Oh Mamma.com: SEC charges Mark Cuban with insider trading; Cuban responds

Oh Mamma.com: SEC charges Mark Cuban with insider trading; Cuban responds

Summary: Updated: The Securities and Exchange Commission said Monday that it has charged Mark Cuban with insider trading for selling 600,000 shares of Mamma.com.

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TOPICS: Banking
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Updated: The Securities and Exchange Commission said Monday that it has charged Mark Cuban with insider trading for selling 600,000 shares of Mamma.com.

cuban2.pngSpecifically, the SEC says that search engine Mamma.com, known today as Copernic, invited Cuban--owner of the Dallas Mavericks and former Yahoo and Broadcast.com exec--to participate in a stock offering in June 2004 on the agreement that he would keep the information confidential. The SEC alleges that Cuban "knew that the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders."

On his blog, Cuban said:

“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. The government’s claims are false and they will be proven to be so.”

According to the SEC statement (via WSJ):

Within hours of receiving this information, according to the complaint, Cuban called his broker and instructed him to sell Cuban's entire position in the company. When the offering was publicly announced, Mamma.com's stock price opened at $11.89, down $1.215 or 9.3 percent from the prior day's closing price of $13.105. According to the complaint, Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the offering.

Here's the time period in question (click to enlarge chart):

mamma.png

The SEC's complaint serves up more detail.

The SEC alleges that Cuban was informed of Mamma.com's planned private investment in public equity (PIPE) offering to raise capital. Cuban was invited to join in the PIPE. Cuban spoke to Mamma.com's CEO about the PIPE deal for a little more than eight minutes on the basis that the information would be confidential.

A lot of the discussion on stock sites I follow note that PIPEs are gray areas when it comes to security laws and that Cuban can make a strong defense.

The key passage of the SEC complaint is below:

The CEO prefaced the call by informing Cuban that he had confidential information to convey to him, and Cuban agreed that he would keep whatever information the CEO intended to share with him confidential. The CEO, in reliance on Cuban's agreement to keep the information confidential, proceeded to tell Cuban about the PIPE offering. Cuban became very upset and angry during the conversation, and said, among other things, that he did not like PIPES because they dilute the existing shareholders. At the end of the call, Cuban told the CEO "Well, now I'm screwed. I can't sell."

After speaking to Cuban, the CEO told the company's then-executive chairman about his conversation with Cuban, including the fact that Cuban was very upset and angry about the PIPE. Shortly thereafter, the executive chairman sent an email to the other Mamma.com board members updating them on various PIPE-related items, including the fact that the CEO had spoken to Cuban:

Today, after much discussion, [the CEO] spoke to Mark Cuban about this equity raise and whether or not he would be interested in participating. As anticipated he initially 'flew off the handle' and said he would sell his shares (recognizing that he was not able to do anything until we announce the equity) but then asked to see the terms and conditions which we have arranged for him to receive from one of the participating investor groups with which he has dealt in the past.

On June 29, 2004 Cuban sold his stake in Mamma.com. After market close Mamma announced the PIPE deal.

The SEC is looking to enjoin Cuban and recover the avoided losses.

Topic: Banking

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13 comments
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  • Someone trusted Mark Cuban to do right....

    Then they deserve what they got.

    The only one Mark Cuban thinks about is himself.

    He even micro-manages his basketball team, firing the best coach they ever had Avery Johnson.

    If you or I had done this we'd be behind bars, but Cuban just has to pay the windfall back.
    He'll probably spend twice that amount trying to get out of it because "Nobody tells Mark Cuban whatt to do, especially the SEC".

    If you have ever seen him on the sidelines of a Dallas Mavericks game you'd know what I'm talking about. He probably kisses himself in the mirror.
    dunn@...
    • I couldn't agree more.

      He is the perfect example that money doesn't buy class.

      It would be nice to see him in handcuffs...but that won't happen, unfortunately.
      ths40
  • RE: Oh Mamma.com: SEC charges Mark Cuban with insider trading

    Please note that this is a civil law suit, not a criminal action. Cuban would only have to pay back the gain and possible fines. It is still possible that he could be charged with a criminal violation, but that is somewhat unlikely.

    It is also different than the Martha Stewert situation in that she was charged with a criminal violstion "obstruction of Justice" for lying to prosecuters, not insider trading.

    Nannor
    nannor@...
  • Cuban needs to call Martha Stewart

    I suggest Mark Cuban call Martha Stewart and get some advice.
    drichards1953
  • RE: Oh Mamma.com: SEC charges Mark Cuban with insider trading

    I have followed Mark Cuban since he was an Internet pioneer and have always found him to be exceptionally honest and capable. He has been generous in his willingness to speak to young people, whether students or budding entrepreneurs. I wholeheartedly believe him and in him, and I think his position will win the day. Joan Van Tassel
    joanvt
  • mamma.com is still alive?.

    it is hard to believe.
    magallanes
  • Who, me? Not me! I would never...

    Upon being accused of any offense, the accused immediately denies it. "News" sources then report the denial as if it is somehow newsworthy. O.J. denies crime, say he was golfing at the time. LOL. I live for the day when the attorney for the accused comes out and says, "Yeah, they got my client dead to rights, but I hope to get a deal from the prosecutor." Now, THAT would be newsworthy. I may live forever and never hear it.
    Legal_Beagle
  • You play with the big boys....

    Mr Cuban thought that the SEC approach was "win-at-any-cost ambitions". Oh gracious, what color is that kettle?
    Silver70
  • RE: Oh Mamma.com: SEC charges Mark Cuban with insider trading

    Mark Cuban is being targeted because of his bid for the Cubs team. He has the highest bid and baseball is doing anything and everything it can to keep Cuban out. He and the present owner are making waves about going after baseball's anti-trust exemption which would cost baseball millions, the only way they can keep Cuban out is if they discredit him. It's very interesting timing that the SEC would be going after Cuban on such a small amount at this particular time.
    Bud Selig is going to have his way no matter who he slams or how he gets it.
    stan3186
    • Small Amount?

      If it's such a "small amount", as you put it, Mark wouldn't have been upset about it. Obviously, he thought it was a significant amount, and that is why he sold it. We'll find out if what he did was actually a violation. But, don't play the game of attacking the SEC for investigating possible insider trading. It's their job.
      Bob C User
  • You left something HUGE out ... SEC vendetta e-mails

    There is evidence of GRAVE misconduct by the Securities and Exchange Commission in this matter. If the SEC had intended to pursue this matter in an ethical manner they would have removed themselves from the case and asked that it be pursued by attorneys outside Texas under the supervision of the Inspector General.

    It turns out that an SEC attorney in Fort Worth has used SEC official e-mail to attack Mr. Cuban, saying that the football club's owner was guilty of "smearing the good name of a patriot like President Bush." This Fort Worth SEC attorney was under the impression that Mr. Cuban was involved in a controversial film about the Sept. 11th attacks on the World Trade Center and the Pentagon. Mr. Cuban has said he had nothing to do with the movie, "Loose Change."

    The e-mail traffic even made it to SEC Chairman Christopher Cox.

    The SEC's action smells of political retribution.

    REG CROWDER
    Freelance Financial and Investment Writer
    London, England and Brittany, France
    http://www.journalistdirectory.com/journalist/TgTQ/REG-CROWDER
    REG-CROWDER
  • He was upset because of what the company was PLANNING to do....

    He was mad because he doesn't like those sorts of deals. He feels those sorts of deals are intrinsically dishonest. What would have been a telling character move would have been if he had, instead bought more stock at the discounted price. I find those deals to be reprehensible.
    Mr. Cuban is a good business man. I don't have a problem with his ethics on this at all. The money is chump change. His problem was the principle involved. This is the kind of man Baseball needs, he has honor.
    Bill F.
  • Company confidential does not necessarily mean SEC material

    If the CEO of mama.com had believed the information he wanted to convey to Cuban was SEC material, he should have said so. Assuming that the CEO is not a complete idiot, by telling Cuban it was Company confidential, implicitly he didn't believe it was SEC material. The difference between these terms is huge since possessing the first does not preclude trading and the latter does.

    PIPES are a grey area vis-a-vis materiality and clearly there is a difference of opinion between SEC enforcement and Cuban's legal advisors. I wouldn't rush to judgment that Cuban is guilty of insider trading.
    michaelcamp