Securities and Exchange Commission v. Cuban Case Brief Summary | Law Case Explained

Securities and Exchange Commission v. Cuban | 620 F.3d 551 (2010)

A famous billionaire’s timely stock trade saved him a few hundred thousand dollars. But was it illegal insider trading? That was the issue in Securities and Exchange Commission versus Cuban.

Mamma dot com, an internet search engine, decided to raise capital through a private investment in public equity, or PIPE offering, based on advice from an investment bank. The company’s chief executive officer, or C E O, invited Mark Cuban, a large minority shareholder, to participate in the PIPE offering. The C E O prefaced the conversation by telling Cuban that the information he was about to convey was confidential. Cuban agreed not to reveal the information.

Upon hearing the proposal, Cuban responded that he didn’t like PIPE offerings because they dilute existing shareholders. At the end of the phone call, Cuban told the C E O, quote, “Well, now I’m screwed. I can’t sell,” unquote.

The C E O sent Cuban a follow-up email telling him to contact the investment bank if he wanted more details about the proposal. Cuban called the bank. A bank representative provided additional confidential details, telling Cuban that the PIPE was being sold at a below-market price with additional incentives for the investors. One minute after the call ended, Cuban told his broker to sell his entire stake in the company.

The next day, Mamma dot com publicly announced the PIPE offering. Over the next week, shares declined nearly forty percent. Cuban thus avoided seven hundred and fifty thousand dollars in losses by selling when he did.

The Securities and Exchange Commission, or S E C, charged Cuban, alleging he violated the Securities Act of nineteen thirty-three, the Securities Exchange Act of nineteen thirty-four, and Rule Ten Bee Five by selling his stock in breach of his duty to the C E O. The district court dismissed the complaint, and the S E C appealed.

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