The Securities and Exchange Commission has charged Mt. Lebanon native and Dallas entrepreneur Mark Cuban with insider trading.
The SEC said today that Cuban, owner of the Dallas Mavericks basketball team, sold 600,000 shares of the Internet search engine company Mamma.com in June 2004, based on non-public information about an impending stock sale. As a result, he avoided more than $750,000 in losses.
Cuban this afternoon put a message on his Web log, saying he intends to contest the allegations.
"I am disappointed that the commission chose to bring this case based upon its enforcement staff's win-at-any-cost ambitions," he said in the posting "The staff's process was result-oriented, facts be damned. The government's claims are false and they will be proven to be so."
The complaint filed in U.S. District Court in Texas said Cuban, 50, acquired a 6.3 percent stake in the company in March 2004, and was its biggest shareholder.
After an investment bank, Merriman Curhan Ford & Co., suggested Mamma.com raise capital that spring through a financial tool known as a private investment in public equity, or PIPE, Cuban was invited to participate at the bank's suggestion, the SEC complaint said.
Mamma.com's chief executive spoke to Cuban by phone on June 28, 2004, and Cuban agreed to keep information disclosed during the call confidential, the SEC said.
But when the unnamed CEO told Cuban about the PIPE offering, Cuban became angry and complained that PIPEs dilute existing shareholders.
"Well, now I'm screwed. I can't sell," Cuban told the CEO, according to complaint.
Cuban later that day talked to a Merriman sales representative, who told him the PIPE was being sold at discount to the market price, and that the offering had other incentives for investors. Cuban was upset and angry, the complaint said, and a minute later he called his broker in Dallas, giving instructions to sell all 600,000 shares.
The broker was told to "sell what you can tonight, and just get me out the next day." Afterward, 10,000 shares were sold at an average cost of $13.50, and the rest were sold the next day at an average $13.29. Mamma.com announced its PIPE offering at 6 p.m. June 29, after the market closed.
Mamma.com's price opened at $11.89 on June 30, down about $1.22 or 9.3 percent from the prior day's closing at $13.11, the SEC said. Shares continued to decline over the next week.
"It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market," said Scott W. Friestad, deputy director of the SEC's division of enforcement.
The complaint asks that the court turn over the amount he avoided losing with interest, and pay financial penalties.
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