Mark Cuban Charged With Insider Trading

from the before-or-after-the-news-is-public dept

Over the years, Mark Cuban has been quite open on his blog concerning various stock strategies that he has — which have often gone against the grain. He’s not a big fan of just buying a small amount of a company’s outstanding stock and holding it, assuming that as a small shareholder, you’re probably not getting the real information about a company. A few years back, Cuban funded a somewhat controversial investigative journalism project, where the journalist would research companies that he believed were scams in some sense. The journalist would reveal his findings to Cuban before publishing the content, allowing Cuban to short the stock. This led some to accuse Cuban of insider trading, but that was clearly incorrect, as the info wasn’t insider info, but information that had been uncovered through research.

However, the SEC is now claiming that some of Cuban’s other stock moves weren’t so cut and dried. It’s charged Cuban with insider trading in his stake in meta-search engine Mamma.com. That story was a big deal four years ago. Towards the beginning of 2004, Cuban had to reveal publicly his 6.3% stake in the company (anything over 5% needs to be revealed), saying that he liked the company because in using its search engine he found that it worked well, and in investigating the company he realized that it was generating a fair amount of cash. However, just a few months later headlines were made again when the news came out that Cuban had sold his stake, noting that he was upset about the company’s plan to raise money via a private placement, pointing out that such a transaction would dilute him. So, when he found out about it, he sold all his shares.

The problem, according to the SEC, is that he sold those shares after company insiders told him about the planned fundraising — not after the company made that info public. If that’s true, then it does sound like he would have been selling on material non-public information received from an insider, which would be bad news.

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Companies: mamma.com

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Comments on “Mark Cuban Charged With Insider Trading”

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16 Comments
ChronoFish (user link) says:

Spirit of Insider Trading

I think this is an interesting grey area. Sure, he may be working on “public” information that was gathered by intense investigations – but does the average investor have the resources to find out those kind of details?

What’s the difference between receiving public but sensitive information, making a trading decision, and then “releasing” report data to a large group of investors (via a blog) VS a reporter on CNBC investigating, making a trading decision, and then announcing the results of the investigation to a TV audience?

The legal difference may be cut and dry, but the spirit of the rules seem to be violated….

-CF

Anonymous Coward says:

The current implementation of “insider trading” law is astoundingly stupid. It would be different if Cuban had used his influence to gain material information that no one else was privy to, but a) the info was apparently offered unsolicited, and b) he didn’t get the information exclusively, merely early. Someone’s going to get the data first, and act, and lots of smart investors spend a lot of time and effort trying to be first. Yet once your succesful enough to buy a decent chunk of stock, you’re obligated to sit on data and just take a loss? Really? If this is insider trading, then everyone who’s cousin leaks the Walmart sales prices before they’re publicly released is equally as guilty.

Reed says:

Insider trading? Who doesn't!

Seriously who doesn’t involve themselves in insider trading? This is essentially how you make money in the stock market, by knowing information others don’t and capitalizing on it.

Until they can actually enforce these laws on a significant amount of inside traders the laws against it mean nothing because no-one expects to get caught. Singling out one or two people is not only asinine, but disingenuous to our whole legal system.

Not a Capitalist says:

Insider Trading - nobody should

There is a huge difference between using information from available sources to make an informed decision and using information that isn’t available to anyone else.

Mark Cuban went into a meeting, signed non-disclosure and non-action agreements, learned something awful, and should have sucked it up. Instead, he took advantage of a privileged position and sold his shares for what appears to be a 10% advantage over everyone else.

Too bad, he’s generally shown himself to be savvy but this is just plain illegal. They don’t seem to want to “make an example” of him or anything, just apply the just penalties and take away his ill-gotten gains.

I love SquireG’s comment (@12) – since this would have required psychic powers to have charged him before the fiscal melt-down and before the $700B raping of the American taxpayer, and before any website could have been imagined. If only the person laying the charges had used their powers for good, instead of evil, we could have had months of forewarning about the collapse of Wall Street.

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