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Not Off the SEC's Hook: Mark Cuban

10/20/2009

A judge had dismissed the SEC's insider trading case against Mark Cuban. It seemed like it was over.

But ... the government is now pressing on in appeals court.

No one seems to dispute that Cuban had a call from an executive in a company that he invested in, telling him about some non-public plans, after which, Cuban sold a lot of stock. (Which proved to have been smart! The stock went down, saving Cuban a reported $750,000.)

What is disputed, however, is whether or not Cuban's phone call from the executive was priveleged insider information.

Zachary A. Goldfarb of the Washington Post:

Cuban's defense was that he had no legal responsibility to refrain from trading on the information and had never agreed to do so.

Judge Sidney A. Fitzwater, a federal judge in Dallas, dismissed the case in July, saying that the SEC had not proved that Cuban had a legal responsibility not to trade based on the information.

SEC lawyers filed its notice of appeal in the federal appeals court in New Orleans, which is expected to take up the case in late November. The agency is likely to argue it didn't even have the opportunity to prove that Cuban had a duty not to trade on the information. It is also likely to argue that Cuban did have such a duty.

Cuban once wrote about the transaction on his blog.

I had purchased stock in Mamma.com in hope that it could be an up and coming search engine. I thought I had done some level of due diligence. Talked to the company management. Talked to some employees who worked in sales. Read the SEC Filings. I knew that they had a checkered past and had been linked to stock promoter Irving Kott, and that their law firm still handled some of Kotts business, but the CEO, Chairman, lawyers all said that things were reformed and the company was focused on its business.

Then the company did a PIPE financing. Im not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I dont want to own stock in companies that use this method of financing .

Why? Because I dont like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants.So I sold the stock.