Mark Cuban Cleared… For Now

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The lawsuit against Landmark Cinema owner Mark Cuban has been dropped. the SEC is weighing its options, “We are reviewing the court’s ruling and weighing our options,” Scott Friestad, associate director of the S.E.C.’s division of enforcement, said in a statement on Friday afternoon.

Here’s the full word from the NY Times:

Judge Dismisses Suit Against Mark Cuban

By LIZ ROBBINS and CYRUS SANATI

Published: July 17, 2009

A federal judge dealt a blow to the Securities and Exchange Commission on Friday when he dismissed its insider trading lawsuit against Mark Cuban, the controversial billionaire owner of the National Basketball Association’s Dallas Mavericks.

The S.E.C. asserted in a lawsuit in November that Mr. Cuban had sold shares of a Canadian Internet search company, Mamma.com, after receiving confidential information from its chief executive in a telephone call that the company was going to sell additional shares through a private offering in 2004.

But the S.E.C. failed to prove that Mr. Cuban had made an agreement with the company’s chief executive that he would not sell his own shares during that call, Judge Sidney A. Fitzwater of the Federal District Court in Dallas wrote in a 35-page decision released on Friday.

“We are reviewing the court’s ruling and weighing our options,” Scott Friestad, associate director of the S.E.C.’s division of enforcement, said in a statement on Friday afternoon.

Judge Fitzwater has given the S.E.C. 30 days in which to file an amended complaint to the court to show that Mr. Cuban did make such an agreement not to sell his shares.

Two people with knowledge of the investigation, who did not wish to be identified because the case is continuing, said it was “far-fetched” that the S.E.C. would choose to drop its case against Mr. Cuban at this point.

The S.E.C. will probably continue to pursue the case, especially considering the regulator’s recent efforts to ramp up enforcement by going after both high- and low-profile figures.

If it does file an amended complaint, “the S.E.C. must allege some facts that were not previously known, i.e., that Cuban somehow became or consented to be a fiduciary to Mamma.com,” said Joshua Davis, a Texas trial lawyer. “Then, and only then, would the insider trading statute apply to Cuban’s act of selling his Mamma’s shares before the market found out about the new stock offering.”

Mr. Davis added: “In Fitzwater’s opinion a confidentiality agreement by itself does not create a fiduciary duty. Cuban, in the court’s opinion, was free to act on that confidential information.”

Instead of filing an amended complaint, however, the S.E.C. could appeal the judge’s ruling to the United States Court of Appeals for the Fifth Circuit in New Orleans, the two people with knowledge of the investigation said.

According to the civil suit brought by the S.E.C., Mr. Cuban, 50, sold 600,000 shares of Mamma.com, representing a 6 percent stake, to avoid a loss of $750,000, completing the sale within one day of getting off the phone with the company’s chief executive. The company’s corporate name is now Copernic.

The suit asserted that Mr. Cuban agreed with the chief executive of Mamma.com in a telephone call that he would keep whatever information the executive gave him confidential. Upon hearing about the stock offering, Mr. Cuban expressed his displeasure, since that would dilute the stock value. According to the suit, Mr. Cuban said in anger (and with saltier language) that he was in a bad position and that he “can’t sell.”

The judge wrote that while the S.E.C. adequately showed that Mr. Cuban “entered into a confidentiality agreement, it does not allege that he agreed, expressly or implicitly, to refrain from trading on or otherwise using for his own benefit the information the C.E.O. was about to share.”

Both parts, Judge Fitzwater ruled, are essential in determining whether there was deception, and therefore fraud.

Mr. Cuban’s lawyer, Ralph C. Ferrara, a partner at Dewey and LeBouef, said in a telephone interview Friday, that he was pleased with the depth of the judge’s decision. “Mark has said from the start that he did nothing wrong,” Mr. Ferrara said, and added: “The impact of this from a doctrinal point of view is quite profound. What the judge has done really more analytically than ever before is say ‘Let’s get down to what this statue is all about.’ ”

Mr. Cuban, an Internet and technology entrepreneur who parlayed his success into buying a struggling N.B.A. franchise and turning it into a perennial contender, did not return an e-mail message requesting comment.

But he did post on Twitter.com a vague but ebullient reaction: “Its been a great day so far, and it’s only going to get better ! Back to Dallas to see the Fam !!” And then he followed with a tweet that thanked his supporters and said he would not comment to the news media.

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