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Jury says Cuban did not commit insider trading

miamiherald.com

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Re: Jury says Cuban did not commit insider trading

#71

Post by mcherm »

staunch wrote: post #26
dmazin wrote: post #22

Earlier quoted context omitted.

The evidence is the testimony that Cuban was told by the CEO about the offering. The jury needed to believe it beyond reasonable doubt, but we don't need to because as individuals, our tolerance for coincidence is much lower than it is for juries.

Actually, since this is civil I think the bar is lower than in a criminal case. They probably only needed to prove that he's guilty based on the "preponderance of the evidence". Essentially that it's more likely he did it than he did not do it. Just knowing the timing alone would suggest a greater than 50% chance of him being guilty to me. I'd convict him in 5 minutes.

How on earth does the timing affect this?

The government's claim: Mark Cuban was on a phone call where he was told information and promised not to trade based on it. He immediately went out and sold his stock.

Mark Cuban's claim: Mark Cuban was on a phone call where he was told information but didn't promise anything. He immediately went out and sold his stock.

Both of these claims would exhibit the same timing, so I don't see how timing can help decide the important question, which was whether he was technically an "insider" for the purpose of the law.

Re: Jury says Cuban did not commit insider trading

#72

Post by mcherm »

dreamdu5t wrote: post #66
RobAtticus wrote: post #32

Earlier quoted context omitted.

Should I be allowed to sell you a car that's a lemon just because you cannot see that? If I know the engine is about to die, but you test drive it and it seems fine, is that really right?

That is fraud, assuming it was sold under an agreement that it should work and the seller disclosed all knowledge of problems, because the seller would be committing fraud by withholding that information. How is that comparable to insider trading? There is no fraud involved with insider trading.

If the seller of stock fails to disclose all knowledge about problems with the company would that seller be committing fraud by withholding that information? It seems to me that the comparison is quite easy to make.

Re: Jury says Cuban did not commit insider trading

#73

Post by jasonwatkinspdx »

smalter wrote: post #47
hristov wrote: post #8

He got off because it was ultimately a question of his word against the word some other guy. And the other guy had an axe to grind. And Cuban is very popular in Dallas, being the owner of the local basketball team. So the jury decided there is not enough evidence to indict. But if I were Cuban I would not complain to loudly about being hounded by the SEC. Fact of the matter is his selling right before the PIPE was an…

it appears to me that you're misunderstanding the case. cuban's argument wasn't that he was lucky or the timing of his sale was a coincidence--nobody thinks that was the case--his argument was that he never agreed not to trade on the confidential information.

> his argument was that he never agreed not to trade on the confidential information.

Close, but not quite. Here's the TLDR of the case:

Mark owns a bunch of Mamma.com stock he bought on the open market.

The CEO of Mamma calls Mark, tells him the company is planning a new private offering of stock, with the hope that Mark would participate as a buyer and add more shares. However, Mark is not interested, probably because he is no longer confident about Mamma.com, and since the offering would dilute the value of the shares he already holds, he sells them immediately.

So Mark traded on inside information, yes. However, that does not make his action illegal. It would only be illegal if Mark had agreed to keep the information confidential.

It is important to note that Mark here is not an officer or similar in the company, and so he does not fit that definition of an insider. However, the legal theory is if someone who is an officer, such as the CEO, communicates with a third party like Mark with an agreement to keep the information confidential, then the fiduciary responsibility to keep the information confidential transfers to Mark. This would make Mark's trade illegal insider activity.

This was the crux of the case: the CEO says he told mark the conversation was confidential and that Mark agreed. Mark says he never agreed to any confidentiality. The Jury believed Mark at least to the standard of reasonable doubt.

The reason the confidentiality must be explicit is because otherwise bizarre and immoral situations could occur, such as overhearing a conversation at a restaurant making you legally responsible as an insider. Or a sociopathic/manipulative person could communicate information to a group in an on the record context creating a legal liability on the others present without their consent. Obviously that's not workable. If you've ever been on shareholder calls where it seems the executives are sticking tightly to a legal dept approved script, this is why.

If you're getting the feeling that insider trading cases are highly ambiguous and circumstantial, you'd be right. It's probably due for reform, but I won't pretend to know how to fix it. I would point out that insider information passing between third parties is a de-facto currency among professional traders, so enforcement does seem rather capricious.

In any case, I am not a lawyer, not your lawyer, and have no first hand information on this case other than what I've seen go by in the media.

Re: Jury says Cuban did not commit insider trading

#74

Post by icebraining »

SeanLuke wrote: post #56
jtreminio wrote: post #27

Earlier quoted context omitted.

Except that in America people are innocent until proven guilty. In the eyes of the law, he is innocent.

> Except that in America people are innocent until proven guilty. This is a slogan, not a legal statement.

So when the SCOTUS in Coffin v. United States wrote "The law presumes that persons charged with crime are innocent until they are proven by competent evidence to be guilty," they were just writing a slogan?

Re: Jury says Cuban did not commit insider trading

#75

Post by staunch »

mcherm wrote: post #71
staunch wrote: post #26

Earlier quoted context omitted.

Actually, since this is civil I think the bar is lower than in a criminal case. They probably only needed to prove that he's guilty based on the "preponderance of the evidence". Essentially that it's more likely he did it than he did not do it. Just knowing the timing alone would suggest a greater than 50% chance of him being guilty to me. I'd convict him in 5 minutes.

How on earth does the timing affect this? The government's claim: Mark Cuban was on a phone call where he was told information and promised not to trade based on it. He immediately went out and sold his stock. Mark Cuban's claim: Mark Cuban was on a phone call where he was told information but didn't promise anything. He immediately went out and sold his stock. Both of these claims would exhibit the same timing, so I…

Guilty I say. Off with his head!

Re: Jury says Cuban did not commit insider trading

#76

Post by Dylan16807 »

lawnchair_larry wrote: post #48
rverghes wrote: post #34

Earlier quoted context omitted.

This is a pretty good overview of the case for Cuban: http://www.professorbainbridge.com/professorbainbridgecom/20... Apparently, simply owning stock is not enough to make you an "insider". You have to be a fiduciary (i.e. be an officer, or a controlling shareholder, or on the board, or similar), or owe a fiduciary duty to the company.

This is a good overview, but a few things to note: - Cuban was the largest shareholder - Cuban was told that the company planned to offer a deal that allowed for more purchases at a 10% discount, diluting his stock. He was told this before the public announcement, and sold his stock the day before the public announcement. None of this was really disputed. What was disputed was whether or not Cuban had a conversation…

- Cuban was the largest shareholder

That really doesn't matter, since it was a puny 6%.

Re: Jury says Cuban did not commit insider trading

#77

Post by andrewaylett »

dreamdu5t wrote: post #66
RobAtticus wrote: post #32

Earlier quoted context omitted.

Should I be allowed to sell you a car that's a lemon just because you cannot see that? If I know the engine is about to die, but you test drive it and it seems fine, is that really right?

That is fraud, assuming it was sold under an agreement that it should work and the seller disclosed all knowledge of problems, because the seller would be committing fraud by withholding that information. How is that comparable to insider trading? There is no fraud involved with insider trading.

Someone has to buy the stock from you; if you know that there are issues with the stock and they don't, that sounds like pretty much the same situation.

Re: Jury says Cuban did not commit insider trading

#78

Post by SeanLuke »

icebraining wrote: post #74
SeanLuke wrote: post #56

Earlier quoted context omitted.

> Except that in America people are innocent until proven guilty. This is a slogan, not a legal statement.

So when the SCOTUS in Coffin v. United States wrote "The law presumes that persons charged with crime are innocent until they are proven by competent evidence to be guilty," they were just writing a slogan?

Of course.

This whole debate, which is entirely moot since it's not a criminal trial, arises from the fact that "guilty" and "not guilty" (and "innocent" I guess) have both informal meanings and formal legal meanings, and those meanings are different. The OP used the formal meaning, in a formal context. People tossing about the informal meaning are not adding to the discussion.

Re: Jury says Cuban did not commit insider trading

#79

Post by dreamdu5t »

mcherm wrote: post #72
dreamdu5t wrote: post #66

Earlier quoted context omitted.

That is fraud, assuming it was sold under an agreement that it should work and the seller disclosed all knowledge of problems, because the seller would be committing fraud by withholding that information. How is that comparable to insider trading? There is no fraud involved with insider trading.

If the seller of stock fails to disclose all knowledge about problems with the company would that seller be committing fraud by withholding that information? It seems to me that the comparison is quite easy to make.

Yes, if the stock is sold under the agreement that part of what is being sold is everything you know about the company. Stocks generally aren't sold under such pretense or agreement and never have been (at least not any stocks I've traded).
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