Mark Cuban Charged With Insider Trading

The SEC alleges that Mark Cuban acted on nonpublic information and selling 600,000 shares of Mamma.com in order to avoid more than $750,000 in losses. Cuban is has offered to buy the Chicago Cubs pro baseball team and faces civil charges in the insider trading allegations.

In the SEC filing, Mamma.com sent an invitation to Mark Cuban to participate in a stock offering that would be conducted at a discounted to the market price if he agreed to keep the information a secret. Yet, just hours after Cuban received the confidential information, he called his broker and advised him to sell all his stocks in the company.

Once the offering was announced to the public, Mamma.com's stock price had dipped 9.3% from the previous days’ closing price. The SEC says Cuban knew the company was trying to raise money through a public offering and he had prior knowledge the stock was about to fall. Since the incident, Mamma.com has changed its name to Copernic Incorporated.

"As we allege in the complaint, Mamma.com entrusted Mr. Cuban with nonpublic information after he promised to keep the information confidential," Scott W. Friestad, Deputy Director of the SEC's Division of Enforcement said in the report. "Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all of his shares."

The federal government has been cracking down on manipulative insider trading, so it’s no surprise they are hunting big players like Mark Cuban. Charges were filed today in a federal court in Texas.

At the time, Mark Cuban owned 6% of Mamma.com in 2004 when he received an invite to invest in a secondary offering called a PIPE (private investment in public equity). Investors usually buy stakes in a company at a value below the market price, which makes it bad for existing investors.