Monday, October 4, 2010

What Is Insider Trading?

A Fifth Circuit Court of Appeals decision in the case of Securities Exchange Commission v. Mark Cuban ("a well known entrepreneur and current owner of the Dallas Mavericks and Landmark theaters) offers an interesting discussion of the scope of liability under the misappropriation theory, Unlike the district court that had dismissed the case, the fifth circuit elected to vacate and remand the case for further proceedings. Cuban was alleged to have "received confidential information from the CEO of Mamma.com, a Canadian search engine company in which Cuban was a large minority stakeholder. The court looking at the allegations from only the perspective of the SEC said that Cuban allegedly had "agreed to keep the information confidential, and acknowledged he could not trade on the information."  The issue for the court was whether "a simple confidentiality agreement [was sufficient] to create a duty to disclose or abstain from trading under the securities laws?"  

The Fifth Circuit stated that "[t]he allegations, taken in their entirety, provide more than a plausible basis to find that the understanding between the CEO and Cuban was that he was not to trade, that it was more than a simple confidentiality agreement." The court noted that "[g]iven the paucity of jurisprudence on the question of what constitutes a relationship of 'trust and confidence' and the inherently fact-bound nature of determining whether such a duty exists, we decline to first determine or place our thumb on the scale in the district court’s determination of its presence or to now draw the contours of any liability that it might bring, including the force of Rule 10b5-2(b)(1)." (citations omitted). So, the bottom line is that we have a lot more to learn about what constitutes insider trading.

(esp)

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Comments

What you really have is a scheme to harm a major investor. All anyone need do, if you know the intelligent investor will bail upon the moment of the purported "breaking news"; is to reach out and inform him or her.

Just as Mr. Cuban is remarked to have stated; Dang - now I can't trade - he was put into a quagmire.

One would have to assume he sought legal counsel and made the conscious decision to dump the stock anyway; and pay the fine.

The SEC did not seek to settle the matter; even when Cuban told the entire truth. What it seeks is to crucify a guy they believe lucked into the inner circle elite and should be made known who is boss.

Our wonderful tax dollars at work.

Who is Next!

Posted by: Laser Haas | Oct 4, 2010 3:22:28 PM

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