WASHINGTON/NEW YORK — Mark Cuban, owner of the Dallas Mavericks professional basketball team, was charged with insider trading in shares of Mamma.com Inc, an Internet search engine firm, the Securities and Exchange Commission said on Monday.
Cuban, one of the five finalists to buy the Chicago Cubs pro baseball team, faces civil charges by acting on nonpublic information and selling his entire stake in Mamma.com to avoid more than $750,000 in losses, the SEC alleged.
Cuban, listed by Forbes magazine as one of the 400 richest Americans with an estimated net worth of $2.6 billion, said he intends to contest the allegations. On his blog, Cuban said the matter has no merit and is the result of gross abuse of prosecutorial discretion.
Calls to Cuban’s lawyers were not immediately returned.
According to the SEC, Quebec-based Mamma.com invited Cuban in June 2004 to participate in a private placement stock offering after he agreed to keep the information confidential.
When Cuban found out that the offering would dilute the holdings of existing shareholders and be sold at a discount to the market price, he became “angry and upset,” the SEC said.
At the end of a call with Mamma.com’s chief executive, Cuban said: “Well, now I’m screwed. I can’t sell,” according to the SEC’s complaint.
Within hours of receiving information, Cuban told his broker, “Sell what you can tonight and just get me out the next day,” the SEC alleged.
During after-hours trading on June 28, 2004, Cuban sold 10,000 of his 600,000 shares, and the following morning sold his remaining stake.
Later that day, after markets closed, Mamma.com publicly announced its private placement offering. When markets reopened the following day, the company’s stock was down 9.3 percent at $11.89.
“It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market,” the SEC’s deputy director of enforcement Scott Friestad said in a statement.
According to the complaint, Cuban later publicly said he had sold his Mamma.com stake because the company was conducting a private investment in public equity (PIPE), which issued shares at a discount to the prevailing market price and would have caused his ownership position to be diluted.
The complaint alleged that Cuban never disclosed to Mamma.com that he was going to sell his shares prior to the company’s announcement.
Mamma.com has since changed its name to Copernic (NASDAQ: CNIC). Shares of Copernic rose 2 cents to 25 cents on Nasdaq on Monday.
Cuban also owns HDNet, a national high-definition television network, and Landmark Theatres. Magnolia Pictures, the theatrical and home entertainment distribution company that he co-owns through the company 2929 Entertainment, released the documentary “Enron: Smartest Guys in the Room.”
He also is the majority partner in ShareSleuth.com, a site that reports on “securities fraud and corporate chicanery,” according to its Web site.
A disclosure on the Web site says that Cuban “will periodically make personal investments based on information we uncover. Those investments will be fully disclosed, so that readers can evaluate any potential conflicts of interest.”
The SEC is seeking civil fines and disgorgement or repayments of money he made from violating securities laws.