The SEC vs. Mark Cuban: The Misappropriation Theory of Insider Trading

Document Type


Presentation Date

Spring 3-24-2011

Conference Name

Midwest Academy of Legal Studies in Business, MBAA International 2011 Annual Conference

Conference Location

Chicago, ILL

Peer Review



This descriptive case concerns a decision the SEC 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 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—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 went on the attack, 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 were meant to make up for its past lapses in oversight of larger securities scandals.


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


Business Law, Public Responsibility, and Ethics | Securities Law

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