Cuban Defends Sale of Mamma, Blames The PIPE
Mark Cuban fired back at the SEC, defending the sale of stock which has him facing charges of insider trading.
Initial reports said the charges stemmed from his involvement in the IPO of a search engine called Mamma.com, but the sale in question was actually from a private investment in a public entity, also known as a PIPE.
What is a PIPE? Well, a PIPE differs from an IPO in a few ways. An IPO is the first offering of securities to the general public. PIPEs usually take place after a company has gone public and new securities are usually marketed to venture capitalists (instead of the general public). Some companies turn to the PIPE when the value of their equity shrinks and they need additional financing. PIPEs can provide the needed capital through selling stock or issuing convertible debt, but the stock is usually issued at a discount to the company’s existing stock price.
Before the PIPE offering, Mr. Cuban owned 600,000 shares of Mamma.com’s common stock. The SEC alleges that Mr. Cuban later learned the company was using PIPE financing for a secondary offering and instructed his broker to liquidate his shares. He sold them before the PIPE’s debut and saved $750,000.
ESPN.com published a 2005 blog entry in which Mr. Cuban wrote about the experience:
“I’m not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I don’t want to own stock in companies that use this method of financing . Why? Because I dont like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants. So I sold the stock.”
I can understand his position since PIPE deals may not be good for existing shareholders. I wouldn’t be in a rush to lose $750K either, but it is not fair for some shareholders to have access to material information like this before others.
People are lining up to compare Cuban to Martha Stewart and speculating on his punishment…fines, jail time, or both. Pump the brakes! Remember: Martha Stewart’s insider trading charges didn’t stick. She went to jail for obstruction of justice, conspiracy and making false statements. So as long as the Maverick cooperates he should remain a free man.
BTW, yesterday I looked up the company that Mamma.com merged with and is now trading under as a possible candidate for this week’s edition of Techie Tuesdays, but Copernic, Inc. (Ticker: CNIC) is trading around 25 cents a share.
I’m not bringing out the charts and bands for a penny stock. You can make money with penny stocks, but most of the action there would be speculative at best…kind of like buying a 6 percent stake in a fledgling search engine company using the PIPE ;)
Tags: insider trading, mamma.com, mark cuban, martha stewart, maverick, PIPE, secRelated Stories
POSTED IN: Corporate, IPOs, Investment, News, Tidbits and Trivia, Uncategorized
4 opinions for Cuban Defends Sale of Mamma, Blames The PIPE
Jeff
Nov 18, 2008 at 12:24 pm
This sure seems pretty bogus. With all the bailout crap going on this is the best the SEC can come up with? Definitely seems like some shady work in the SEC; I think I’ll keep my inside trading to my iphone. (http://www.insidetraderapp.com)
profsilver
Nov 18, 2008 at 12:57 pm
Thanks for the comment Jeff. There are definitely larger issues on their radar than Mark Cuban and a search engine. I must admit, he has had some pretty interesting trading activity maybe that made him an easier target.
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