By Jonathan Stempel

NEW YORK (Reuters) - Mark Cuban, the outspoken billionaire owner of the Dallas Mavericks basketball team, was ordered by a U.S. federal appeals court on Tuesday to face a civil fraud lawsuit accusing him of insider trading.

The U.S. Fifth Circuit Court of Appeals said a federal district court in Dallas erred in dismissing the case brought by the U.S. Securities and Exchange Commission against Cuban. It sent the case back to that court for further proceedings, which could lead to a trial.

In its lawsuit, the SEC accused Cuban of selling his 6.3 percent stake in Mamma.com in June 2004 after learning the Montreal-based search engine company was planning a stock offering. It said Cuban's sale allowed him to avoid more than $750,000 of losses.

Cuban, 52, is worth $2.4 billion, Forbes magazine said in March. He rose to prominence with a 1999 sale of Broadcast.com to Yahoo Inc for $5.7 billion, just before the dot-com crash, and the next year bought a majority stake in the National Basketball Association's Mavericks.

He is also chief executive of the television channel HDNet and controls the Landmark Theatres chain.

In an emailed statement, Cuban said he will seek a rehearing before the entire Fifth Circuit and continue to seek sanctions against the SEC, which he said has demonstrated "bad faith in bringing this utterly meritless case."

Stephen Best, a lawyer for Cuban, did not return requests for comment. An NBA spokesman did not immediately return a call seeking comment.

SEC spokesman John Nester said: "We are pleased with the court's decision and look forward to presenting our case."

Mamma.com is now known as Copernic Inc.


The SEC has been strengthening enforcement since missing Bernard Madoff's Ponzi scheme and failing to rein in risky practices that led to 2008's global financial crisis.

This year, it won a $550 million settlement from Goldman Sachs Group Inc to resolve civil fraud charges, and sued billionaire Samuel Wyly and his brother Charles over stock trades that it said led to $550 million of illicit gains.

Meanwhile, July's adoption of the Dodd-Frank regulatory overhaul enhanced SEC power to bring enforcement actions.

"The SEC is, now more than ever, in position to create the playbook and attack those persons who seek to violate its rules," said Ron Geffner, a partner at Sadis & Goldberg LLP and former SEC enforcement lawyer. "The SEC is not shying away from visible defendants or controversial fact patterns."


In its November 2008 lawsuit, the SEC alleged that Cuban learned from Mamma.com's chief executive at the time, Guy Faure, about an upcoming private investment in public equity offering, or PIPE.

The SEC said Cuban became "angry and upset" upon learning the offering would dilute the holdings of existing shareholders and be sold at a discount to the market price.

After telling Faure "Well, now I'm screwed. I can't sell," Cuban then directed his broker to sell his 600,000 Mamma.com shares, the SEC said.

After that sale, Mamma.com announced the PIPE offering, and its stock fell 9.3 percent when markets reopened the next day.

A federal district judge in July 2009 dismissed the case, saying Cuban did not qualify as an insider, and at most had entered a confidentiality agreement with Mamma.com, rather than an agreement not to trade.


But Circuit Judge Patrick Higginbotham wrote for the Fifth Circuit that the SEC offered "more than a plausible basis" to conclude that Cuban had in fact agreed not to trade.

He wrote that after Cuban expressed displeasure with the PIPE offering, he gained access to confidential details about it, and sold his shares only afterward.

"It is at least plausible that each of the parties understood, if only implicitly, that Mamma.com would only provide the terms and conditions of the offering to Cuban for the purposes of evaluating whether he would participate in the offering, and that Cuban could not use the information for his own personal benefit," Higginbotham wrote.

"That both Cuban and the CEO expressed the belief that Cuban could not trade appears to reinforce the plausibility of this reading," the judge added.

Cuban is known for sitting among ordinary fans at Mavericks games while clad in a team jersey and excitedly cheering for the team. He has also amassed large NBA fines for criticizing league referees. In 2007, Cuban was a contestant on the "Dancing With the Stars" television show, but did not win.

The case is SEC v. Cuban, U.S. Fifth Circuit Court of Appeals, No. 09-10996.

(Reporting by Jonathan Stempel. Additional reporting by Ben Klayman in Detroit and Rachelle Younglai in Washington, D.C.; Editing by Robert MacMillan and Richard Chang)