Mark Cuban - Insider Trading

The timing of this insider trading investigation against Mark Cuban comes just as the NBA season gets underway.  In 2004, Cuban was an investor in a search engine company named Mamma.com.  The company was having financial troubles and was looking to raise funds by selling shares below market value to investors.  This is called the PIPE method which is private investment in public equity (PIPE).  In this process the company has to file with the Securities and Exchange commission before the registered shares are sold to increase the liquidity of the company.  Allegedly Cuban was contacted by the CEO of Mamma.com in 2004 and was told in confidence that the company was going to go ahead with the PIPE money to free up some cash.  Cuban apparently took this information and closed out his position only hours after the phone call and avoided over $750,000 in losses. 

The SEC Division of Enforcement Deputy Director, Scott Friestad stated, "It is fundamentally unfair for someone to use access to non-public information to improperly gain an edge on the market."   The SEC is looking to impose unspecified fines and recoup the gains made from the trade.

Cuban has reacted to these allegations on his blog calling them false.  Cuban wrote, "I don't want to own stock in companies that use this method of financing...Because I don't like the idea of selling....stock for less than the market price,"

The bigger risk for Mark Cuban beyond the fines is the fact that this scandal could hurt his chances of purchasing the Chicago Cubs baseball franchise.  Since potential buyers of a team in baseball must be voted in by existing owners, this may add fuel to the fire on why they may pass on the outspoken billionaire.