The SEC alleged that Dallas Mavericks owner Mark Cuban was involved in insider trading when he sold shares in an Internet search engine company, Mamma.com Inc., after receiving confidential information about a private offering in 2004. The SEC said Cuban avoided a loss of $750,000 by selling his 600,000 shares, which represented a 6.3 percent stake in the company.
U.S. District Judge Sidney A. Fitzwater granted Cuban’s motion to dismissed an civil insider trading lawsuit. Judge Fitzwater gave the Securities and Exchange Commission 30 days to file an amended complaint.
Judge Fitzwater found that the SEC needed to allege that Cuban entered into an agreement (a) not to disclose material, nonpublic information about the offering, and (b) not to trade on or otherwise use the information. In his ruling, Judge Fitzwater wrote that the SEC didn’t accuse Mr. Cuban of promising not to trade based on the confidential information he received. So, the SEC couldn’t hold him liable for illegal insider trading. It is not enough that the person who gave Mr. Cuban the information expected him not to disclose it or act on it.