Six weeks after the SEC’s inspector general began probing claims that staffers acted improperly while compiling a case against self-made billionaire Mark Cuban, the agency’s insider trading case has been thrown out.
Tweeted Cuban earlier: “Its been a great day so far, and its only going to get better! Back to Dallas to see the [family].”
It was back in November that Cuban was first charged by the SEC. Its claim: that Cuban sold his 6 percent stake in Canadian-based Internet search company Mamma.com in 2004, after being told by management that it was going to announce a PIPE financing.
According to the SEC, Cuban, who has called PIPE financings “a huge red flag,” almost immediately called his broker and told him to sell his entire 6 percent stake in Mamma.com — despite that the company’s announcement hadn’t yet been made public.
That call saved Cuban more than $750,000, said the government. The day after Mamma.com went public with its plans, shares in the company dropped by 9 percent.
Cuban’s attorneys have maintained all along he wasn’t told the PIPE offering was to be kept in confidence and Cuban himself said in a statement last year, “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. The government’s claims are false and they will be proven to be so.”
In his ruling today, U.S. District Judge Sidney Fitzwater wrote that the SEC failed to allege that Cuban undertook a duty to refrain from trading information on a public stock offering that Mamma.com had planned. “Cuban cannot be held liable under the misappropriation theory of insider trading liability, even accepting all the well-pleaded facts as true and viewing them in the light most favorable to the SEC,” wrote Fitzwater.
Fitzwater has given the government 30 days to amend its case, but after the ruling, Cuban’s attorney told Reuters that he doubts that it will.
“Frankly, I think the government can’t prove the facts that they put in the first round, so I would be surprised if they re-plead here,” said the attorney, Paul Coggins of the global law firm Fish & Richardson. “I think they threw everything they had and more into this.”
The SEC had filed its civil case in the U.S. District Court for the Northern District of Texas in Dallas.
No word yet on whether its interagency probe continues.