SEC Charges Mark Cuban With Insider Trading

http://online.wsj.com/article/SB122693827604333637.html

by nickb • 18 years ago

84 77 18 years ago

online.wsj.com

Interesting. I wonder if the key question will come down to how he came across the information. From what I understand, it can only be considered insider trading if it's based on non-public information. Perhaps Mark based his decision on something public that just hadn't really hit most people's radar yet?

Or perhaps he's 100% guilty and got caught red-handed.

henning4• 18 years ago

The text of the complaint states:

"Despite agreeing in June 2004 to keep material, non-public information about an impending stock offering by Mamma.com Inc. confidential, Cuban sold his entire stake in the company - 600,000 shares - prior to the public announcement of the offering."

If that claim is true, he acted on non-public information.

ryanwaggoner3• 18 years ago

Not necessarily...perhaps someone else failed to keep the information confidential, in which case it would seem that Cuban would be legally free to sell, correct? Once the news breaks, it's no longer non-public information, right?

swilliams2• 18 years ago

I'm a financial trading luddite, so bear with me, but what happens when you do come across some private information that leads you to believe your stock will tumble? Grit your teeth and wait for the knowledge to go public before selling?

krschultz• 18 years ago

So now can we all agree to stop up voting his pseudo economic theories and investing advice?

The first rule of investing - don't get arrested.

condor• 18 years ago

Just because he might be guilty of possibly believing he was above the law, doesn't necessarily mean all of his ideas are untrue. It's possible he's just a hypocrite.

ryanwaggoner3• 18 years ago

It's also possible that he's innocent.

rationalbeaver• 18 years ago

From his blog: "If you are going to trade stocks, you just have to follow one rule and remember one thing. That rule is always have a definite knowledge advantage about the company you are trading, and always remember that every stock transaction has a sucker, and you have to know whether its you or the person on the other side of the trade. No one buys a stock from your, or sells one to you knowing they are leaving money on the table."

Sounds to me like he was taking his own advice. He just didn't mention that Rule #2 of trading stocks is to not get caught with your better-than-average information.

jamiequint• 18 years ago

This isn't as uncommon as people might think. A number of fairly well known people come to mind: Karl Popper, Marcel Proust.

akkartik• 18 years ago

His blog is about making money. I haven't heard him say anything about ethics. How is he a hypocrite?

maurycy• 18 years ago

So we should stop listening to Soros, too.

crabapple6• 18 years ago

So now can we all agree to stop up voting his pseudo economic theories and investing advice?

sure, you can toss out warren buffet and george soros and everyone else too...they've all traded on information that was likely privileged, they might not have even known it

before you downvote me, go look up the rules for what constitutes insider information...like all trading rules, totally byzantine

oqtol• 18 years ago

Just saw link at http://online.wsj.com/article/SB122693827604333637.html

vaksel2• 18 years ago

Cuban is 50? WTF dude looks like he is 35-40 tops.

Also look at how efficient our government is...you break a law and it takes them 4 years to investigate it

fallentimes12• 18 years ago

He lost 50 lbs participating in Dancing with the Stars.

henning4• 18 years ago

Where does it state they've been actively investigating this since the event occurred?

Do you think the SEC is like Yoda and feels a disturbance in the Force when someone engages in insider trading?

vaksel2• 18 years ago

They probably flagged it during the quarter following the transaction. And if they haven't started actively investigating it right away, that seems even worse somehow

tomsaffell3• 18 years ago

Historically regulators (such as the SEC and FSA in the UK) have had to look at the data after the fact to search for evidence of insider trading.

They are in the midst of adopting technologies that will allow them to monitor in real time, and potentially even stop the trades (though I'm not sure it would have help in this case). Apama is helping do this in the UK:

http://apama.typepad.com/my_weblog/2007/06/the_financial_s.h... http://www.progress.com/apama/index.ssp

Disclaimer: I used to work for these guys, but back in 2000 when the plan was to become a location-aware social web service (like loopt)

oldgregg• 18 years ago

I would probably have more sympathy if he wasn't such a blowhard.

kingkongrevenge2• 18 years ago

I can't help but wonder if his sound advice for the average Joe not to play the market attracted the ire of the Wall Street dons who need the ponzi machine to keep running.

sdfx3• 18 years ago

More sympathy for a guy who allegedly screwed the rest of the shareholders and broke the law?

fallentimes12• 18 years ago

Interesting quote from Cuban's blog a few years ago (also noted by TC):

"I had purchased stock in Mamma.com in hope that it could be an up and coming search engine. I thought I had done some level of due diligence. Talked to the company management. Talked to some employees who worked in sales. Read the SEC Filings. I knew that they had a checkered past and had been linked to stock promoter Irving Kott, and that their law firm still handled some of Kotts business, but the CEO, Chairman, lawyers all said that things were reformed and the company was focused on its business.

Then the company did a PIPE financing. Im [sic] not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I dont [sic] want to own stock in companies that use this method of financing .

Why? Because I dont [sic] like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants.So I sold the stock."

My take is that the company was about to do some bush league shit (which is what PIPE financings often are) and he didn't like it. Because he didn't like it, he sold his shares and wasn't very secret about it. Seems reasonable to me. Regardless, I'd like to read more facts.

Unfortunately, "law" isn't always about "right" or "wrong".

crabapple6• 18 years ago

haha insider trading is like copying assignment answers in college...its not 5% of potential insiders who are doing it...its 5% potential insiders who AREN'T doing it.

its like driving in the carpool lane by yourself...now and then the cops throw a $500 fine at someone during rush hour to deter others from abusing the rules, but the reality is that the other 22 hours a day you can get away with it, and countless people do

sachinag4• 18 years ago

Really? Do you have stats to back this up?

Cause I'll tell you that there's so much more money to be made in legal ways that the benefits of insider trading, coupled with the fact that the SEC loves to make examples of people, that insider trading is very rare nowadays. Everything is logged electronically.

(I'm sorry, but this is the sort of "the rich and powerful get away with murder" crap that makes me want to smack a bitch.)

fallentimes12• 18 years ago

They like to make examples of people, but they also settle a lot, don't have adequate resources and are undermanned. It's a constant cat & mouse game except the SEC is the mouse.

Sachin, you live in Chicago - venture over to the CBOT or talk to some of your friends that work there. While the OP's post is certainly an exaggeration, the rich & connected have access to privy information.

This:

http://www.marginalrevolution.com/marginalrevolution/2004/02...

Is not a coincidence.

crabapple6• 18 years ago

Do you have stats to back this up?

of course! go look at any pivotal event in a stock to the upside or downside...look at the huge trading blocks that take place just before the huge swings (in either direction) just prior...do you think those people are just speculating? do you think you compete with elite trading firms on a level playing field???

dustineichler2• 18 years ago

I hate your attitude if that's the case... lawlessness is not something i'll tolerate, no one should. Don't get me wrong, i'm all for helping friends out, but unqualified... i'd flatly say no and have.

Having said that, Mark Cuban is someone i've definitely come to respect because of this community. i'd be a little bummed if he wasn't practicing what he was preaching and holding himself to higher noble truths for which he presents.

crabapple6• 18 years ago

I hate your attitude if that's the case... lawlessness is not something i'll tolerate, no one should.

don't confuse my post with advocation.

if insider trading pisses you off, do a little research into corporate taxation...you'll be amazed to know many of the banks getting in line for $700 billion in cash also pay little to no taxes, and some of them indeed exploit loopholes to get tax REBATES in the hundreds of millions. wachovia is one for sure that got hundreds of millions in tax credits.

let me break it down for you:

- poor people pay no taxes

- corporations pay few taxes (via loopholes)

- the rich pay few taxes (via offshoring and loopholes)

- you and i pay all the tax

tomsaffell3• 18 years ago

Not at my college it wasn't, and I'm proud of it. (I can't speak for the whole college, but those I knew did not copy assignment answers)

crabapple6• 18 years ago

well we can talk about our personal experiences all day long, wikipedia cites show 70% of college students have cheated at least once

http://en.wikipedia.org/wiki/Academic_dishonesty

run4yourlives3• 18 years ago

My experience has been the opposite. Usually people are so tight lipped about things because they fear prosecution.

Honestly, it's not really worth it.

fallentimes12• 18 years ago

Probably the least surprising news of the year, and I love Mark Cuban.

Techcrunch has some more information:

http://www.techcrunch.com/2008/11/17/billionaire-mark-cuban-...

fallentimes12• 18 years ago

I can't wait until they reveal their findings about Bear Stearn's insider trading. I heard it was going under one week before it happened; it was the worst kept secret on Wall Street.

steveplace• 18 years ago

I remember the day before the stock tanked. The volume vs. open interest on way OTM puts was absurd. Traders made several thousand percentages on their positions.

Edit: picked up some historical data. 40k volume on front month 25 puts for .275 a contract. Finished next day at 4.25, and the day after (Monday) at 20.30. This one gives you about a 7400% gain.

sokoloff2• 18 years ago

"Worst kept secret" approximates "public information" at the limit.

fallentimes12• 18 years ago

I don't know. Does it? A relatively small number of people made a ton of money off of it while a relatively large number of people got burned.

jmtame2• 18 years ago

Cuban confuses me sometimes. 50% of the time, he claims that entrepreneurs should work hard, and he's ethical. The other 50% of the time, he's running around talking about how we should ban network neutrality because anyone who innovates on the Internet owes a fee to the guys who control the cables.

Uhh WTF Cuban? Pick one side of the fence and stay on it. Insider trading? I know you've got more productive things to do than save some money by cutting a few corners. Stop preaching about ethics and hard work if you're going to pull this crap.

Eliezer• 18 years ago

Wait... you're saying... people can not be pure good or pure evil?

jmtame2• 18 years ago

More like outspoken hypocrites. But polarizing the debate works too.

run4yourlives3• 18 years ago

Sounds pretty open and shut to me. It'll be interesting to see how this turns out. Given this happened 4 years ago, they probably spent a good amount of time investigating just how he found out.

There's a big difference in "was in a position to know" and "did/a reasonable person would have known".

nickb• 18 years ago

Full complaint: http://sec.gov/litigation/complaints/2008/comp20810.pdf

pistoriusp• 18 years ago

I'm very ignorant when it comes to things like this. So Mark invested in a company? He heard they were going to do a PIPE, he sold his shares, and the next day they fell 10%?

How did he break the law?

Def. Insider Trading: "Illegal trading by anyone considered an insider who has access to non-public information, and who attempts to profit from that knowledge."

I understand that sentence, it makes sense to me, but I don't see how this is unlawful? What if you're working for a company that you're also a shareholder of and you get the "feeling" that the company is going to tank, so you sell... Is that illegal? Or are these different things.

sdfx3• 18 years ago

knowing for a fact that the stocks will fall is different from a vague feeling. There's nothing wrong if he had based his decision solely on publicly available information, but if he knew more than the next guy, he's got an unfair advantage.

swilliams2• 18 years ago

I think the issue here is that he heard they were going to do a PIPE before it became public knowledge. That's the story according to the mamma.com CEO.

deepster• 18 years ago

As soon as I saw the article on another website, I ran to Hacker News...just to read the comments.

utsmokingaces• 18 years ago

Why the hell did he would invest in mamamamia is mind boggling.

jbm• 18 years ago

Damn, I posted in the wrong thread it seems.

Mamma.com is a company with too much money and no vision - at least that's how they were when someone I knew was dealing with them. I don't know how an "insider" manages to not sell his shares as soon as the opportunity arises.

joanou• 18 years ago

If he is found guilty, and he probably is, lock him up for years. And fine him $1B. Also, I am tired of this guy's pontificating.

SEC Charges Mark Cuban With Insider Trading

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