Mark Cuban charged with insider trading
The Texas billionaire businessman was charged with selling 600,000 shares of stock from an Internet search engine company, Mamma.com Incorporated, based on non-public information regarding an impending stock offering by the firm.
“The government’s claims are false and they will be proven to be so,” Cuban responded in a statement posted on his blog on the Mavericks’ web site.
“I am disappointed that the Commission chose to bring this case based upon its enforcement staff’s win-at-any-cost ambitions. The staff’s process was result-oriented, facts be damned.”
In a note atop the statement Cuban added, “Wish I could say more, but I will have to leave it to this and let the judicial process do its job.”
The SEC complaint filed in US District Court for northern Texas alleges that in June of 2004, Mamma.com invited Cuban to participate in the stock offering after he agreed to keep the information confidential.
Cuban knew the offering would be conducted at a discount to prevailing market price and would hurt the value for shareholders, the complaint claims, saying Cuban dumped his shares and avoid 750,000 dollars in losses.
“Insider trading cases are a high priority for the Commission,” said SEC enforcement division director Linda Chatman Thomsen.
“This case demonstrates yet again that the Commission will aggressively pursue illegal insider trading whenever it occurs.”
Cuban’s response statement, issued through his attorneys, said the charges had been pending before the SEC for nearly two years, had no merit and were “a product of gross abuse of prosecutorial discretion.”
In saying Cuban will fight the allegations, the response said Cuban hops to show the SEC claims are “infected by the misconduct of the staff of its Enforcement Division.”
Cuban, 50, made his money through Internet and technology companies and in 2000 purchased the Mavericks, becoming an outspoken critic of some aspects of the league and billing himself as his team’s top fan.
Over sporting a team T-shirt and a seat near the court for Mavericks home games, Cuban has been fined more than 1.5 million dollars by the NBA for statements critical of the league and its referees.
The charges also come as Cuban was seen as a top candidate to purchase Major League Baseball’s Chicago Cubs.
He entered the bidding for the storied sports franchise in July and was in position to win the financial fight, reportedly with the top bid at 1.3 billion dollars.
The charges, if proven true, would give baseball owners a reason to dump Cuban’s bid even if it were the highest.
Before the SEC charges, the Chicago Sun-Times quoted an anonymous source as saying Cuban had “zero chance” of being approved as owner of the Cubs.
The Chicago Tribune has reported that more detailed bids on how purchases of the Cubs would be financed are due next week.
The SEC claims that within hours of learning of the plan, Cuban told his broker to sell his entire stake in Mamma.com.
Once the offer was announced, Mamma.com stock opened at 11.89 dollars, down 9.3 percent from where it closed the day before, 13.10.
For violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, the SEC wants to permanently enjoin Cuban from future violations of the federal securities laws, impose a financial penalty and force Cuban to surrender the money he saved with the move.
“It is fundamentally unfair for someone to use access to non-public information to improperly gain an edge on the market,” said Scott Friestad, SEC enforcement division deputy director.
“Mamma.com entrusted Mr. Cuban with non-public information after he promised to keep the information confidential. Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all of his shares.”