Billionaire Mt. Lebanon native Mark Cuban is vowing to fight the Securities and Exchange Commission's civil charges that he avoided more than $750,000 in investment losses four years ago through illegal insider trading.
The SEC said Monday that the outspoken Dallas Mavericks basketball team owner sold 600,000 shares of Internet search engine company Mamma.com Inc. in June 2004, based on nonpublic details about an impending stock sale.
Cuban, a tech entrepreneur who made his fortune during the dot-com boom, could end up paying the government more than $3 million, after penalties are added up. Forbes magazine put his net worth at $2.3 billion as of March 2007.
"I am disappointed that the commission chose to bring this case based upon its enforcement staff's win-at-any-cost ambitions," Cuban, 50, said in a message on his Web site.
"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 posting continued. Responding to an e-mail from the Tribune-Review, Cuban said he would have no further comment.
Depending on the outcome, the civil case could impact Cuban's business dealings -- including his reported interest in buying the Chicago Cubs, legal experts said.
"This is one more thing that would be taken into consideration, in any bid he makes on the team," said Chicago attorney Phillip Stern, who worked for the SEC in that city for 10 years.
National Basketball Association officials were unavailable for comment.
The SEC could make a high-profile example of Cuban, given his star status -- and likely, he would fire back in a public way, said Joseph Capobianco, a corporate attorney and oversight expert in Garden City, N.Y.
"Mark Cuban loves the attention. He loves sitting in the front row at all the basketball games, and he was fined for berating the basketball officials," he said. "He is going to cultivate this. He's a character."
The SEC's complaint filed in U.S. District Court in Dallas said Cuban acquired a 6.3 percent stake in Montreal-based Mamma.com in March 2004 and was its biggest shareholder.
An investment bank, Merriman Curhan Ford & Co., suggested that spring that Mamma.com raise capital 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 CEO spoke to Cuban by phone on June 28, 2004, the SEC said, and Cuban agreed to keep confidential the information disclosed during the call. But when CEO Guy Faure told Cuban about the PIPE, Cuban became angry and complained that such sales dilute the value of existing shares.
"Well, now I'm screwed. I can't sell," Cuban, according to the complaint, told the CEO.
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 there were other incentives for investors.
Cuban was upset, the complaint said, and one minute later called his broker in Dallas, giving instructions to sell all 600,000 shares. The broker allegedly 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, the SEC said.
Mamma.com announced the PIPE at 6 p.m. June 29, after the stock market closed. Its stock 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. Shares continued to decline over the next week. The company now is known as Copernic Inc.
Copernic's shares closed yesterday at 28 cents, up 5 cents in trading on the Nasdaq stock market. Copernic's shares have traded in the range of 10 cents to $2.15 over the past year.
The SEC wants Cuban to forfeit the money he avoided losing, with interest.
A judge could order him to pay up to three times the $750,000, or about $2.2 million, said Robert B. Kaplan, assistant director of the federal agency's enforcement division, and payments in insider trading cases typically go to the Treasury.
Kaplan countered speculation that the SEC is targeting Cuban as a celebrity businessman. "The violations are clear-cut. We're not suing him because he's Mark Cuban," he said, adding the case could take one to three years to resolve.
Although insider trading has been an SEC priority "on and off" for years, the cases are far from slam-dunks, Pittsburgh attorney Charles Cohen said. The SEC, for example, must prove the trader in question violated a legal duty in using the nonpublic information.
Still, Cuban is a "juicy target" who, if he loses or has to pay a large settlement, will draw favorable attention to federal securities law enforcers, he said.
The allegations against Cuban bear some similarities to the 2002 securities case against Martha Stewart, experts said, although the homemaking expert was convicted of making false statements to federal investigators and served a jail sentence.
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