Washington—HDNet chairman and president Mark Cuban on Monday was accused of insider trading by the Securities and Exchange Commission in a complaint that alleges he saved more than $750,000 in 2004 by dumping an Internet search engine stock soon after obtaining confidential information from the CEO.
The SEC complaint filed in U.S. the District Court in Dallas charged the excitable billionaire owner of the NBA's Dallas Mavericks with securities fraud "by engaging in illegal insider trading" over a two-day period in late June 2004.
On his blog, Cuban said he would fight the SEC.
“I am disappointed that the [SEC] chose to bring this case based upon its Enforcement staff’s win-at-any-cost ambitions. The staff’s process was result-oriented, facts be damned. The government’s claims are false and they will be proven to be so," Cuban said in a prepared statement.
The statement, in comments not attributable to Cuban, added: "This matter, which has been pending before the [SEC] for nearly two years, has no merit and is a product of gross abuse of prosecutorial discretion. Mr. Cuban intends to contest the allegations and to demonstrate that the [SEC's] claims are infected by the misconduct of the staff of its Enforcement Division."
The SEC asked the court to bar Cuban from "engaging in future violations of the antifraud provisions of the federal security laws" and to require him to disgorge the $750,000 with interest. The national securities regulator also sought "a civil money penalty" but didn't specify an amount.
Cuban, 50, launched HDNet on Sept. 6, 2001, an early entrant into a market that took off in recent years with growing consumer demand for crystal-clear pictures and high-quality sound. In recent months, Cuban's network has been lobbying the Federal Communications Commission to crack down on cable companies that won't carry his channel.
In the complaint, the SEC said that Cuban dumped all of his holdings—600,000 shares—in Mamma.com Inc. (now Copernic Inc.) in anger over the company's effort to bolster its balance sheet.
Cuban made the stock sales, the SEC said, after learning from Mamma's CEO (who wasn't identified) that the company wanted to raise new capital through a PIPE (private investment in public equity) offering.
By raising new capital in a PIPE, Mamma would dilute the ownership stakes of existing shareowners, including Cuban, then the company's largest single investor with a 6.3% stake, the SEC said.
"Cuban became very upset and angry during the conversation [with the CEO] and said, among other things, that he did not like PIPEs because they dilute the existing shareholders," the SEC complaint said.
Cuban learned about the PIPE on June 28. He sold 10,000 shares at $13.49 a share in after-hours trading the same day and sold the remaining 590,000 shares the next day at $13.29 a share.
Mamma.com announced the PIPE at 6 p.m. on June 29. The next day, the stock closed down 8.5% and finished down 39% on July 8, 2004.
"By selling his Mamma.com shares prior to public announcement of the PIPE, Cuban avoided losses in excess of $750,000," the SEC said.