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Dallas • A federal appeals court revived the Securities and Exchange Commission's insider-trading lawsuit against Dallas Mavericks owner Mark Cuban on Tuesday, saying it was "plausible" he knew he wasn't supposed to sell company stock to avoid a loss after receiving confidential information.
The case was sent back to a lower court in Dallas for further discovery and, if necessary, a trial. The appeals court declined to rule on whether Cuban was wrong in selling the stock, saying that was a question for the Dallas court.
The SEC's civil lawsuit accuses the Dallas billionaire of selling shares in Internet search-engine company Mamma.com Inc. in 2004, avoiding a $750,000 loss after learning the company was going to offer stock to private investment companies at a discounted rate.
U.S. District Judge Sidney A. Fitzwater dismissed the lawsuit in July 2009, ruling that there was no agreement binding Cuban not to act on this confidential information.
The 5th U.S. Circuit Court of Appeals in New Orleans, however, said in its ruling Tuesday that it was "plausible" Cuban knew he wasn't to sell his shares until after the announcement of the offering.
According to the SEC, Cuban agreed not to share any information before Mamma.com CEO Guy Faure told him in a phone call in June 2004 that the company planned to raise money through a private stock offering. The complaint says Cuban became angry because he said the plan would hurt his stock's value and ended the call by saying, "Well, now I'm screwed. I can't sell."
Faure sent an e-mail to other Mamma.com board members after the conversation with Cuban, writing that the Mavericks owner "initially 'flew off the handle' and said he would sell his shares [recognizing that he wasn't able to do anything until we announce the equity]," according to court documents.
Cuban, who owned 6.3 percent of the company, sold 10,000 of his 600,000 shares on June 28, 2004. He sold the rest the next day, according to court records.
After the markets closed on June 29, Mamma.com announced its stock offering. The stock's value eventually dropped by 39 percent.
"Under Cuban's reading, he was allowed to trade on the information but prohibited from telling others — in effect providing him an exclusive license to trade on" his confidential knowledge of the stock offering, the appeals court wrote.
Cuban denies wrongdoing.