SEC Charges Mark Cuban With Insider Trading

[gsaldivar]

Originally posted by: LumbergTech
everyone has an equal opportunity to set themselves up to be in that position to receive that type of information
if they fail to, they fail

Nope. You're confusing 'overlooked' information with "insider" information.

Overlooked information can be anything that is available to the general public, but overlooked by a given investor in the course of researching his/her investment. The investor may be properly set up to receive that information, but the burden falls on the investor to find it and employ it to make an educated investment decision.

All other things being equal - if something in the news causes the a stock price to change, the investor fails to find or use this news and the investor's position is affected as a result; the fault lies solely with the investor.

However...

"Insider" information is simply not available to the general public. Even assuming that a given investor is set up to receive that information, NO AMOUNT of research or effort will reveal that information to him.

Investors that have this information are known as "insiders" and are empowered to make a MORE educated investment decision than other investors are. However, they are prohibited by law from using that information to put themselves in a better position in the stock market than other investors are capable of doing.

Occasionally, I have known people to decline to accept this type of information because of the burden it places on the person who receives it. If what I've read turns out to be true, it appears that he willingly entered into a confidentiality agreement which should have stated that burden in legal terms.

 

[LumbergTech]

Originally posted by: gsaldivar

Originally posted by: LumbergTech
everyone has an equal opportunity to set themselves up to be in that position to receive that type of information
if they fail to, they fail

Nope. You're confusing 'overlooked' information with "insider" information.

Overlooked information can be anything that is available to the general public, but overlooked by a given investor in the course of researching his/her investment. The investor may be properly set up to receive that information, but the burden falls on the investor to find it and employ it to make an educated investment decision.

All other things being equal - if something in the news causes the a stock price to change, the investor fails to find or use this news and the investor's position is affected as a result; the fault lies solely with the investor.

However...

"Insider" information is simply not available to the general public. Even assuming that a given investor is set up to receive that information, NO AMOUNT of research or effort will reveal that information to him.

Investors that have this information are known as "insiders" and are empowered to make a MORE educated investment decision than other investors are. However, they are prohibited by law from using that information to put themselves in a better position in the stock market than other investors are capable of doing.

Occasionally, I have known people to decline to accept this type of information because of the burden it places on the person who receives it. If what I've read turns out to be true, it appears that he willingly entered into a confidentiality agreement which should have stated that burden in legal terms.

i appreciate the explanation..im no economist..

i just find it hard to believe that this doesnt happen pretty much constantly...with no sight in end

 

[gsaldivar]

Originally posted by: LumbergTech
i appreciate the explanation..im no economist..

i just find it hard to believe that this doesnt happen pretty much constantly...with no sight in end

No doubt! I'm sure it happens a lot more than we actually hear about in the news, but there are some very good reasons why there are laws against this type of thing.

Like many things, we spend a tremendous amount of time trying to legislate "good" behavior. There are heavy penalties for breaking the law, but not much thought is given to encourage people to do the right thing. It's ultimately up to the individual to decide their own actions, and reap the benefits / risk the penalties.

Not to worry, it's only a civil complaint, and I'm sure Cuban can afford some very good lawyers who will work around the clock to make this go away...

http://en.wikipedia.org/wiki/Insider_trading

 

[gsaldivar]

Originally posted by: MikeyLSU
interesting, if this would hold(I hope it doesn't)

It would allow a CEO to "cold call" the big investors and tell them any inside information. At this point the invester would be forced to not sell until that information comes out. Pretty shitty thing to do.

If this happened, it could change the nature of the information from "inside" to public knowledge. Particularly if a great number of investors were cold called, and a great number of them acted immediately upon receiving this information, and they informed other investors, etc...

 

[gsaldivar]

Originally posted by: Stoneburner
The SEC, like other federal agencies, likes show trials. An investigation can take as long as required but their penchant for going after celebrities is troubling.

Maybe they are seeking visible and well-publicized deterrents?

 

[Stoneburner]

Originally posted by: gsaldivar

Originally posted by: Stoneburner
The SEC, like other federal agencies, likes show trials. An investigation can take as long as required but their penchant for going after celebrities is troubling.

Maybe they are seeking visible and well-publicized deterrents?

Yeah. Snipes with the IRS is a good example. Problem is, i remember reading an article by a law and economics professor that argued, convincingly, that the show trials don't have much deterrent effect.

I also find it hard to believe it's very easy getting away with insider trading. The laws are absolutely nuts. Again, let's say you are an actual corporate insider and you have made a profit trading on your own stocks. Shareholder can actually have any profit disgorged REGARDLESS of any evidence of wrongdoing.

 

[gsaldivar]

Originally posted by: Stoneburner

Originally posted by: gsaldivar

Originally posted by: Stoneburner
The SEC, like other federal agencies, likes show trials. An investigation can take as long as required but their penchant for going after celebrities is troubling.

Maybe they are seeking visible and well-publicized deterrents?

Yeah. Snipes with the IRS is a good example. Problem is, i remember reading an article by a law and economics professor that argued, convincingly, that the show trials don't have much deterrent effect.

I also find it hard to believe it's very easy getting away with insider trading. The laws are absolutely nuts. Again, let's say you are an actual corporate insider and you have made a profit trading on your own stocks. Shareholder can actually have any profit disgorged REGARDLESS of any evidence of wrongdoing.

I think the hardest type of insider trading for the SEC to enforce would be where "insider" information is used by outsiders. An insider might conspire with an outsider to game the market, or the information could be 'gifted' to an outsider to put that investor in a better position than the rest of the traders on the market (i.e. Martha Stewart). In either case the situation might arise where the actual trades are done outside of the "insiders" bubble that is closely scrutinized by the SEC. Insider information could also be misappropriated from a company, in the same way that an engineer might steal secrets from his/her employer. There are an infinitely diverse number of ways that insider info can be subverted and used to the detriment of a company's shareholders. An inside trader might seek the technological advancement, strategic advantage of a competitor, personal financial gain, etc...

Even in cases where this type of fraud is exposed, it is almost impossible to put the affected parties in a position where they were before the crime took place. A company's stock can be irrevocably diluted and devalued, its capital raising ability and credit rating affected, its "outside" shareholders each saddled with a portion of the devaluement...

Similar to the current subprime mortgage crisis involving MBS's (securitized mortgages) it's simply impossible to unwind some types of transactions that have extended all the way out to the stock market, and have been committed and recommitted to other investors on the open market.

 

[conehead433]

Cuban should plead no contest and pay $1 million or more and avoid jail time. What an idiot. Like no one would notice.

 

[Jaskalas]

The SEC alleges in a civil action that Mr. Cuban sold his entire 6% ownership stake on June 28, 2004, after learning that Mamma.com was raising money through a private investment in a public entity, or PIPE. The next day, on June 29, the company announced the PIPE financing and shares of the company dropped by more than 10%. By selling his stake, the SEC alleges, Mr. Cuban avoided more than $750,000 in losses.

He did not control it, but because he avoided a loss of money he is a criminal? SEC can go to hell.

 

[Woofmeister]

Originally posted by: Jaskalas

The SEC alleges in a civil action that Mr. Cuban sold his entire 6% ownership stake on June 28, 2004, after learning that Mamma.com was raising money through a private investment in a public entity, or PIPE. The next day, on June 29, the company announced the PIPE financing and shares of the company dropped by more than 10%. By selling his stake, the SEC alleges, Mr. Cuban avoided more than $750,000 in losses.

He did not control it, but because he avoided a loss of money he is a criminal? SEC can go to hell.

He avoided a loss by trading on information not available to the market. Whoever bought his shares paid more than they should have because the price they paid did not include the information that Cuban had. It's wrong, and if it happens enough times, nobody will trust the markets. What's so hard to understand?

Oh, and it's a civil complaint, not a criminal indictment. At most, Cuban will pay the losses he avoided, interest and penalties, but he will not go to jail. The real tragedy is that the SEC repays less than 1% of recovered funds to defrauded investors. So Mamma.com investors who bought Cuban's shares will receive nothing.

 

[WaTaGuMp]

We need to bail out Mark Cuban, HDNET must go on.

 

[WHAMPOM]

Originally posted by: smashp
And here is a link to his blog. some interesting commentary about the Economy and such

http://blogmaverick.com/

"Mark Cuban today responded to a civil complaint filed by the United States Securities and Exchange Commission in the United States District for the Northern District of Texas, Dallas Division. In its complaint, the Commission charges that Mr. Cuban engaged in violations of the federal securities laws in connection with transactions in the securities of Mamma.com Inc.

This matter, which has been pending before the Commission for nearly two years, has no merit and is a product of gross abuse of prosecutorial discretion. Mr. Cuban intends to contest the allegations and to demonstrate that the Commission?s claims are infected by the misconduct of the staff of its Enforcement Division.

Mr. Cuban stated, ?I am disappointed that the Commission chose to bring this case based upon its Enforcement staff?s win-at-any-cost ambitions. The staff?s process was result-oriented, facts be damned. The government?s claims are false and they will be proven to be so.?



I mean does it really take the SEC 4 years to file charges.

Could be some one in that third branch of government no longer has the power to make them lay off?? A :light: goes on!

 

[theeedude]

Looks like Mark Cuban had some enemies at the SEC for financing an anti-Bush movie, at which point they started an investigation of some 3 year old stock sale.
You are still going to tell me this is not politically motivated?

http://norris.blogs.nytimes.co...political-persecution/

From: Norris, Jeffrey B. [mailto:NorrisJ@SEC.GOV]
Sent: Saturday, May 05, 2007 2:27 PM
To: Mark Cuban
Cc: Cox, Christopher
Subject: RE: ?Lose Change?

I AM SHARING THIS WITH CHAIRMAN COX. NEITHER HE NOR THE COMMISSION ENDORSE MY OPINIONS, BUT IN LIGHT OF YOUR THREAT, I THOUGHT SHOULD SEND THIS TO HIM.

Mark:
If this upsets you, I wonder how George Bush feels. I assume that Mr. Cox would view your involvement with ?Loose Change? much as I do. After all, he served his country as a Republican Congressman from Orange County for nearly 20 years and was appointed by President Bush. If you feel like sharing my thoughts with Chairman Cox, be my guest.

Previously, I thought you were merely foolish and naïve. Now, however, I see that you are also a hypocrite. I guess your belief in free speech has severe limitations. If someone else is the victim of an absurd conspiracy theory, you defend your right to participate in smearing the good name of a patriot like President Bush. But, when you are the subject of a parody of the attack you have endorsed, you suddenly issue threats.

I think I will e-mail this to Chairman Cox myself. I think he will enjoy it. I?m sure he is also a Laker fan.

Since Chairman Cox may not know the background, I will explain. Mark Cuban is the owner of the Dallas Mavericks and has participated in distributing the vicious and absurd documentary, ?Loose Change,? which posits that President Bush planned the demolition of the World Trade Center as a pretext for going to war against Iraq. We have had some past exchanges about my opinion the Mr. Cuban?s support for this project is irresponsible and immoral. Below, I parodied his position that every opinion, no matter how absurd and vicious, deserves to be broadly disseminated.

 

[gsaldivar]

Originally posted by: senseamp
Looks like Mark Cuban had some enemies at the SEC for financing an anti-Bush movie, at which point they started an investigation of some 3 year old stock sale.
You are still going to tell me this is not politically motivated?

Whether or not Cuban is being singled out for political reasons is still up for debate. However, there doesn't seem to be any dispute over the events surrounding the case. Here's part of the article that you left out of your quote:

As it is, there appears to be no question about when Mr. Cuban sold the stock. The S.E.C. cites phone company records and company memos about the timing and content of the call. If those memos were accurate, it appears that Mr. Cuban knew he had a duty not to sell until the information about the offering was made public.

I believe there is a 5-year statute of limitations on insider trading, so anything within that window is fair game for SEC scrutiny. If proven, it seems Cuban knowingly and willingly left himself open to a pretty serious liability.

After being warned that he was receiving confidential information, Mr. Cuban is said to have expressed dismay about the offering. ?At the end of the call, Cuban told the C.E.O. ?Well, now I?m screwed. I can?t sell.? ? But a few minutes later he did sell 10,000 shares in after-hours trading. He sold the rest the next day. He took in $7.9 million, realizing an average of $13.24 per share.

 

[brxndxn]

Originally posted by: smashp
I wonder if this has anything to do with him creating and funding a site to track the Bailout Monies being handed out.

bailoutsleuth

Mark Cuban is who we should be sticking up for.. The SEC has been completely incompetent.. They're not gonna go after the post-bailout bonuses.. but they're going after a guy that tracks where the bailout goes? a guy that funded a movie that embarasses the hell out of the Bush Administration?