Mark Cuban Charged With Insider Trading

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

Mon, Nov 17th 2008 9:41am — Mike Masnick

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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Filed Under: insider trading, mark cuban
Companies: mamma.com

16 Comments

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Joel Coehoorn, 17 Nov 2008 @ 10:33am

simple mistake
Sounds like he's probably guilty, but that he wasn't exactly malicious or _trying_ to do backroom dealing in this sense. Just that he made a simple mistake in what was public and what was not public.
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barack obama, 17 Nov 2008 @ 10:48am

no such thing as a mistake.
He's a capitalist, and must be punished. After the execution, his assets will be given to the appropriate Federal Agencies. Any surviving family members will be ineligble for Federal benefits.
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- mslade, 17 Nov 2008 @ 10:56am
  
  Re: no such thing as a mistake.
  lol its funny cuz u make outrageous statement and make it look like ur barack obama who iz a known socialist!!!1111one
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- Peter Rad, 17 Nov 2008 @ 10:57am
  
  Re: no such thing as a mistake.
  This is why Anonymous comments should be shut down across the blogosphere. Too many immature idiots.
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  - mslade, 17 Nov 2008 @ 11:24am
    
    Re: Re: no such thing as a mistake.
    I like when they whine, especially about stuff that has more similarities to sensationalist media headlines than truth. It makes the Obama election sweeter.
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  - Sean Flanagan, 17 Nov 2008 @ 12:01pm
    
    Re: Re: no such thing as a mistake.
    Yes, only mature idiots should be allowed to participate.
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- Willton, 17 Nov 2008 @ 11:10am
  
  Re: no such thing as a mistake.
  Apparently the man behind the mask sees nothing wrong with insider trading.
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- Potato Head, 17 Nov 2008 @ 11:22am
  
  Re: no such thing as a mistake.
  Oh my God! A Black man is President! He must be trying to ruin our Capitalist Economy!! Lord knows its fine the way it is! How dare he give tax breaks to those little people!
  
  What a bunch of right wing crap. No wonder the Republicans have drove this country into the dirt.
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ChronoFish, 17 Nov 2008 @ 11:27am

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
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carlahein, 17 Nov 2008 @ 11:55am

no such thing as a mistake
Yes! Congratulations go to Obama and anyone else who can use New Media communications to embarrass Old Media's back room dealmakers into admitting their guilt and paying reparations for their crimes. A little bit of humility is long overdue.
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Anonymous Coward, 17 Nov 2008 @ 12:00pm

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.
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SquireG, 17 Nov 2008 @ 12:30pm

This charge is likely motivated by Mark Cubans decision to launch a website in opposition to the $700+ Billion Bankster Bailout.
http://BailoutSleuth.com/
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Iggy, 17 Nov 2008 @ 12:58pm

Mark Cuban is not an evil guy, he just behaves like he's above the laws of mere men. No need to ruin him. A good spanking is all he needs to wake him up. Banning him from being an officer in a publicly traded entity might do the trick.
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Reed, 17 Nov 2008 @ 1:34pm

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.
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Not a Capitalist, 17 Nov 2008 @ 2:27pm

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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Tubes Stevens, 17 Nov 2008 @ 4:02pm

Is Cuban the guy who sold that worthless piece of crap broadcast.com to someone for tons of money? That's nothing more than a high end thief... having made his money from bilking otheres and selling shit assets. It's about time someone hauled his ass off to jail.
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