Mark Cuban, the controversial owner of the Dallas Mavericks basketball team, was charged today with insider trading in connection with the sale of his entire stake in an Internet search engine firm. 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 (full text of complaint: text | pdf).
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 600,000 shares, Cuban, 50, avoided a loss in excess of $750,000, according to government investigators. Cuban learned of the inside information from the web firm’s CEO, and agreed to “keep the information confidential,” the SEC contends. “Well, now I’m screwed. I can’t sell,” Cuban reportedly told the unnamed CEO. In fact, the SEC alleges, Cuban moved quickly to dump his Mamma.com shares, telling his broker to “sell what you can tonight and just get me out the next day.”
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.
