Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, November 17, 2008

SEC Charges Cuban with Insider Trading

The SEC filed insider trading charges today against Dallas entrepreneur Mark Cuban in the U.S. District Court for the Northern District of Texas. The Commission's complaint alleges that Cuban engaged in illegal insider trading in the securities of Inc. (""), a publicly traded Internet search engine company (now known as Copernic Inc.) According to the complaint, in June 2004, Cuban sold his entire 600,000 share position in on the basis of material, non-public information concerning an impending PIPE (private investment in public equity) offering by the company. The complaint alleges that Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the PIPE offering.

According to the complaint, Cuban was's largest known shareholder during the relevant time period. On June 28, 2004, the complaint alleges,'s then-chief executive officer — after securing Cuban's agreement to keep the information confidential — invited Cuban to invest in the PIPE offering. The complaint further alleges that Cuban knew that the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders. According to the complaint, later that day, Cuban called his broker and instructed him to sell out his entire position in the company. That afternoon (June 28), and over the next day (June 29), the broker liquidated Cuban's entire 600,000 share position. After the markets closed on June 29, 2004, publicly announced the PIPE offering. The next day,'s stock price opened at $11.89, down $1.215 or 9.3%, from the prior day's closing price of $13.105. The Commission's complaint seeks to permanently enjoin Cuban from future violations of the applicable provisions of the federal securities laws, disgorgement (with prejudgment interest thereon), and a civil penalty.

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