Insider Trading Cases: Who Won?

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Yes the Securities Exchange Commission (SEC) can also get it wrong at times. Such was the case when they claimed that the owner of the Dallas Mavericks, Mark Cuban’s decision to ditch his Mamma.com stock helped him avoid $750,000 in losses. 

But the billionaire Cuban was found not to be liable for insider trading, an outcome that made the SEC look bad for bringing the case in the first place. The SEC had to prove that Cuban received confidential, significant, non-public information that spurred him to trade his stock. A tall order the SEC simply couldn’t fill. 

This was due to weak evidence that the SEC had. Such as the case hinged on an unrecorded, eight-minute phone call from June 2004 between Cuban and former Mamma.com CEO Guy Faure. Faure gave a deposition saying he told Cuban confidentially during that call that he was planning a stock offering called a private investment in public equity, or PIPE, “Bloomberg” reported. 

The SEC also didn’t have the power to call Faure to testify in court because he was in Canada. “You don’t want your star witness on videotape,” defence attorney Stuart Slotnick told Forbes. “The jury is deprived of getting to assess his credibility.” 

Cuban was accused of ditching stock in a metasearch Internet company called Mamma.com in 2004. After he got an inside tip on an upcoming offering that would’ve diluted his shares.

Cuban gave an impassioned speech after the verdict calling the SEC big bullies for suing him.  

If Cuban had avoided this trial, he could have faced about $2 million in fines, his lawyers told “Reuters”. He says he spent a lot more than that to prove the SEC wrong and to prove a point that they never should’ve gone after him. 

Cuban testified that he couldn’t remember details from the conversation. But says there are many reasons why he ditched his Mamma.com stock and that he was never told to keep the information secret. But it was later found in the case through an expert presented by Cuban that the information wasn’t that important, and that other investors would’ve had access to it. 

Through a formidable expert witness for the defence team Dr. Erik Sirri, a former high-ranking official at the SEC. Sirri testified that the supposed tip Cuban received was readily accessible to the average investor, the “Dallas Morning News” reported.  

Sirri said his study showed the information Cuban possessed was not “material.” Insider trading requires that a trader act on “material, nonpublic” information, meaning the information must be significant.

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