The judge said the SEC failed to prove deception, and therefore fraud. The SEC can appeal or file an amended lawsuit.
By Antone Gonsalves
InformationWeek
July 18, 2009 09:00 AM

A federal judge on Friday dismissed the Securities Exchange Commission’s insider-trading lawsuit against Internet entrepreneur and Dallas Mavericks owner Mark Cuban, dealing a major blow to the SEC’s case.

Judge Sidney A. Fitzwater of the U.S. District Court in Dallas said that the SEC failed to prove that the controversial billionaire had agreed not to sell his shares in Canadian Internet search company Mamma.com when its chief executive told him that the company planned to sell additional shares in a private offering in 2004. Such a sale would have diluted the value of Cuban’s shares.

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While Cuban was bound by a promise of confidentiality, there was no evidence that he “agreed, expressly or implicitly, to refrain from trading on or otherwise using for his own benefit the information the CEO was about to share,” the judge wrote in his 35-page decision, The New York Times reported.

By law, for the SEC to prove deception, and therefore fraud, the government agency needed to show that Cuban agreed to refrain from using the information to his own benefit.

The SEC now must decide whether to appeal the ruling or file an amended lawsuit in the next 30 days. “We are reviewing the court’s ruling and weighing our options,” Scott Friestad, associate director of the SEC’s Division of Enforcement, said in a statement e-mailed to InformationWeek.

“It’s been a great day so far, and it’s only going to get better,” Cuban said on Twitter. He added, “Thanks for all the kind words everyone! As far as media, I’m not going to be commenting at all, but thanks for asking.”

The SEC claimed Cuban sold 600,000 shares of Mamma.com after learning of the pending offering. The move saved Cuban more than $750,000 in trading losses, according to the commission.

When the SEC filed its suit last November, Cuban denied the charges. “I am disappointed that the commission chose to bring this case based upon its enforcement staff’s win-at-any-cost ambitions,” Cuban said in his blog. “The staff’s process was result-oriented, facts be damned. The government’s claims are false and they will be proven to be so.”