Court revives SEC insider-trading suit against Dallas billionaire Mark Cuban

A federal appeals court dealt Dallas billionaire Mark Cuban a setback Tuesday, reversing a lower court dismissal of the government’s insider-trading case against him.

As a result, Cuban will head back into court to fight claims by the Securities and Exchange Commission that he broke insider-trading laws related to his stake in the search engine company

SEC spokesman John Nester said, “We are pleased with the court’s decision and look forward to presenting our case.”

Cuban said in an e-mail Tuesday that he was confident of victory in the case. His attorneys noted that the appeals court had to view the SEC’s case in the “most positive light,” meaning that it had to accept the SEC’s version of events. That version, Cuban said, isn’t true at all.

Cuban added that he expected to prevail on his separate sanctions suit against the SEC for prosecuting in bad faith.

Cuban had found out that had planned an offering that would significantly dilute his stake in the company. He then sold his stake prior to the offering, saving himself about $750,000 in losses because the shares of the Canadian company plummeted when news of the offering became public.

In July 2009, Judge Sidney Fitzwater said the government failed to provide enough evidence to establish that Cuban had a fiduciary responsibility not to trade on the information. The SEC’s case hadn’t cleared the initial hurdles to send it to trial; the ruling Tuesday sends the case back to the lower court, where it may yet reach trial.

After getting the case dismissed, Cuban countersued the SEC and alleged wrongful prosecution. His lawyers had discovered e-mails sent between SEC officials mocking the owner of the Dallas Mavericks. His attorneys had also questioned the SEC’s approach to key witnesses in the case. Chief Executive Guy Faure told Cuban in June 2004 that the company planned to raise money through a private investment in a public entity, a so-called PIPE offering. “Well, now I’m screwed,” Cuban was quoted in the SEC suit as saying on the phone to Faure. “I can’t sell.”

In dismissing the case, Fitzwater wrote that although Cuban agreed to keep the information about the offering confidential, he did not agree not to trade on the information, a crucial part of the insider-trading case.

The 5th Circuit panel, in reading the SEC’s case in the most favorable light as is required when weighing whether the suit should have continued, said it reached a different conclusion on the facts than Fitzwater.

“The allegations, taken in their entirety, provide more than a plausible basis to find that the understanding between the CEO and Cuban was that he was not to trade, that it was more than a simple confidentiality agreement,” Tuesday’s ruling said.

Torbenson writes for the Dallas Morning News/McClatchy.