Mark Cuban and Sec

1104 words 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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Then, he would have a legal duty to not sell his share. Even though Mark Cuban obtained inside information inappropriately, he did not have any legal duty to Mamma.com not to sell his shares. He was an investor, so he could buy or sell his shares based on his best interest. That was why the federal judge dismissed the case in Cuban’s favor. 4. Asuming that Mark Cuban agreed to confidentiality when on the phone with the Mamma.com CEO that day, how did such an agreement factor into the federal district judge’s decision?
SEC rule 10b-5-2 identified one who has a “duty of trust or confidence” connected to misappropriation insider trading. First on the list is “Whenever a person agrees to maintain information in confidence, that person has a legal duty to maintain confidence.” This can apply in Mark Cuban’s case if he agreed to confidentiality on the phone with the mamma.com CEO that day. Mark Cuban then became a person who had a legal duty to maintain confidence and not act upon the information he was told.
Cuban said, “I’m screwed, I can’t sell.” It didn’t mean that he would not sell his shares. However, because he had requested more information from another executive and sale representation, the CEO may plausibly have understood that Cuban would not sell before a public announcement of the PIPE offering. Basically, investors are on notice that if they receive nonpublic

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