a 2008 suit, accused Cuban of making illegal trades in June 2004 in shares of Internet search company Mamma.com Inc. based on inside information from its then-chief executive officer, Guy Faure.
Cuban claims what he learned from Faure was no secret.
“After years of the SEC’s investigation of Mr. Cuban and discovery in this case, there is not a shred of evidence of a confidentiality agreement between Mr. Cuban and Mamma,” defense lawyers argued in a court filing on July 13.
The SEC claims Cuban, upset upon learning of the company’s imminent plans for a below-market private placement, sold his 6.3 percent stake for about $7.9 million within hours of talking to Faure, avoiding a $750,000 loss.
This followed his telling Faure during a June 28, 2004, telephone call, “Well, now I’m screwed. I can’t sell,” according to the SEC.
Mama.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 Montreal-based Internet search company is now known as Copernic Inc.
SEC lawyers argued in court papers that Fitzwater should deny Cuban’s bid to dismiss the case because the parties disagree about underlying facts.
“It’s an inside information case, it’s a misappropriation case. It deserves to have a jury trial,” SEC attorney Kevin O’Rourke told the judge yesterday. “We have more than enough to get to a jury, your honor.”
Cuban was the only person who knew about the private placement plan who traded on it, O’Rourke said. It was the first time Cuban had sold shares in the company, he said.
“Mr. Cuban disclosed he was going to sell his shares,” his attorney, Stephen Best, said in court. “That absolves Mr. Cuban of liability.”
Cuban had told Arnold Owen, then a managing director at Mamma.com’s investment banker, Merriman Curhan & Ford Inc., that he planned to sell on the same day he spoke with Faure, Best said.
Fitzwater, who didn’t make a ruling, heard about an hour of argument from the attorneys.
Cuban, dressed in a black, shadow-striped suit, and open-collared blue shirt, listened from the front row of the gallery.
He declined to comment after the hearing.
In addition to his National Basketball Association franchise, Cuban, 54, owns the HDNet high-definition television channel and the Landmark Theater chain.
This month, the NBA fined Cuban $50,000 for making critical comments about game officials on his Twitter.com page.
Arriving at the courthouse yesterday, Cuban was asked whether he intended to fight the SEC allegations to their legal conclusion.
“You’ll just have to stay tuned,” he replied.
The case is Securities and Exchange Commission v. Cuban, 08-cv-2050, U.S. District Court, Northern District of Texas (Dallas)