Judge dismisses SEC complaint against Cuban

DALLAS (AP) — A federal judge on Friday dismissed a civil insider trading lawsuit against Dallas
Mavericks owner Mark Cuban.
While granting Cuban’s motion, U.S. District Judge Sidney A. Fitzwater gave the Securities and Exchange
Commission 30 days to file an amended complaint.
The SEC alleged Cuban was involved in insider trading when he sold shares in an Internet search engine
company, Mamma.com Inc., after receiving confidential information about a private offering in 2004.
The SEC said the billionaire NBA team owner avoided a loss of $750,000 by selling his 600,000 shares,
which represented a 6.3 percent stake in the company.
In his 35-page ruling, Fitzwater wrote that the SEC didn’t accuse Cuban of promising not to trade based
on the confidential information he received. Thus, the commission could not hold him liable for illegal
insider trading, the judge wrote.
Fitzwater said the SEC could file a new complaint if it can allege that Cuban promised not to trade on
the information.
The judge rejected some of Cuban’s claims about his fiduciary relationship with the company, however.
Scott Friestad, associate director of the SEC’s Division of Enforcement, said in an e-mail statement that
the commission was reviewing the ruling and weighing its options.
Ralph Ferrara, one of Cuban’s attorneys, said he needed time to digest the ruling but was initially
impressed with what he called Fitzwater’s "appellate court level" analysis.
Five years ago, Mamma.com Chief Executive Guy Faure told Cuban by phone that the company was planning to
raise capital in a so-called private placement in a public equity offering known as a PIPE, the SEC
lawsuit said.
Faure began the conversation by saying he was about to give confidential information and Cuban agreed to
keep it to himself, the SEC said. According to the lawsuit, Cuban became angry because he said PIPEs
dilute stock value for existing shareholders, and he ended the call by saying, "Well now I’m
screwed. I can’t sell."
The SEC alleges that Cuban sold his shares hours after the phone call from Faure.
Fitzwater ruled that Cuban’s statement can’t "reasonably be understood" as an agreement to sell
based on the information.
"Thus while the SEC adequately pleads that Cuban entered into a confidentiality agreement, it does
not allege that he agreed, expressly or implicitly, to refrain from trading on or otherwise using for
his own benefit the information the CEO was about to share," Fitzwater wrote.
The 50-year-old Cuban is a tech entrepreneur who sold his Broadcast.com to Yahoo Inc. in 1999 at the
height of the dot-com boom. He bought the Mavericks in 2000.
Cuban runs a Web site called Sharesleuth.com, which bills itself as providing "independent Web-based
reporting aimed at exposing securities fraud and corporate chicanery." A companion site,
BailoutSleuth.com, tracks the government’s $700 billion financial rescue plan.