A federal appeals court on Tuesday kicked out a lower court's decision to dismiss an insider trading case involving Dallas Mavericks basketball team owner Mark Cuban, according to court filings. The appeals court said the Securities and Exchange Commission's case will now go back to the lower court to restart the proceedings, such as discovery, depositions and if needed, a trial.
Last year, a federal district court in Texas dismissed the SEC's case against Cuban, which centered on allegations that the well-known sports owner and techno-geek received confidential information from the CEO of Mamma.com, a Canadian search engine in which Cuban held a large investment stake.
Mamma.com's CEO allegedly told Cuban that the company was going to undertake a private investment public equity offering (PIPE), and the SEC alleges that Cuban agreed to keep the information under wraps and that he would not trade on the information. Cuban later violated that agreement not to sell his stake, ditching the shares in an effort to avoid the hit Mamma.com's stock took after the offering was disclosed, the SEC alleged in its 2008 lawsuit.
Cuban, however, argued that the agreement with Mamma.com's CEO called for him to keep the information confidential, but never addressed whether he could trade his shares based on the information. The district court agreed with Cuban and dismissed the case. The SEC appealed.
Pick Up Where You Left Off
In making its decision to kick the case back to the lower court, the appeals court said it did not want to get into the issues of "trust and confidence" and whether such a duty exists, but rather said it wanted to nix the dismissal and have the lower court resume the process where it left off. Typically, parties in lawsuits will seek to dismiss a case right off the bat before the process of deposing witnesses and demanding document exchanges begins.
Cuban, reached by email, referred questions for comment to his attorney Steve Best's statement:
Although Mr. Cuban is naturally disappointed in the Court's decision today, he is mindful of the fact that the decision does not mean that he is liable for anything, but that the Fifth Circuit believes that the parties must use the discovery process to provide the District Court with additional facts beyond those contained in the complaint. Although Mr. Cuban believes that such additional facts are not necessary to conclude that he is not liable for the civil violations alleged by the SEC and will immediately be requesting a rehearing en banc, he is also confident that presenting a fully developed record to the District Court would clearly prove his lack of liability and demonstrate the SEC's bad faith in bringing this utterly meritless case against. him.
Cuban, founder of Broadcom (BRCM), has other investments beyond Mamma.com and the Mavericks. He's also an owner of Landmark Theaters and was recently in the news for his investment in Hollywood's Weinstein brothers and their failed bid to acquire Miramax from the Walt Disney (DIS).