5th Circuit Revives SEC’s|Case Against Mark Cuban

(CN) - The 5th Circuit on Tuesday resurrected the SEC's claim that Dallas Mavericks owner Mark Cuban sold his stake in the Canadian search engine Mamma.com based on inside information.

The allegations "provide a more than plausible basis" to conclude that Cuban knew he wasn't supposed to trade on the information, the court ruled.

The company's CEO allegedly informed Cuban that Mamma.com was preparing to make a private investment in public equity offering. The billionaire entrepreneur told the CEO at the end of the call, "Well, now I'm screwed. I can't sell," according to the ruling.

But he did sell, unloading his large minority stake in Mamma.com after telling the CEO that he didn't like such offerings because they diluted the existing shareholders, according to the ruling.

The SEC charged Cuban with inside trading, a claim that didn't stick in federal court.

In his order dismissing the case, U.S. District Sidney Fitzwater ruled that the confidentiality agreement between the CEO and Cuban did not explicitly bar Cuban from trading under securities laws.

The SEC was given the chance to amend its complaint but instead chose to appeal, arguing that the confidentiality agreement did create a duty to disclose or abstain from trading.

A three-judge panel of the 5th Circuit in New Orleans agreed and reinstated the SEC's case.

"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," Judge Patrick Higginbotham wrote.

The court remanded for further discovery and a potential trial.

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

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