Lawsuit vs. Mark Cuban revived
DALLAS -- A federal appeals court revived the Securities and Exchange Commission's insider-trading lawsuit against Dallas Mavericks owner Mark Cuban on Tuesday, saying it was "plausible" he had agreed not to sell company stock to avoid a loss after receiving confidential information.
The case was sent back to a lower court in Dallas for further discovery and, if necessary, a trial. The appeals court declined to rule on whether Cuban was wrong in selling the stock, saying that was a question for the Dallas court.
The SEC's civil lawsuit accuses the Dallas billionaire of selling shares in the Internet search engine company Mamma.com Inc. in 2004, avoiding a $750,000 loss after learning the company was going to offer stock to private investment companies at a discounted rate.
U.S. District Judge Sidney A. Fitzwater dismissed the lawsuit in July 2009, ruling there was no agreement binding Cuban to not act on this confidential information.
The 5th U.S. Circuit Court of Appeals in New Orleans, however, said in its ruling Tuesday that it was "plausible" Cuban knew he was not to sell his shares until after the announcement of the offering. The court also acknowledged that under the law, it had to view the government's appeal in a manner most favorable to the SEC -- in other words, accepting the agency's version of events.
"Under Cuban's reading, he was allowed to trade on the information but prohibited from telling others -- in effect providing him an exclusive license to trade on" his confidential knowledge of the stock offering, the appeals court wrote.
"We are pleased with the court's decision and look forward to presenting our case," SEC spokesman John Nester said in a statement.
Hours after the appeals court ruling, Fitzwater denied Cuban's motion to have the SEC pay his attorney fees and expenses. Cuban's motion accuses the agency of misconduct and alleges he is a victim of wrongful prosecution because the SEC wanted to target high-profile individuals.
Fitzwater dismissed the motion without prejudice, meaning Cuban can refile it later if the SEC lawsuit proves to be without merit.
Cuban, who denies wrongdoing, released a statement from one of his attorneys, Stephen Best, saying the Mavericks owner was disappointed in the ruling.
The SEC "brought this case as a result of a pre-existing bias against Mr. Cuban ... and prosecuted the case against Mr. Cuban in bad faith," Best said.
"He is also confident that presenting a fully developed record to the District Court would clearly prove his lack of liability and demonstrate the SEC's bad faith in bringing this utterly meritless case against him," Best added.
According to the SEC, Cuban agreed not to share any information before Mamma.com chief executive Guy Faure told him in a phone call in June 2004 that the company planned to raise money through a private stock offering. The complaint says Cuban became angry because he said the plan would hurt his stock's value and ended the call by saying, "Well, now I'm screwed. I can't sell."
The executive chairman sent an e-mail to other Mamma.com board members after the conversation with Cuban, writing that the Mavericks owner "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]," according to court documents.
Cuban, who owned 6.3 percent of the company, sold 10,000 of his 600,000 shares on June 28, 2004. He sold the rest the next day, according to court records.
After the markets closed on June 29, Mamma.com announced its stock offering. The stock eventually dropped by 39 percent.
The Internet company maintains it told Cuban of the stock offering so he could decide whether he wanted to participate in it. Cuban, however, contends he was told to prevent him from trading his stock before the offering, according to the appeals court ruling.
Copyright 2010 by The Associated Press