The SEC isn’t done with Mark Cuban yet.
The securities regulator will appeal a federal judge’s ruling that threw out a case against Mark Cuban, Bloomberg is reporting.
Nearly a year ago, the SEC first brought charges of insider trading against Cuban stemming from his sale of shares of Mamma.com.
During consversations with Mamma.com’s CEO, Cuban had received advanced knowledge of a private-placement of stock that would dilute existing shareholders.
Cuban defended himself by claiming that he was never legally restricted from selling stock under insider trading regulations. The judge threw out the SEC’s case this summer, rejecting the SEC’s interpretation of insider trading law.
The SEC said that Cuban was under a duty of non-disclosure when he was told about the private placement, and that this duty included a duty not to trade. Cuban denied that he was under a duty of non-disclosure. The judge never reached the issue of non-dislosure because he ruled that even if Cuban was subject to a duty of confidentiality that forbid him from disclosing the upcoming private placement, he did not necessarily have duty not to use insider information for his own benefit.
This was a pretty bold challenge by the judge to the SEC’s view of insider trading. It basically puts in place a new step in proving insider trading, requiring the SEC to prove both a duty of confidentiality and a duty not to trade. This is an argument that’s been floating around academia for quite some time. But this is the first time we’re aware of that it was accepted by a federal court.
When the case was thrown out, the judge allowed the SEC an opportunity to refile with arguments and evidence that Cuban was also subject to the duty not to trade.
The SEC didn’t take the step of refiling the case against Cuban. Instead, it has told the federal court that it is appealing the ruling that the duty of confidentiality does not automatically entail a duty not to trade.
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