WASHINGTON -- Federal regulators on Monday charged Dallas Mavericks owner Mark Cuban with insider trading for allegedly using confidential information on a stock sale to avoid more than $750,000 in losses.
Cuban disputed the Securities and Exchange Commission's allegations and said he would contest them.
In a civil lawsuit filed in federal court in Dallas, the SEC alleged that in June 2004, Cuban was invited to get in on the coming stock offering by Mamma.com Inc. after he agreed to keep the information private.
Cuban owned 6.3 percent of Mamma.com's stock at that time and was the largest known shareholder in the search engine company, according to the SEC. The agency said Cuban knew the shares would be sold below the current market price, and a few hours after receiving the information, he told his broker to sell all 600,000 shares before the public announcement of the offering.
By selling when he did, Cuban avoided losses exceeding $750,000, the SEC said in its lawsuit.
Cuban, 50 and a multibillionaire, is a tech entrepreneur who sold his Broadcast.com to Yahoo Inc. in 1999 at the height of the dot-com boom. He bought the Mavericks in 2000 and spent heavily to improve the roster.
He is the best known figure to be accused by the SEC of illegal insider trading since its case against Martha Stewart in 2002 for allegedly using advance knowledge of negative news for a company to sell her shares and avoid $45,673 in losses. The homemaking diva paid about $195,000 and agreed not to serve as the director of a public company for five years under a 2006 settlement with the SEC.
|Mark Cuban allegedly avoided more than $750,000 in losses with his stock sale. (Getty Images)|
"It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market," Scott Friestad, the SEC's deputy enforcement director, said in a statement. The agency alleged that Cuban acted with "scienter," a legal term indicating knowledge of wrongdoing.
The SEC is seeking a court judgment against Cuban finding that he violated the antifraud provisions of the federal securities laws, an injunction against future violations, an unspecified civil penalty and restitution of the losses Cuban allegedly avoided.
While the stock offering in question occurred more than four years ago, the SEC didn't learn about the specifics of the case until early 2007, according to agency attorneys.
Cuban's lawyer said in a statement that the SEC's case "has no merit and is a product of gross abuse of prosecutorial discretion."
"Mr. Cuban intends to contest the allegations and to demonstrate that the (SEC's) claims are infected by the misconduct of the staff of its enforcement division," Ralph Ferrara wrote in a note posted on Cuban's blog.