SEC has just announced that Mark Cuban, owner of NBA team Dallas Mavericks, is caught for insider trading.
From WSJ:
“The Securities and Exchange Commission filed insider trading charges against Mark Cuban, the outspoken owner of the Dallas Mavericks, for allegedly dumping shares in Mamma.com upon learning it was raising money in a private offering.
The SEC alleges in a civil action that Mr. Cuban sold his entire 6% ownership stake on June 28, 2004, after learning that Mamma.com was raising money through a private investment in a public entity, or PIPE. The next day, on June 29, the company announced the PIPE financing and shares of the company dropped by more than 10%. By selling his stake, the SEC alleges, Mr. Cuban avoided more than $750,000 in losses.
In a PIPE transaction new shares are issued at a discount to the current trading price. An announcement of a PIPE transaction is often followed by a drop in the stock price as shareholders anticipate their stake will be diluted.”
The S.E.C. said Mr. Cuban sold the stock in the company, Mamma.com, based on nonpublic information about an impending stock offering. The commission asserted that Mr. Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the offering.
The commission filed a civil lawsuit against Mr. Cuban in Federal District Court for the Northern District of Texas, accusing him of violating federal securities laws. It said it was seeking to impose financial penalties and confiscate gains from the trades.
In its complaint, the S.E.C. asserted that Mamma.com invited Mr. Cuban to participate in the stock offering in June 2004 after he agreed to keep the information confidential. The S.E.C.’s complaint asserted that Mr. 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.
Within hours of receiving this information, the S.E.C. alleged in its complaint, Mr. Cuban called his broker and instructed him to sell his entire position in the company.
When the offering was publicly announced, the commission said, 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.
“As we allege in the complaint, Mamma.com entrusted Mr. Cuban with nonpublic information after he promised to keep the information confidential,” Scott W. Friestad, deputy director of the S.E.C.’s enforcement division, said in a statement. “Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all of his shares. It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market.”
Mamma.com is now owned by Copernic, a Montreal-based company that provides search software and online advertising services.
“Insider trading cases are a high priority for the commission,” Linda Chatman Thomsen, director of the commission’s enforcement division, said in the S.E.C. statement. “This case demonstrates yet again that the commission will aggressively pursue illegal insider trading whenever it occurs.”
Earlier this year, Mr. Cuban made a bid to buy the Chicago Cubs, reportedly offering $1.3 billion. It was not immediately clear how the S.E.C.’s charges would his chances of being approved by Major League Baseball if his bid were to succeed.
Mr. Cuban, whose properties include the HDNet cable television network, is already a controversial basketball team owner. He is known for sitting conspicuously behind his own bench in a Mavericks T-shirt and arguing against the referees.
Off the court and on his own blog, Mr. Cuban has been a frequent critic of the National Basketball Association and its commissioner, David Stern, particularly on the issue of officiating, where he once claimed a referee could not run a Dairy Queen. Mr. Cuban then ran a Dairy Queen for a day; even in retribution, he was seeking attention.
Mr. Cuban was the first N.B.A. owner to write a blog, posting his opinions almost daily, from topics as diverse as appeals to fans, criticism of the opposing team (particularly the Mavericks’ rival San Antonio Spurs), and treatises on business and politics. A recent post discusses hedge funds.
Although he has been both insightful and contentious within league ownership circles, in eight years since being approved owner of the N.B.A.’s Dallas Mavericks, Mr. Cuban did transform the franchise from a laughingstock to an N.B.A. championship contender. The Mavericks made the finals in 2006, only to collapse and lose the final four games to the Miami Heat.
During those 2006 playoffs, Mr. Cuban was fined $450,000, including $250,000 for several acts of misconduct after the penultimate loss, including yelling at a referee, staring down Mr. Stern and for uttering profanities to reporters in two separate post-game tirades.
In his eight years of ownership, Mr. Cuban has amassed nearly $1.7 million in fines. He has also matched each fine with a donation to charity.
Mr. Cuban has outfitted his team’s spiffy locker rooms in the American Airlines Center with the latest technology (televisions, computers) to attract free agents to come to Dallas. Mr. Cuban often worked out in his team’s weight room before games, talking to reporters with sweat dripping down his body as he climbed a Stairmaster and challenged reporters’ views.
The image seemed a parallel to his own life as a suburban Pittsburgh-born self-made billionaire.
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