U.S. District Judge Sidney A. Fitzwater ruled that the SEC could not hold Cuban liable for insider trading because the agency didn't allege the billionaire NBA team owner had agreed not to trade based on confidential information he received about an Internet search engine company, Mamma.com Inc.
The judge wrote in his 35-page ruling that the SEC could file an amended complaint within 30 days if it can allege that Cuban agreed not to sell stock when he told the company's chief executive that he wouldn't divulge secret information he was about to receive in 2004.
The SEC said Cuban avoided a loss of $750,000 by selling his 600,000 shares, which represented a 6.3 percent stake in the company.
Fitzwater, however, rejected most of Cuban's claims over how his fiduciary relationship with Mamma.com should be applied to the law.
Scott Friestad, associate director of the SEC's Division of Enforcement, said in a 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's attorneys at the New York law firm of Dewey & LeBoeuf said in a statement they were "grateful" for the ruling.
"The court employed a reasoned and thoughtful approach ... and chose not to be bound by labels and monikers or resort to
'technicalities,'" the statement said.
Cuban didn't respond to an e-mail seeking comment.
In a vague Twitter posting that seemed to address the ruling, Cuban wrote that Friday had been "a great day so far." In a later posting, he thanked supporters and said he wouldn't comment to reporters.
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."
The SEC alleges that Cuban sold his shares hours after the phone call from Faure, before the announcement of the private offering.
