By PETER LATTMAN
6:51 p.m. | Updated The legal battle between the Securities and Exchange Commission and Mark Cuban is back on.
A federal appeals court on Tuesday reinstated the S.E.C.’s insider-trading case against Mr. Cuban, the Internet entrepreneur turned owner of the Dallas Mavericks basketball club. A trial court judge dismissed the lawsuit more than a year ago.
The S.E.C. brought civil charges against Mr. Cuban in November 2008, accusing him of trading on confidential information when he sold his stake in a small Internet search company just before it announced news that caused its stock price to drop.
“We are pleased with the court’s decision and look forward to presenting our case,” said an S.E.C. spokesman, John Nester.
Lawyers for Mr. Cuban, a combative sort famous for jawboning with referees during Mavericks games, swiftly issued a statement expressing disappointment in the ruling and accusing the S.E.C. of misconduct in the case.
“We are supremely confident that we will prevail in the district court, either on summary judgment or at trial,” said Christopher J. Clark, a lawyer for Mr. Cuban. “The record will show that the S.E.C. alleged facts that it knew it could never prove and brought this case as a result of a pre-existing bias against Mr. Cuban.”
The S.E.C. contends that Mr. Cuban sold shares of Mamma.com in 2004 after the company’s chief executive shared with Mr. Cuban confidential information that the company was planning a stock offering called a PIPE, or a private investment in a public entity. Such an offering typically depresses a company’s share price.
The chief executive asked Mr. Cuban, who already owned about 6 percent of Mamma.com, if he was interested in participating in the offering. Mr. Cuban, according to the S.E.C., declined. The commission says that the next day, Mr. Cuban sold all of his shares, avoiding a $750,000 loss.
“Mr. Cuban knew or was reckless in not knowing that he had received material, nonpublic information from Mamma.com,” said the S.E.C. in its complaint.
Mamma.com, based in Canada, has since change its name to Copernic.
In July 2009, a federal judge in Dallas dismissed the case, ruling that the S.E.C. had failed to prove that Mr. Cuban had, in receiving the confidential information, agreed not to sell his shares.
On Tuesday, the United States Court of Appeals for the Fifth Circuit in New Orleans reversed the ruling and reinstated the case, saying that “the allegations, taken in their entirety, provide more than a plausible basis to find that the understanding between the C.E.O. and Cuban was that he was not to trade, that it was more than a simple confidentiality agreement.”
Mr. Cuban maintains that the law did not prohibit him from selling the stock, even if he had agreed to keep the information confidential. His lawyers argue that the law distinguishes between people who owe duties of trust to a company, like its executives and outside lawyers, and regular shareholders, like Mr. Cuban, who are free to buy and sell stock based on information from the company unless they explicitly promise the company not to trade its stock.
The appeals court sent the case back to the lower court for pretrial discovery and possibly a trial. Lawyers for Mr. Cuban said more discovery “would clearly prove his lack of liability and demonstrate the S.E.C.’s bad faith in bringing this utterly meritless case against him.”
Mr. Cuban, 52, earned his fortune in 1999, when he sold his start-up, Broadcast.com, to Yahoo for $5.9 billion in Yahoo stock just before the dot-com crash. Though Yahoo’s stock plummeted the next year, Mr. Cuban protected his proceeds from the sale by striking a complex stock-option transaction known as a “collar” that locked in his gains.
In addition to the Mavericks, Mr. Cuban owns the art-house cinema chain Landmark Theaters and the cable company HDNet. In recent years, he has raised his profile with appearances on television shows including “Dancing With the Stars” and “Entourage.” On Tuesday, The Hollywood Reporter said that he would be joining “Shark Tank” on ABC, a reality show about entrepreneurs, as a guest venture capitalist.