SEC, billionaire Mark Cuban set for insider trading trial

Reuters

By Jonathan Stempel

(Reuters) - Mark Cuban, the billionaire who regularly sits courtside to cheer on his Dallas Mavericks basketball team, is heading to a court of a different kind on Monday.

Once there, he hopes to convince a federal jury that a civil insider trading case brought against him by the U.S. Securities and Exchange Commission should fail.

The showdown in U.S. District Judge Sidney Fitzwater's courtroom in Dallas is expected to last eight to 10 days.

The case stems from Cuban's June 2004 sale of 600,000 shares of Mamma.com Inc, soon after he had supposedly learned of an equity offering that could depress the Montreal-based Internet search company's stock price.

The SEC said the sale let Cuban avoid a roughly $750,000 (464,626.44 pounds) loss on his 6.3 percent stake. It seeks to recoup illegal gains, impose a fine, and win a permanent ban against similar conduct.

While the SEC has become more aggressive in pursuing higher-profile defendants, a description that fits the charismatic Cuban, Monday's trial comes in a case that predates that push.

Cuban, who might have tried to settle with the SEC for a fairly small sum, has been battling the regulator for nearly five years.

"The fact it is going forward is probably motivated by Mark Cuban's desire for vindication," said Jay Brown, a securities regulation professor at the University of Denver's Sturm College of Law. "If the SEC could have settled, it would have. They hate it when they lose, and there's a possibility of that."

Forbes magazine estimates Cuban's net worth at $2.5 billion, and Cuban has more than 1.8 million Twitter followers.

He has appeared on TV shows such as ABC's "Dancing with the Stars" and HBO's "Real Time with Bill Maher," and is known for arguing with referees during Mavericks games. Last year he offered Donald Trump $1 million for a charity of his choosing if the fellow billionaire would shave his head.

Cuban's combativeness has extended to the SEC case, where he accused enforcement staff of targeting him because of his fame and because they disliked his politics. In 2011, SEC Inspector General David Kotz cleared the regulator of misconduct. (http://www.sec.gov/foia/docs/oig-511.pdf)

"We look forward to a fair trial," Christopher Clark, a partner at Latham & Watkins in New York, who is one of Cuban's lawyers, said in an interview. "We believe that when the truth is out and the evidence is in, Mark will be vindicated."

A spokeswoman for the SEC declined to comment.

"WELL, NOW I'M SCREWED"

The SEC said Cuban hurriedly unloaded his Mamma.com shares after having become "very upset and angry" when he learned from Chief Executive Guy Fauré on June 28, 2004, that the company planned to raise capital via a private investment in public equity (PIPE) offering.

"Well, now I'm screwed. I can't sell," Cuban told Fauré, according to the SEC.

Within hours, according to the regulator, Cuban instructed his broker to sell his Mamma.com shares, and the $7.98 million sale was completed on June 29.

Mamma.com announced the PIPE offering later that day, and its shares fell 9.3 percent the next morning, to $11.89. Cuban's shares were sold at an average $13.30 each, court papers show.

Cuban has maintained that he had no obligation not to trade, and that there was no evidence that the information he had was confidential or material.

"It's a question of fact, whether Mark Cuban needed to keep the information he received confidential," Brown said.

Cuban and Fauré are expected to testify. Fitzwater dismissed the SEC lawsuit in 2009, but a federal appeals court revived the case the following year.

Mamma.com later became known as Copernic Inc.

Cuban's holdings also include the AXS TV television channel and Landmark Theatres. The Mavericks won the National Basketball Association title in 2011, but missed the playoffs last season.

Lawyers for Cuban also include Thomas Melsheimer at Fish & Richardson, and Stephen Best at Brown Rudnick. Jan Folena is among the SEC lawyers handling the case.

The case is SEC v. Cuban, U.S. District Court, Northern District of Texas, No. 08-02050.

(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)

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