Insider Trading

Mark Cuban Fights SEC in Insider Trading Civil Lawsuit; Why Is It Even Happening?


Colorful superrich entrepreneur Mark Cuban–you love him on Shark Tank (Friday nights on ABC!)–is going to trial this week in a long-standing civil lawsuit by the Securities and Exchange Commission on an insider trading charge.


Details from Reuters:

The case stems from Cuban's June 2004 sale of 600,000 shares of Inc, soon after he had supposedly learned of an equity offering that could depress the Montreal-based Internet search company's stock price.

The SEC said the sale let Cuban avoid a roughly $750,000 loss on his 6.3 percent stake. It seeks to recoup illegal gains, impose a fine, and win a permanent ban against similar conduct….

Cuban's combativeness has extended to the SEC case, where he accused enforcement staff of targeting him because of his fame and because they disliked his politics. In 2011, SEC Inspector General David Kotz cleared the regulator of misconduct. …

The SEC said Cuban hurriedly unloaded his shares after having become "very upset and angry" when he learned from Chief Executive Guy Fauré on June 28, 2004, that the company planned to raise capital via a private investment in public equity (PIPE) offering.

"Well, now I'm screwed. I can't sell," Cuban told Fauré, according to the SEC.

Within hours, according to the regulator, Cuban instructed his broker to sell his shares, and the $7.98 million sale was completed on June 29. announced the PIPE offering later that day, and its shares fell 9.3 percent the next morning, to $11.89. Cuban's shares were sold at an average $13.30 each, court papers show.

Cuban has maintained that he had no obligation not to trade, and that there was no evidence that the information he had was confidential or material…..[U.S. District Judge Sidney] Fitzwater [hearing the case] dismissed the SEC lawsuit in 2009, but a federal appeals court revived the case the following year.

A good learning opportunity to revisit some past Reason writing on the contentious issue of insider trading.

See the Washington Post realize that, as I wrote, "that laws against insider trading are silly, don't do any good, and ignore most of what they purport to be preventing by not cracking down on the "crime" of insider non-trading"; and read about "perverse results of keeping those who know the most about companies (theoretically) from helping spread that knowledge and help bake it into the price of stock through the buying and selling of stocks in those companies;" and in 2007 I wondered, cheekily, if some great journalism that Mark Cuban was funding might fall afoul of insider trading laws (as a means of pointing out the silliness of such laws).

In the context of the campaign against Samuel Waksal, the source of the "inside info" that sent Martha Stewart to jail, I wrote:

Stock markets work best when all the relevant information about a company is spread as widely as possible, as quickly as possible. Stock prices represent a constantly shifting amalgamation of everyone's information about and evaluations of a company's value. It helps when those who have accurate information about changing circumstances are permitted to act so that stock prices reflect them.

Someone selling a stock in huge quantities because they know something will happen soon that will lower the stock's value helps spread the knowledge that the price ought to be dropping. Such actions help insure that stock prices do reflect a more accurate assessment of all the relevant facts. That's good in the long run for everyone in the stock market.

What I wrote in USA Today in 2002 about the Martha Stewart case, minus the criminal part (it's a good thing that Cuban isn't facing jail time), is also relevant to Cuban's case:

Every day, brokers advise Americans to buy or sell stocks. Do we really want laws that require us to launch congressional-level inquiries into what "illicit" knowledge our brokers might have had?

Laws that turn legal actions into bureaucratic crimes based on our state of mind—on whether we know what we know or decide what we decide "fairly"—require, as Stewart's case shows, an unsavory degree of government snooping into who said what to whom when. Such complicated insider-trading investigations of those not directly employed by the firm whose stock was sold are rarely pursued. But when the "criminal" is a much-despised high-profile celebrity, government investigators apparently can't resist the loads of publicity and easy pretensions to striking a mighty blow against corporate corruption.

Insider-trading laws turn an act that any American should have a perfect right to perform into a crime, in the name of the impossible standard of equal information. There is no way to make everyone know what everyone else knows, all at the same time.

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28 responses to “Mark Cuban Fights SEC in Insider Trading Civil Lawsuit; Why Is It Even Happening?

  1. Man, it’s got to be a slow news week to drag out insider trading.

  2. Insider-trading laws turn an act that any American should have a perfect right to perform into a crime, in the name of the impossible standard of equal information.

    Don’t forget that Congress is exempt from these laws.

      1. It was all over the news a few months back and has been in the news over and over again. Try google.

        Anybody too lazy to even use the proper wikipedia quote or capitalize his abbreviated version is too damned lazy to deserve a better answer, but well worth mocking.

  3. Why does Cuban always look like he just sharted?

    I like the guy with the pretty eyes, and I would do filthy, Warty-like things to the bald one.

    1. Both at the same time?

      1. No – I would be gentle with the pretty-eyed one.

        1. I meant that there are two bald guys. Unless one of the bald guys has pretty eyes? I’M SO CONFUSED

          1. Somehow I’m now thinking about some weird threesome between Warty, Kristen, and some bald racist.

            1. NO! NO! BACK OFF! BACK OFF!

              [blocks of ice explode into steam]

    2. I should clarify that I mean the bald white one. Cause I’m raysis like dat.

    3. Which bald one, racist?

  4. I’ll add nobody, except congress, cares about insider trading. And the only reason Congress cares is so they can use it as a weapon against those that get too uppity.

    1. THIS^.

      Laws against insider trading are the equivalent of “drop guns” that cops carry around.

  5. Cuban has maintained that he had no obligation not to trade, and that there was no evidence that the information he had was confidential or material…

    I don’t know the facts of the case or the details of the laws, and the information may or may not have been confidential, but I don’t see how any could say it wasn’t “material”.

  6. Shouldn’t Chief Executive Guy Faur? be on trial for disclosing inside information? Or, it wasn’t considered inside information, and Cuban did nothing wrong.

    1. Yeah, I really don’t see why Cuban is on trial but the CEO who passed along the “insider information” isn’t. Oh, wait, it’s because Cuban used that information to make EVUL MONEY, and therefore must be punished.

      I mean, what does he think is, a free, capitalist country?

      1. Probably because as a large investor, the CEO has to tell him about any IPO or other rounds of equity investment. Most of those private equity deals require previous investors to be notified because they have a right of first offer: ie they can match whatever terms the new investor gets.

    2. I’m going to go out on a limb and guess that he’s agreed to testify in return for not being on trial.

  7. Fuck the SEC and the FTC. And transportation equivalent, STB.

  8. Mark Cuban vs. SEC in a jury trial in Dallas, with a judge who previously dismissed the SEC’s case? Yeah, that’s not going to go the government’s way.

    1. Yet that doesn’t stop the government wasting time and money on going after him. But remember, NOTHING LEFT TO CUT.

  9. Shouldn’t Cuban, just for style points, walk in, look at the SEC lawyers and say, “Hello, sharks.”?

  10. Shark Tank is my favorite show, probably because nobody is coy about making money.

  11. First, isn’t this a Canadian company? How does the US gov’t have control over a Canadian company? (serious ignorance on my part, I just don’t get it.)

    Second, if the CEO gave out that information isn’t he then obligated to make that information public- meaning the problem doesn’t lie with Cuban, but the CEO.

    Third, who cares? If people bought without their own due diligence (into a search engine that isn’t GOOGLE for christ’s sake!)isn’t the risk their own?

    1. If their stock is marketed in the U.S. to investors residing within it, then the company has to comply with SEC rules.

  12. This sounds like Congress being mad because someone made trades before they could.

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