SEC sues Cuban over '04 tipoff

Agency says insider trading saved HDNet/NBA team owner $750,000

The U.S. Securities and Exchange Commission said Monday that it has filed a civil suit against HDNet chairman Mark Cuban alleging insider trading. The billionaire owner of Landmark Theatres and Magnolia Pictures said the charges have no merit and that he'll fight them.

The suit stems from Cuban's 2004 sale of 600,000 shares of Internet search engine, or a 6% stake in the firm, "on the basis of material, nonpublic information concerning an impending stock offering."

The SEC alleges that in June 2004, invited Cuban to participate in its stock offering after he agreed to keep the information confidential. Within hours of hearing about the offering at a discount, Cuban — knowing it would dilute the holdings of existing shareholders — called his broker and instructed him to sell his entire position in the firm, according to the SEC.

Once the offering became public,'s stock opened 9.3% below the previous day's closing price. Cuban avoided losses in excess of $750,000, the SEC said.

"This case demonstrates yet again that the commission will aggressively pursue illegal insider trading whenever it occurs," said Linda Chatman Thomsen, director of the SEC's Division of Enforcement.

In a statement on his blog (, Cuban and his legal adviser said he intends to contest the allegations and to demonstrate that the commission's claims are "infected by the misconduct of the staff of its Enforcement Division."

Added Cuban, also the owner of the NBA's Dallas Mavericks: "I am disappointed that the commission chose to bring this case based upon its enforcement staff's win-at-any-cost ambitions. The staff's process was result-oriented, facts be damned."

Julia McDonough, an SEC investigations expert at law firm Bryan Cave, expects the SEC to require Cuban to return the money he avoided losing and pay interest on it plus a fine. She emphasized that Cuban would not be jailed if found guilty because it is not a criminal case. (partialdiff)