U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20810 / November 17, 2008
Securities and Exchange Commission v. Mark Cuban, Civil Action No. 3-08-CV-2050-D (SF)
SEC Files Insider Trading Charges Against Mark Cuban
The Securities and Exchange Commission announced that it filed insider trading charges today against Dallas entrepreneur Mark Cuban in the U.S. District Court for the Northern District of Texas. The Commission's complaint alleges that Cuban violated the antifraud provisions of the federal securities laws by engaging in illegal insider trading in the securities of Mamma.com Inc. ("Mamma.com"), a publicly traded Internet search engine company (now known as Copernic Inc.) based in Montreal, Canada. According to the complaint, in June 2004, Cuban sold his entire 600,000 share position in Mamma.com on the basis of material, non-public information concerning an impending PIPE (private investment in public equity) offering by the company. The complaint alleges that Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the PIPE offering.
According to the complaint, Cuban was Mamma.com's largest known shareholder during the relevant time period. On June 28, 2004, the complaint alleges, Mamma.com's then-chief executive officer — after securing Cuban's agreement to keep the information confidential — invited Cuban to invest in the PIPE offering. The complaint further alleges that Cuban knew that the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders. According to the complaint, later that day, Cuban called his broker and — in breach of his agreement to keep the information confidential — instructed him to sell out his entire position in the company. That afternoon (June 28), and over the next day (June 29), the broker liquidated Cuban's entire 600,000 share position. After the markets closed on June 29, 2004, Mamma.com publicly announced the PIPE offering. The next day, Mamma.com's stock price opened at $11.89, down $1.215 or 9.3%, from the prior day's closing price of $13.105. According to the complaint, Cuban thereby avoided losses in excess of $750,000 by selling on the basis of material, non-public information concerning the PIPE offering.
The complaint alleges that by engaging in illegal insider trading, Cuban violated the antifraud provisions of both the Securities Act of 1933 (Section 17(a)) and the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5 thereunder). The Commission's complaint seeks to permanently enjoin Cuban from future violations of the applicable provisions of the federal securities laws, disgorgement (with prejudgment interest thereon), and a civil penalty.