November 17th, 2008
Mark Cuban accused of insider trading
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.
