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SEC files insider-trading charges against Mark Cuban

The lawsuit could imperil the Internet entrepreneur's bid to buy the Chicago Cubs.

November 18, 2008|Tom Petruno and Ameet Sachdev | Petruno is a Times staff writer. Sachdev writes for the Chicago Tribune.

LOS ANGELES AND CHICAGO — Mark Cuban, the outspoken Internet entrepreneur and owner of the Dallas Mavericks basketball team, was accused by federal regulators Monday of illegal insider trading, an allegation that could jeopardize his chances of buying the Chicago Cubs baseball team.

In a civil lawsuit, the Securities and Exchange Commission alleged that Cuban used nonpublic inside information in June 2004 to sell 600,000 shares of online search firm Mamma.com Inc. and avoid more than $750,000 in losses.

Cuban, 50, said he would fight the allegations. In a statement, he accused the SEC's enforcement staff of having "win-at-any-cost ambitions . . . facts be damned."

Cuban is among the bidders for the Cubs, which Tribune Co., parent of the Los Angeles Times, is trying to sell. The SEC suit could complicate Cuban's offer by raising questions about whether other baseball team owners would approve him as an owner.

If the charges eliminate Cuban from the Cubs auction, his absence would be the latest setback for the sale process that began when Chicago real estate investor Sam Zell agreed to acquire Tribune in April 2007. Since then, a declining economy and tight credit markets have raised questions about whether Zell can complete a sale of the Cubs, once valued at more than $1 billion.

Cuban's absence would further alter the dynamics of the auction, as rivals feared he would try to win the team and Wrigley Field at any cost.

Tribune declined to comment.

Christopher Clark, a lawyer for Cuban, said the insider-trading charges should not hurt Cuban's involvement in the Cubs sale because the two matters weren't connected.

The SEC, in its complaint, said Mamma.com had decided in the spring of 2004 to raise capital via a private-placement stock offering, and that the firm's chief executive told Cuban, the largest shareholder, on a confidential basis.

A stock offering would dilute Cuban's holdings unless he bought more shares. And news of the offering could drive the stock lower.

Cuban "became very upset and angry during the conversation," the SEC suit says.

On instruction from Cuban, the agency alleged, his broker sold his shares at prices ranging from $13.29 to $13.50 each just before the stock offering was made public.

After Mamma.com announced the private placement June 29, 2004, its stock plunged to $11.99, and fell to $8 by July 8.

The SEC wants Cuban to repay what he saved by selling on the information, plus penalties.

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tom.petruno@latimes.com

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