Mark Cuban has filed his appeal to dismiss the insider trading charges brought against him. As we noted at the time, the case could ultimately go to the Supreme Court, given Cuban’s unlimited access to lawyers, and the fact that the case strikes at a core definitional question of insider trading.
Reuters: In a filing with the U.S. District Court for the Northern District of Texas, Cuban’s lawyers argued that Cuban had no fiduciary or similar duty of trust to the company in question — Mamma.com, now known as Copernic Inc — and therefore could not be guilty of insider trading.
The filing says the SEC is trying to “impermissibly expand the scope of liability” for insider trading established by the Supreme Court.
Here’s what our John Carney said at the time:
He is arguing that he never agreed to keep sensitive insider information about Mamma.com’s planned PIPE offering confidential. That’s important because the legal doctrines of insider trading don’t bar all trading on non-public information. Instead, they bar corporate insiders with a duty of confidentiality from trading on that information. Cuban’s defence rests on his claim that he never agreed to keep the information confidential. If a court agrees, it may very well decide that Cuban was free to trade. Few people understand, however, that the legal doctrines about insider trading are very fluid and unclear. They are built around a vague SEC rule, called 10b-5 by lawyers, that doesn’t clarify very much at all. The rule was passed in 1942 after a CEO who was publicly pessimistic about his company’s earnings was discovered to have purchased stock. Until then there had been no clear insider trading rules. The SEC passed it with almost no debate.
To put it more concretely, although Cuban’s claim that he was not an insider seems to rest on a factual question about whether or not he agreed to secrecy about the offering, the courts could decide that he engaged in insider trading even if he didn’t explicitly agree. That is, they might decide to expand the doctrines to catch his activities.
Cuban, with little incentive to back down, will likely appeal any such expansive legal interpretation all the way to the Supreme Court. That, of course, could take years. We won’t even pretend to predict what a court would decide.
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