Mark Cuban accused of insider trading

Mark Cuban accused of insider trading

Summary: The Securities and Exchange Commission filed a complaint against Dallas Mavericks owner Mark Cuban today, charging that he engaged in insider trading by selling his shares in search engine Mamma.com based on insider information.

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The Securities and Exchange Commission filed a complaint against Dallas Mavericks owner Mark Cuban today, charging that he engaged in insider trading by selling his shares in search engine Mamma.com based on insider information. (Statement | Complaint)

According to the complaint, Mamma.com's CEO contacted Cuban, who at the time held 6.3% of the company, in June 2004 and alerted him that Mamma was moving forward with a PIPE (private investment in public equity) offering. At the start of the conversation, the CEO told Cuban he had confidential information for him, which constituted knowledge on Cuban's part that the this was insider information that he could not trade on.

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.

Cuban then spoke to a sales rep from Merriman, the firm handling the pipe, which angered him further.

One minute after hanging up with the Merriman sales representative, Cuban called his broker in Dallas and told the broker to sell his entire 600,000 share Mamma.com position. He told the broker "sell what you can tonight andjust get me out the next day."

The complaint says that Cuban did manage to dump his entire holding before the PIPE announcement and that he was right: The PIPE was bad for him. By selling on insider information he saved himself a $750,000 loss.

He is charged with Rule 10(b), 10(b)(5) and 17(a) violations.

Topics: Banking, Enterprise Software

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3 comments
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  • A Marth Stewart wannabe...

    ...and he, too, will probably get off with a slap on the wrist.
    MGP2
  • RE: Mark Cuban accused of insider trading

    I didn't even know that Mama.com existed anymore. It was the first search engine I used over 10 years ago before I switched to Yahoo and then google.

    I am a law professor and I was actually teaching a class tonight on Insider Trading. A number of students had sent me email links to various versions of this story. This is the first chance I have had to read about it.

    I am wondering however, just based on the limited facts here whether it would constitute insider trading. One of the requirements is that the info must have a significant impact on the market price. I don't know enough about PIPES to know if it is clear that current shs would lose value or whether that was just Cuban's view.
    It is not relevant that he proved to be right; what matters is whether at the time he made the assessment to sell that it was unambiguous that current sh value would drop.
    As I said, I know next to nothing about PIPEs it may be the case that it is always the case that current sh value drops -- then Cuban would be guilty of insider trading.

    But if it is only a possibility and there is also a possibility that current sh value would rise... then it is not clear that his trading would fall in the definition of insider trading.

    Of course, why was he told this info in confidence? That suggests that people knew what the market impact would be of PIPEs.

    Edit: I have since investigated PIPEs and apparently, they invariably dilute current shareholder value -- so I think Mark is toast -- at least civilly.
    Justitia
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    MGP2