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SAN FRANCISCO (MarketWatch) -- High-profile investor Mark Cuban asked for the Securities and Exchange Commission's insider trading charges against him to be dropped, arguing that the regulator's suit is a "test case" for a flawed legal theory.
The SEC filed suit against Cuban in November, alleging he sold shares of Internet company Mamma.com based on non-public information, thus sparing himself hundreds of thousands of dollars in losses. See related story on SEC charges against Mark Cuban.
The SEC alleges that in 2004, Cuban promised to keep information about Mamma.com's impending secondary stock offering confidential, though he sold his stake in the company before the offering's disclosure sent shares in Mamma.com falling.
However, Cuban argued in a motion filed late Wednesday in a Texas federal court that the SEC is at odds with the established law of the land.
"There is no general prohibition on the trading of securities based on material, nonpublic information," Cuban argues in the filing. "Although the SEC has often argued that any recipient of material, nonpublic information has potential insider trading liability, the U.S. Supreme Court has repeatedly rejected the SEC's view."
Cuban asks that the suit against him be dismissed with prejudice.
Cuban, the billionaire owner of the Dallas Mavericks NBA basketball team and prolific chronicler of his own life on the Internet, said in the filing that, rather than keeping his sale of Mamma.com shares secret, he "openly disclosed both his sale of Mamma.com shares and his reasons for selling."
In addition, rather than a corporate insider, Cuban argues that he was merely a "minority shareholder who was owed a fiduciary duty by Mamma.com's officers" at the time he discussed the planned secondary stock offering with the company.
Cuban held a 6% ownership stake in Mamma.com before selling his shares.
If the SEC's charges are upheld, Cuban could be forced to pay millions of dollars in disgorgement and penalties.
John Letzing is a MarketWatch reporter based in San Francisco.
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