The insider-trading charges against Mark Cuban have been thrown out by a federal judge. Cuban maintained his innocence throughout the trial. It all started in 2004 when the CEO of Mamma.com told Mark that the company planned to raise money through a PIPE (private investment in public equity) deal. A PIPE deal involves selling public common stock to private investors.
At the time, Mark owned 6% (600,000 shares) of the company. He sold the shares right after finding out about the PIPE deal to avoid a loss of around $750,000. PIPE deals often strongly dilute existing shareholders’ equity in a company. Mark is a smart man and he knew exactly how such a deal would affect the value of his equity in the company.
The SEC alleged that Mark used this insider information to sell his shares before the PIPE deal took place. Mark denied the charges because he was not obligated to hold the shares after he learned about the PIPE deal. Judge Fitzwater, the judge that threw out his case, agreed with Mark.
The ruling will most definitely have implications for similar cases in the future. According to the ruling on this case, a person can only be charged if he or she receives sensitive insider information and agrees not to use it for personal gains.