SEC charges Dallas Mavericks owner Mark Cuban for insider activity tied to small-cap public stock offering

Crystal D. Vogt | Nov 17, 2008 1:34pm EST | Comment

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Dallas Mavericks basketball team owner Mark Cuban was slapped with a civil lawsuit today by the Securities and Exchange Commission for allegedly using insider information to avoid more than $750,000 in losses tied to his stake in the 2004 public stock offering of Mamma.com, a Canadian search-engine small cap.

The SEC alleges that in the summer of 2004, Cuban was invited to partake in the Mamma.com public stock offering after he agreed to keep the information confidential. According to the SEC, Cuban knew the Mamma.com shares would be sold below the then-current price and contacted his broker to sell his entire 600,000 shares before the offering was publicly announced, ultimately dodging $750,000 in total losses.

As a result, the SEC is seeking an injunction of future violations of securities laws, restitution of the losses Cuban is charged with avoiding and an undefined civil penalty. The SEC’s suit stated that unless an injunction is filed against Cuban, he “is likely to commit such violations again in the future.”

Montreal-based Mamma.com changed its name to Copernic Technologies (Nasdaq:CNIC) after merging with the company in December of 2005, and now offers online advertising services on top of search software. Like other tech companies, the weak economy has hit Copernic hard, resulting in the recent announcement that it would close its Montreal office and that its marketing vice president would be stepping down at the end of this year.

In Cuban’s blog, “Blog Maverick: The Mark Cuban Weblog,” the Mavericks owner and stock trading enthusiast blogged on March 17, 2004 about investing in the then little-known Mamma.com:

“I invested in mamma.com for the same reason I invested in Netidentity.com back when it was known as mailbank.com. I love businesses with low overhead, that don’t need to be technology leaders to succeed, that generate cash that they can put in the bank, and at some point, hopefully payout to shareholders. I think mamma.com has that potential,” he wrote. “It’s not Google or Yahoo, nor will it be a top 5 search engine anytime soon. But it is a good metasearch tool that I use and have used. Google and Yahoo have become carbon copies of each other, and for me, other than usenet and news searches, it’s too big. I like the way Mamma.com organizes websearches, and I use it for picture searches.”

Later in March of 2005, Cuban blogged in a post titled “Naked Shorts … What I have learned” that he was “glad [he] sold [his] stock” in Mamma.com.

Cuban was the largest shareholder in the tech company, according to reports. Aside from being a sports team owner, he also owns Landmark Theaters and the HD Net cable television channel. Forbes Magazine named Cuban one of the richest people in the world, with a net worth of $2.3 billion as of early last year.