The Securities and Exchange Commission has charged Dallas Mavericks owner Mark Cuban with insider trading charges stemming from his sale of 600,000 shares of the search engine Mamma.com.
The SEC complaint, filed in a U.S. District Court in Dallas, alleges that in June 2004, Mamma.com Inc., now known as Copernic, invited Cuban to participate in a stock offering after he agreed to keep the information confidential.
The complaint alleges that Cuban knew the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders. The offering was a private placement known as a private investment in public equity, or PIPE. Cuban complained about the dilutive nature of the 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," said the SEC complaint. "At the end of the call, Cuban told the CEO, 'Well, now I'm screwed. I can't sell.'"
Within hours of receiving the information, Cuban called his broker and instructed him to sell his 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.
Cuban responded on his blog to the SEC charges, saying, "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."
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