Dallas Mavericks NBA team owner Mark Cuban has been charged by the SEC with trading 600,000 shares (a 6.3% stake) of Montreal-based Mamma.com Inc. based on insider information. The company, now known as Copernic Inc. (Nasdaq: CNIC) owns an Internet search engine.
In June 2004, Cuban was told more Mamma.com shares would be sold in a PIPE offering, which is a deal in which shares are sold at a discounted price and holders are locked into owning them for six or more months. Selling more shares would dilute the value of Cuban’s holding.
“Within hours of receiving this information, according to the complaint, Cuban called his broker and instructed him to sell Cuban’s entire position in the company,” the SEC reports.
Cuban, 50, also owns HDNet and Landmark Theaters. Cuban acquired the 600,000 Mamma.com shares in March 2004, and I-banker Merriman Curhan Ford & Co. suggested the Internet firm raise capital through a PIPE (private investment in public equity) offering. Cuban was invited to participate in the PIPE.
The SEC reports that Mamma.com’s “CEO was instructed to contact Cuban and to preface the conversation by informing Cuban that he had confidential information to convey to him in order to make sure that Cuban understood—before the information was conveyed to him—that he would have to keep the information confidential.”
In a June 24 e-mail, the CEO told Cuban to “Call me pls…ASAP.” Cuban called four minutes later and spoke to the CEO for 8 minutes and 35 seconds. “The CEO prefaced the call by informing Cuban that he had confidential information to convey to him, and Cuban agreed that he would keep whatever information the CEO intended to share with him confidential. The CEO, in reliance on Cuban’s agreement to keep the information confidential, proceeded to tell Cuban about the PIPE offering.
“Cuban became very upset and angry during the conversation, and said, among other things, that he did not like PIPEs because they dilute the existing shareholders. At the end of the call, Cuban told the CEO ‘Well, now I’m screwed. I can’t sell.’”
The executive chairman then wrote to Mamma.com board: “Today, after much discussion, [the CEO] spoke to Mark Cuban about this equity raise and whether or not he would be interested in participating. As anticipated, he initially ‘flew off the handle’ and said he would sell his shares—recognizing that he was not able to do anything until we announce the equity—but then asked to see the terms and conditions which we have arranged for him to receive from one of the participating investor groups with which he has dealt in the past.”
That same day, Cuban called a Merriman sales representative and spoke to him for eight minutes. The SEC reports, “During that call, the salesman supplied Cuban with additional confidential details about the PIPE. In response to Cuban’s questions, the salesman told him that the PIPE was being sold at a discount to the market price and that the offering included other incentives for the PIPE investors. Cuban was very upset and angry about the PIPE during the call.
“One minute after hanging up with the Merriman sales representative, Cuban called his broker in Dallas and told the broker to sell his entire 600,000 share Mamma.com position. He told the broker ‘sell what you can tonight and just get me out the next day.’”
Cuban sold his shares for approximately $13.29 each. The PIPE offering was priced at the end of the following day at $11.89 a share. The stock is trading today at 25 cents.
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