Court revives Mark Cuban insider trading case

NEW YORK, (Reuters) – Mark Cuban, the outspoken  billionaire owner of the Dallas Mavericks basketball team, was  ordered by a U.S. federal appeals court on Tuesday to face a  civil fraud lawsuit accusing him of insider trading.

The U.S. Fifth Circuit Court of Appeals said a federal  district court in Dallas erred in dismissing the case brought  by the U.S. Securities and Exchange Commission against Cuban.  It sent the case back to that court for further proceedings,  which could lead to a trial.

In its lawsuit, the SEC accused Cuban of selling his 6.3  percent stake in Mamma.com in June 2004 after learning the  Montreal-based search engine company was planning a stock  offering. It said Cuban’s sale allowed him to avoid more than  $750,000 of losses.

Cuban, 52, is worth $2.4 billion, Forbes magazine said in  March. He rose to prominence with a 1999 sale of Broadcast.com  to Yahoo Inc <YHOO.O> for $5.7 billion, just before the dot-com  crash.

The following year, Cuban bought a majority stake in the  National Basketball Association’s Mavericks. He is also chief  executive of the television channel HDNet and controls the  Landmark Theatres chain.

In an emailed statement, Cuban said he will seek a  rehearing before the entire Fifth Circuit and continue to seek  sanctions against the SEC, which he said has demonstrated “bad  faith in bringing this utterly meritless case.”

Stephen Best, a lawyer for Cuban, did not return requests  for comment. NBA spokesman Michael Bass declined to comment.
SEC spokesman John Nester said: “We are pleased with the  court’s decision and look forward to presenting our case.”
Mamma.com is now known as Copernic Inc <CNIC.O>.

NEW POWERS

The SEC has been strengthening enforcement since missing  Bernard Madoff’s Ponzi scheme and failing to rein in risky  practices that led to 2008’s global financial crisis.

This year, it won a $550 million settlement from Goldman  Sachs Group Inc <GS.N> to resolve civil fraud charges, and sued  billionaire Samuel Wyly and his brother Charles over stock  trades that it said led to $550 million of illicit gains.

Meanwhile, July’s adoption of the Dodd-Frank regulatory  overhaul enhanced SEC power to bring enforcement actions.
“The SEC is, now more than ever, in position to create the  playbook and attack those persons who seek to violate its  rules,” said Ron Geffner, a partner at Sadis & Goldberg LLP and  former SEC enforcement lawyer. “The SEC is not shying away from  visible defendants or controversial fact patterns.”

“WELL, NOW I’M  SCREWED”

In its November 2008 lawsuit, the SEC alleged that Cuban  learned from Mamma.com’s chief executive at the time, Guy  Faure, about an upcoming private investment in public equity  offering, or PIPE.

The SEC said Cuban became “angry and upset” upon learning  the offering would dilute the holdings of existing shareholders  and be sold at a discount to the market price.

After telling Faure “Well, now I’m screwed. I can’t sell,”  Cuban then directed his broker to sell his 600,000 Mamma.com  shares, the SEC said.

After that sale, Mamma.com announced the PIPE offering, and  its stock fell 9.3 percent when markets reopened the next day.
A federal district judge in July 2009 dismissed the case,  saying Cuban did not qualify as an insider, and at most had  entered a confidentiality agreement with Mamma.com, rather than  an agreement not to trade.


“PLAUSIBLE” FOR SEC TO ASSERT WRONGDOING

But Circuit Judge Patrick Higginbotham wrote for the Fifth  Circuit that the SEC offered “more than a plausible basis” to  conclude that Cuban had in fact agreed not to trade.