Mark Cuban's Greatest Insider Trading Risk

How often Mark Cuban chatted with’s chief executive about the company’s performance, prospects or plans may be a key to the SEC’s insider trading case.

Cuban has clearly been building his defence on the idea that he was under no obligation to keep the non-public information he got from the CEO, confidential, and therefore remained free to trade the stocks. At the heart of what we’ve heard about his defence is Cuban’s claim that he never agreed to keep confidential the fact that was planning a PIPE offering. Unfortunately for Cuban, the SEC doesn’t have to prove he agreed to keep this specific piece of information secret.

If Cuban and the CEO, Guy Faure, regularly shared confidential information, that could be enough for the SEC to nail him, Law professor Stephen Bainbridge explains in a post on the Cuban insider trading case.

“Alternatively, the SEC may be able to show that the CEO and Cuban had a pattern or practice of sharing confidences such that the recipient of the information knows or reasonably should know that the speaker expects the recipient to maintain the information’s confidentiality. This would also satisfy Rule 10b5-2. In addition, the Chestman case suggested that such a pattern could also give rise to fiduciary relationships, at least among family members.”

We’re betting that this is exactly the kind of case the SEC plans to mount against Cuban.

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