This is a follow-up to the article we wrote on Mark Cuban’s ("Cuban") dispute with the SEC which appeared in the May / June 2009 issue of A Potpourri.
On July 17, 2009, a federal district court dismissed the insider trading case against Cuban. In a complex, 35-page opinion, the court found that the SEC could not proceed against Cuban relying on a fraudulent misappropriation theory under Rule 10b5-2 because that Rule only requires that confidential information be maintained, that there is no prohibition against a non-fiduciary – which Cuban was, under applicable state law – using the confidential information unless there was an agreement that the confidential information would not be used. The SEC never alleged in its complaint that Cuban agreed not to use the confidential information.
The court allowed the SEC 30 days to file an amended complaint if the SEC can allege that Cuban undertook a duty, expressly or implicitly, not to trade or otherwise use the material non-public information about the Mamma.com, Inc. PIPE transaction that allowed Cuban to avoid $750,000 in losses.
Cuban may have unwittingly side-stepped a speeding train in the form of a civil penalty in the amount of $2,250,000. Since he lost the opportunity to purchase the Cubs, and the Dallas Mavericks were eliminated in the second round of the NBA playoffs, Cuban’s got plenty of time to keep fighting this battle with the SEC if it repleads.
Please do not hesitate to contact us if you have any questions about the Cuban case or your obligations under the federal securities laws.
* * * * *