Cuban says SEC Insider Trading Lawsuit Should be dismissed

28 05 2009

Mark Cuban through his attorney is stating that the court should dismiss the Insider Trading claims against him by the Securities and Exchange Commission.   The law is relatively simple.  Those who have access  to confidential corporation information cannot engage in trading based on information that they know, which is not available to the public.  In plain English, if someone owns a large amount of stock in a company, and is informed of the company’s impending doom (or other substantial loss) based on information that is not made to the public at large (ie- confidential information), he/she cannot use that information to trade their stock in order to avoid a financial loss.  They need to wait until the information is made to the public through normal reporting procedures.  According to the article in Bloomberg, Cuban claims that although he did have confidential information, he did not have a fiduciary relationship with the company, and therefor did not incure liability.  From the article in Bloomberg:

In its Nov. 17 lawsuit, the SEC claimed Cuban, 50, promised during a telephone call with’s chief executive officer to keep information confidential about the company’s stock sale. Later that day, Cuban avoided more than $750,000 in losses by ordering the sale of his 6.3 percent stake in the Montreal-based Internet search company, the agency said.

Fitzwater said he would rule on Cuban’s request at a later date….

Kevin P. O’Rourke, an SEC lawyer, denied the agency was trying to enlarge the law.

“This case, we believe, is based on a straight-down-the- line application of insider-trading law,” he told Fitzwater.

Ferrara argued that Cuban’s confidentiality agreement didn’t make him’s “fiduciary,” or someone required to act for the benefit of another.

The alleged vow to keep information secret doesn’t create a duty to refrain from acting on it, he said. An SEC rule at issue in the case pertains only to family or other personal relationships, he said.

Here is a copy of the original complaint against Mark Cuban.




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