The SEC charges that in 2004 Cuban used nonpublic information about an impending stock sale by search engine Mamma.com to avoid substantial losses. Cuban sold 600,000 shares in the company, which bills itself as "the mother of all search engines," after learning it was about to launch an offering that would dilute the value existing shares.
The move saved Cuban more than $750,000 in trading losses, said the SEC.
"This case demonstrates yet again that the commission will aggressively pursue illegal insider trading whenever it occurs," SEC Enforcement Division director Linda Chatman Thomsen said in a statement.
The SEC said Mamma had invited Cuban to participate in the new stock offering and that Cuban promised to keep the information confidential. Cuban expressed frustration about learning of the impending offering before the information was public, the SEC said. "Well, now I'm screwed. I can't sell," Cuban allegedly told Mamma's CEO during a phone call about the matter, according to the SEC's complaint.
"Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all his shares," SEC deputy director Scott Friestad said in a written statement. Cuban sold off 600,000 shares in Mamma before the announcement of the dilutive stock offering, according to the SEC.
In a blog post Monday, Cuban denied the charges. "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."
The complaint was filed Monday in U.S. District Court in Dallas against Cuban, whose past and present tech companies include HDNet, MicroSolutions, and Broadcast.com.
The SEC said it would seek to recover from Cuban the amount he supposedly saved from the stock sale and impose additional civil penalties.