Home Mark Cuban Charged With Insider Trading of Search Engine Mamma.com

Mark Cuban Charged With Insider Trading of Search Engine Mamma.com

Four years ago, an eternity in internet time, Dallas Mavericks owner and controversial web thought leader Mark Cuban allegedly used inside information to dump all his stock in meta search engine Mamma.com hours before the company announced a round of fund raising that caused the value of stock in the company to drop dramatically. That’s what the Securities and Exchange Commission says, at least, according to a short but high profile report this morning by the Wall St. Journal. Cuban owned a 6.3% stake in
the company.

The full text of the SEC complaint is here and key points are summarized below. Update: For a really strange twist to this story, see this email exchange reported on by the NYT.

Cuban is a frequent commenter on all things internet, from the technology to the business side of the web, on his site Blog Maverick. Many people consider Cuban a braggart and an annoyance, others (including, to be honest, this author) find him a thought provoking, interesting and somewhat likable public character. It appears that the SEC will fine Cuban for his alleged crime.

Key Sections of the SEC Complaint

According to the SEC report:
“Despite agreeing in June 2004 to keep material, non-public information about an impending stock offering by Mamma.com Inc. confidential, Cuban sold his entire stake in the company – 600,000 shares – prior to the public announcement of the offering. By selling when he did, Cuban avoided losses in excess of $750,000…Unless enjoined, Cuban is likely to commit such violations again in the future.” (emph. added)

Mamma.com was considering raising capital through a private placement known as a PIPE (“private investment in public equity”) offering. In doing so they reached out to Marck, their largest shareholder.

“On June 28, 2004, the CEO sent an email message to Cuban titled ‘Call me pls,’
in which he asked Cuban to call him ‘ASAP’ and provided both his cellular and office telephone numbers. Cuban called four minutes later from the American Airlines Center in Dallas, home of the NBA’s Dallas Mavericks, and spoke to the CEO for eight minutes and thirty-five seconds.

“The CEO prefaced the call by informing Cuban that he had confidential information to convey to him, and Cuban agreed that he would keep whatever information the CEO intended to share with him confidential.

“Cuban became very upset and angry during the conversation, and said, among other things, that he did not like PIPEs [the particular method of fund raising Mamma was planning on] because they dilute the existing shareholders. At the end of the call, Cuban told the CEO ‘Well, now I’m screwed. I can’t sell.'”

It all seems pretty straightforward, if a matter of he said she said, but we do wonder – why now? Who did Cuban anger recently to be charged with this 4 years after it allegedly happened?

Photo: Mark Cuban at Blog World Expo, Creative Commons by Marc Levin

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