Mark Cuban and Sec

1125 Words Sep 26th, 2013 5 Pages
Mark Cuban was offered that the Web search engine named Mamma.com was going to offer $16.6 million worth of new shares to private institution and other qualified investors. The information about PIPEs is material since it’s not yet publicly announced and that info could affect the shareholders’ behaviors. 1. Why didn’t the SEC accuse Mark Cuban of traditional illegal insider trading, considering he was the largest, individual shareholder of Mamma.com?
Even though the information about PIPEs was material inside information, Mark Cuban was not accused as traditional insider information. To qualify as traditional insider trading, there must involve true insiders buying or selling the company’s stock based on material inside information.
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SEC alleged that Mark Cuban violated misappropriate insider trading. To be qualified as misappropriate insider trading, an individual wrongfully obtains (misappropriates) inside information and trades on it for her or his personal benefit. In this case, Cuban actually traded his shares based on the material inside information he was told and saved him $750,000 in losses. Wrongful misappropriation means violation of a fiduciary duty.
The Court found that Cuban had not “misappropriated” any material non-public information because he had not violated a “legal duty to refrain from trading. Cuban had not promised that he would not trade after learning about a PIPE offering. The judge also said that the SEC failed to show that Cuban undertook a legal duty to not use the information he learned from those two phone calls with Mamma.com representatives. Mark Cuban did not have any fiduciary duty to not act upon the information. The Mamma.com CEO asked Cuban to keep their conversation confidential. However, that didn’t prove that Cuban had a legal duty to Mamma.com that would prohibit him from selling his shares based on what he was told. He just promised to not disclose the information to the others, not promised to not act upon what someone told him.
Besides, there was no evidence that he actually agreed that day to keep anything confidential. He never agreed on the phone that he would

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