DALLAS (Reuters) - Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team, told jurors at his insider trading trial he was angry when he learned an Internet company he invested in was planning an equity offering but was not told the information was confidential before he sold his shares in the firm.
Cuban was called to testify on Thursday by the U.S. Securities and Exchange Commission, which accused him of dumping his $7.9 million worth of shares in Montreal-based Internet search company Mamma.com Inc in June 2004 after learning that it planned a private placement that would dilute his stake.
He acknowledged to jurors and a packed courtroom in Dallas federal court that he did not support the offering, but that he emailed his broker a day after the sales stopped to “make sure” they were “kosher,” and asked him to “check with your folks.”
Cuban said he never got a written answer, but “presumed they’d do their job.”
The SEC accuses Cuban, 55, of trading on inside information when he unloaded his 600,000 shares after learning in a June 28, 2004 phone call from Mamma.com Chief Executive Guy Fauré about the offering, which would have dropped Cuban’s stake to 4.9 percent from 6.3 percent.
Mamma.com shares dropped 9.3 percent on June 30, 2004, the morning after the offering was announced. By that time, Cuban had already sold his shares, avoiding a $750,000 loss.
Cuban is estimated by Forbes magazine to have a $2.5 billion net worth. He has maintained that there was nothing wrong with his trades.
In his testimony, Cuban described himself as a conservative investor who had never been involved with a company that raised funds through the type of offering planned by Mamma.com, known as private investment in public equity (PIPE).
“I always associate PIPE with scam companies,” and such an offering signals possible financial problems and desperation, Cuban testified when questioned by his lawyer Thomas Melsheimer.
Cuban told jurors that immediately after a June 28 phone call with Fauré, he called Arnie Owens, who was in charge of the offering.
According to Cuban, Owens “invited me to be an investor” in the offering, even though all shares had been accounted for.
Cuban said he understood this to be public information and told Owens he wasn’t interested.
“I sold my shares knowing it was public information,” Cuban told jurors.
Cuban testified that he told his broker to sell the shares at a market price, resulting in 10,000 shares being sold that day, and the remaining 590,000 the next day.
SEC lawyer Jan Folena attempted to show through questioning about email exchanges and blog entries that Cuban dumped the shares solely to avoid a financial loss on a confidential deal.
Cuban said he had also recently learned Mamma.com was being investigated by the SEC about possible dealings by a known stock swindler, the late Irving Kott, and that it was one of several reasons he sold his shares.
Cuban said after his initial investment, the price of Mamma stock kept going down, prompting him to start heavily researching the company.
Earlier this week, the SEC presented video testimony from Fauré, who said Cuban told him upon learning of the offering plan: “Now I‘m screwed. I can’t sell.”
Cuban disputed that account, and maintains that he never believed the information was confidential or material enough to trigger an insider trading violation.
Fauré could not be subpoenaed to testify in person because he is a Canadian citizen.
Cuban is expected to return to the witness stand on Monday when the trial before U.S. District Judge Sidney Fitzwater resumes. The trial is expected to last eight to 10 days.
In suing Cuban, the SEC is seeking to recoup ill-gotten gains, impose fines and obtain a permanent injunction to bar him from similar alleged misconduct.
Cuban rose to prominence ahead of the dot-com crash by selling his company, Broadcast.com, in 1999 to Yahoo Inc for $5.7 billion.
He is a star of the ABC television show “Shark Tank” and has appeared on ABC’s “Dancing with the Stars” and on HBO’s “Real Time with Bill Maher.”
The SEC brought the civil lawsuit against Cuban in November 2008. Fitzwater dismissed the suit in 2009. A federal appeals court revived the case the following year.
The case is SEC v. Cuban, U.S. District Court, Northern District of Texas, No. 08-02050.
Editing by Karen Brooks, Lisa Shumaker, John Wallace, Dan Grebler and Andrew Hay