I believe Mark is in the right on this one. If I tell you I am going to sell pumpkins at the high school football game , and you decide to sell pumpkins the week before therefore reducing the market of buyers for me, you didn't hurt the "consumer" you hurt me another seller. You didn't change the price. You didn't really do "insider trading" you simply got to market faster.
It's absolutely insider trading, even taking your far fetched example. You just have to see it in a slightly different angle. You are talking about not hurting the 'end customer' who bought the pumpkins at the same price, just a bit earlier. But what about the loss incurred by the 'share holders' of that pumpkin merchant who now might have incurred huge losses due to lost sales because some one used 'inside' info to beat him and rip him off his sales that would have happened if someone had not used the 'inside' info and 'acted' on it.
I'm not sure what's the point of that analogy since insider trading is specific to traded securities.
If the accusations are true, then he might be guilty of illegal insider trading, because he sold shares after learning of non-public information that would affect the stock price. It's not necessary to prove that the buyers suffered a loss, but it can be argued that the sale was unfair to them: they bought without knowledge that there would be a big sale soon after.
But in this case the consumers are the sellers. These are ordinary people with shares that lost value. Cuban had information that the ordinary people didn't since he was an insider, and unfairly used that information to get to market faster than everyone else. If everyone else knew that information they would have sold at the same time, causing Cuban's shares to be worth less when he tried to sell.
Also, selling pumpkins at a high school football game? Far out analogy...
Your theory rests on a faulty understanding of insider trading laws. The SEC rules simply do not work the way you think they do based on what you said.
Trading on perceived insider information is not always illegal. There are very specific situations in which it is illegal.
Cuban is going to win because he didn't agree to hold the information in confidentiality, he didn't leak the information (which could have caused all sorts of other ramifications), and he also was not a director / employee / CEO / executive etc.
The SEC needs to get him on Rule 10b5-2, and they will not be able to.
I can't understand why they are pursuing this case since presumably the SEC is going to argue that he agreed to confidentiality but they almost certainly cannot prove that. If they had convincing evidence (e.g. a signed document) Cuban would have almost certainly settled.
On the other hand Mamma would have been breaking the law if they didn't enforce confidentiality so maybe the case does have some kind of legs.
His sale didn't change the price. What it changed was how much the company could raise. Which is why it is civil not criminal. By selling he limited how much of the company was available to the public, and sold to all those who would want to buy before the company had a chance.
Limited market with a time constraint. The analogy was meant to show that the price, was the same, but with a limited number of buyers and those buyers only having limited need/desire for the offering that you could make it so their was no one to sell to in a week.
I didn't know of another way to constrain market and time on something that people would only need so much of. A hotdog they would buy next week. And it had to be a market you could saturate.
I don't know the details of this case but what if an executive called mark up and said, hey mark were going to sell equity shares. And what if mark didn't ask for nor want to know the info? Could Execs of startups handcuff investors by volunteering this type of info to investors (and forcing it into their knowledge)?
from the article: if he looses "He can be forced to pay a fine" (but does not specific fine amount) and that he sold the shares "avoiding a $750,000 loss on the holding". I wonder how much, if he does end up loosing, the fine will be. My bet is that, even in the worst case, it will be less than the certain 750K loss he knew was coming.
Disgorgement of increased profits (or reduced) losses is a typical civil remedy offered by the SEC in such cases.
Securities Exchange Act of 1934, §§ 78u-2(e) and 78u-3(e).
78u-2(e): Authority to enter order requiring accounting and disgorgement:
"In any proceeding in which the Commission or the appropriate regulatory agency may impose a penalty under this section, the Commission or the appropriate regulatory agency may enter an order requiring accounting and disgorgement, including reasonable interest. The Commission is authorized to adopt rules, regulations, and orders concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection."
They could try and make an example out of him purely for show purposes. Most banking execs appear to be getting away with (financial) murder, but Mark Cuban isn't juiced in with government like the bankers are. He may take a hit so the feds can make us, the unwashed masses, believe that even the billionaires will be held accountable.
If found liable (this is a civil action), at least it will be easy to articulate exactly what if anything he did wrong. Can you say that about the banking execs?
The SEC doesn't avoid people who are "juiced in" to the government. It prosecutes cases it can win. Bankers spend a lot of time figuring out where the line is and staying on the right side of it. To the extent they do anything wrong, prosecuting them involves getting a jury to understand reserve ratios and risk models and other things they won't understand. But insider trading is easy to understand. He had this insider information, and did this trade that saved him $750k. I can explain that to grandma. Its easy. Which is why bankers don't get caught doing it, but less plugged in people do.
Note I'm not saying he did anything wrong. What I mean is that if he did, it'll be easy to explain what it was he did wrong. It won't be something like "he should have classified these tax credits under this accounting rule you don't understand instead of this other accounting rule you don't understand."
My bad. I did not mean to imply you said he did anything wrong. What I meant was that if it is a gray area, even if he did do something wrong, it might not be so easy to explain it to grandma either.
I'm pretty sure they're already trying to make an example out of him for show. If I remember correctly, this first popped up right after Cuban announced BailouthSleuth.com
He's not only less connected, but a loudmouth, too. You can't have people just piping off, saying whatever they want.. what kind of example does that set?
I understand the desire to cheer for the loudmouth. I'm certainly rooting for him. But the real world is like high school. We're judged by our peers. If you're a loudmouth, you had better be extra careful because your peers won't give you the benefit of the doubt. This is a rule of the physics of society.
