U.S. District Judge Sidney Fitzwater in Dallas said the U.S. Securities and Exchange Commission may continue to press its more than four-year-old case against Cuban, the owner of the National Basketball Association's Dallas Mavericks.
In its November 2008 lawsuit, the SEC accused Cuban of selling his 6.3 percent stake in Mamma.com for about $8 million in June 2004 after learning that the Montreal-based search engine company had been planning a stock offering.
The regulator said Cuban was able to avoid more than $750,000 of losses on his sale of 600,000 Mamma.com shares.
Stephen Best, a lawyer for Cuban said: "We respect Judge Fitzwater's decision. Judge Fitzwater was constrained by governing law to accept as true, evidence that the Judge himself explained is incomplete and flawed, and we very much look forward to trial where we will demonstrate that the "evidence" put forth by the SEC's witnesses is nothing but fabrication and speculation. Mr. Cuban did nothing wrong in connection with the trades in question and this truth will be borne out."
SEC spokesman John Nester said: "We look forward to proceeding with our insider trading case against Mr. Cuban in court."
In its lawsuit, the SEC alleged Cuban had learned from Mamma.com Chief Executive Guy Faure about an upcoming private investment in public equity offering, or PIPE.
The SEC said Cuban became "very upset and angry" upon learning that the offering would be sold at a discount to the market price, diluting the holdings of existing shareholders.
"Well, now I'm screwed. I can't sell," Cuban told Faure, according to the SEC.
The lawsuit said Cuban then directed his broker to sell his Mamma.com shares, and completed the sale on June 29, 2004, hours before the company announced the PIPE offering. Mamma.com's share price fell 9.3 percent the following morning.
Fitzwater wrote that Cuban's effort to dismiss the case was "in some respects a close one," but ultimately must fail.
He said a reasonable jury could find that the information Cuban learned "would have been viewed by a reasonable investor as having significantly altered the total mix of information made available about Mamma.com."
The 54-year-old Cuban is worth $2.4 billion, according to Forbes magazine.
The case is SEC v. Cuban, U.S. District Court, Northern District of Texas, No. 08-02050.