The SEC alleged Cuban was involved in insider trading when he sold shares in an Internet search engine company, Mamma.com Inc., after receiving confidential information about a private offering in 2004.
The SEC said the billionaire NBA team owner avoided a loss of $750,000 by selling his 600,000 shares, which represented a 6.3 percent stake in the company.
In his 35-page ruling, Fitzwater wrote that the SEC didn't accuse Cuban of promising not to trade based on the confidential information he received. Thus, the commission could not hold him liable for illegal insider trading, the judge wrote.
Fitzwater said the SEC could file a new complaint if it can allege that Cuban promised not to trade on the information.
The judge rejected some of Cuban's claims about his fiduciary relationship with the company, however.
Scott Friestad, associate director of the SEC's Division of Enforcement, said in an e-mail statement that the commission was reviewing the ruling and weighing its options.
Ralph Ferrara, one of Cuban's attorneys, said he needed time to digest the ruling but was initially impressed with what he called Fitzwater's "appellate court level" analysis.
"It sounds like unlike many trial courts on motions to dismiss, he really tried to come to grips with the fundamental legal policy questions that we raised," Ferrara said.
Cuban didn't immediately respond to an e-mail seeking comment.
Five years ago, Mamma.com Chief Executive Guy Faure told Cuban by phone that the company was planning to raise capital in a so-called private placement in a public equity offering known as a PIPE, the SEC lawsuit said.
Faure began the conversation by saying he was about to give confidential information and Cuban agreed to keep it to himself, the SEC said. According to the lawsuit, Cuban became angry because he said PIPEs dilute stock value for existing shareholders, and he ended the call by saying, "Well now I'm screwed. I can't sell."
