Title

(Not So) Close, But No Cigar: The SEC vs. Mark Cuban

Document Type

Article

Publication Date

1-2012

Publication Source

Business Case Journal

Volume

19

Issue

1

Inclusive pages

64-73

ISBN/ISSN

1937-8459 / 9780974664323

Peer Reviewed

yes

Abstract

This descriptive case concerns a decision the Securities and Exchange Commission made in 2008 to accuse Mark Cuban, celebrity sports team owner and billionaire, of insider trading because of a stock sale he made in 2004. In March 2004, Cuban bought 600,000 shares of an Internet search company, Mamma.com, and then sold his entire stake in the company between the afternoons of June 28 and 29, 2004. His sale was precipitated by a phone call he had with the Mamma.com CEO on the morning of June 28, where CEO Guy Faure asked Cuban to take part in a Private Investment in Public Equities (PIPE) offering, which was to be announced in a few days. As alleged by the SEC, at the start of the phone conversation, Mr. Faure asked for-and got- Cuban to agree to confidentiality. And therein lays the kernel to this legal controversy. The SEC's theory of liability was that Cuban committed misappropriation insider trading, namely that he wrongfully and in violation of a legal duty took inside information and used it for trading purposes. Mark Cuban vehemently denied the charges, attacking the allegations and the legal theory of misappropriation. And he also went on the offensive, eventually suing the SEC for governmental misconduct. This case study will challenge students to think about the interplay between federal insider trading rules and the statutes that authorize the rules, what it means to misappropriate inside information, and whether the SEC's litigation against Cuban was meant to make up for its past lapses in oversight of larger securities scandals.

Keywords

Insider Trading, Misappropriation Theory, Securities and Exchange Commission (SEC), Tipper-Tippee

Disciplines

Accounting | Business Law, Public Responsibility, and Ethics

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