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Mark Cuban and Sec

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Submitted By angelofgoblin
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Mark Cuban was offered that the Web search engine named Mamma.com was going to offer $16.6 million worth of new shares to private institution and other qualified investors. The information about PIPEs is material since it’s not yet publicly announced and that info could affect the shareholders’ behaviors. 1. Why didn’t the SEC accuse Mark Cuban of traditional illegal insider trading, considering he was the largest, individual shareholder of Mamma.com?
Even though the information about PIPEs was material inside information, Mark Cuban was not accused as traditional insider information. To qualify as traditional insider trading, there must involve true insiders buying or selling the company’s stock based on material inside information. We need to decide whether Mark Cuban is an insider or not. After buying 600,000 shares of Mamma.com, Mark Cuban became the largest individual shareholder but he actually just held 6.3% of the company. As stated in the securities exchange act of 1934, an insider means officers, directors, and large stockholders of Section 12 corporations (those owning 10% of the class of equity securities.) In this case, Mark Cuban’s share was not exceed 10%; therefore, he was not an insider. Therefore, he was not accused of traditional insider trading. 2. Why didn’t the SEC accuse Mark Cuban of tipper-tippee, illegal insider trading, since he sold his stock based on what Guy Faure told him on the phone on June 28th, 2004?
If the CEO had “tipped” Cuban, with awareness he would sell his stock, both Cuban and the CEO would have engaged in tipper-tippee insider trading, provided the CEO received a personal benefit from “tipping” Cuban. If the CEO knowingly gave Cuban material, nonpublic information and arranged so he could trade on it, it would not be difficult for a court to infer that the CEO must have done so for some personal benefit. 3.

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