
SEC Charges Mark Cuban With Insider Trading - nickb
http://online.wsj.com/article/SB122693827604333637.html
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vaksel
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

~~~
henning
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?

~~~
vaksel
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

~~~
henning
I wouldn't be surprised to hear a government agency is inefficient, but I hope
idle speculation doesn't become a substitute for facts around here.

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fallentimes
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.

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

~~~
fallentimes
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.

~~~
sokoloff
I was assuming that your measure of badness was "the more people who know this
secret, the worse kept it is". By that measure, the limit of a poorly kept
secret is exactly public information.

I'm having a hard time coming up with any other continuous measure of
"badness" of secret keeping.

~~~
fallentimes
Me too. It will be interesting to watch this play out.

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krschultz
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
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.

~~~
ryanwaggoner
It's also possible that he's innocent.

~~~
nadim
My understanding of the SEC has evolved since I just finished the Snowball
Warren Buffet book ([http://www.amazon.com/Snowball-Warren-Buffett-Business-
Life/...](http://www.amazon.com/Snowball-Warren-Buffett-Business-
Life/dp/0553805096)). There is a section that discusses his run in with the
SEC and there is a behind the scenes discussion before charges are pressed (in
WB's case, not pressed). I think Cuban has already had a chance to defend
himself behind the scenes, and despite this the SEC is still deciding to
prosecute. This has example written all over it.

Read the statement of facts in the PDF as well:
(<http://sec.gov/litigation/complaints/2008/comp20810.pdf>). After reading it,
chances seem slim that he's innocent.

~~~
calambrac
Aside from the timing of the trade and the fact that the calls took place,
everything in that report is based on the word of the CEO of Mamma.com. I
honestly don't know if that matters, I'm not a lawyer and I don't play one on
tv. But if it does matter, if the line between legal and illegal is whether
the other party told you that you were receiving private information, then
it's pretty shitty that you could be found guilty based only on that other
party's say-so, don't you think?

~~~
nadim
I'd say the timing is a pretty strong indicator, although you're right, this
isn't the same as proof.

"On June 29,2004, Cuban sold his remaining 590,000 Mamma.com shares during
regular trading at an average cost per share of $13.2937.

On June 29,2004, at 6:00 p.m. after the markets had closed, Mamma.com publicly
announced the PIPE offering."

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fallentimes
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-...](http://www.techcrunch.com/2008/11/17/billionaire-mark-cuban-
slapped-with-insider-trading-charges-by-sec/)

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

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ryanwaggoner
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.

~~~
henning
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.

~~~
swilliams
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?

~~~
sachinag
I am a financial advisor, but I am not your financial advisor, and this is not
financial advice and should not be construed as such.

The answer to your question is yes.

Longer answer: if you have material, non-public information (either first hand
or through hearsay), you may not trade on it.

~~~
Retric
Please correct me if I am wrong, but I believe this depends on what your
relationship to the company is. If you overhear the CEO talking to someone
then you can sell if the CEO is talking to you then you can't. (Then again if
you overhear something then it's more likely for you to get away with it so
YMMV.)

~~~
sachinag
You're wrong. It doesn't matter how you hear it - or what your relationship
is. If it's material and non-public, you can't trade on it.

There were people who were hanging out at financial printers to find out
material, non-public information, which they would then trade on. There's no
relationship whatsoever there, but it's insider trading.

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

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

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

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

~~~
fallentimes
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".

~~~
sdfx
Of course he is allowed to sell the stocks if he wants to. But if he knew more
than the other shareholders and sold because he knew the stock would plummet,
it's neither lawful nor "right".

According to the article, he knew he was not allowed to sell his stake. Maybe
he was upset and was not thinking straight, but if the events happened as
depicted in the article, there is no other way to describe this than "wrong".

~~~
kingkongrevenge
I have trouble seeing how insider trading is "wrong", myself. Somebody bought
or sold stock who was going to buy/sell at that time anyway. How did the
actions of the inside trader hurt them?

Life is full of insider advantages. People profit from personal connections
and information all over the place. Why should we pretend the stock market is
any different? Especially considering how flimsy the charade really is.
"Insider trading" is truly rampant and enforcement is an arbitrary joke.

~~~
dejb
To me this is exactly the kind of thinking that lead to the financial crisis.
People selling shonky investments to people who trusted in them and justifying
it the same way that you are.

I believe that the fairer and more transparent systems are the most efficient.
The 'no rules' system you describe would quickly degenerate into a scamfest
with far less participants and far less liquidity. Better to actually enforce
the rules that exist to reduce the 'rampancy' of insider trading in my
opinion.

Oh and I don't think I'll be investing in your startup.

~~~
fallentimes
I don't think his startup is seeking investment ;p.

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pistoriusp
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.

~~~
sdfx
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.

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run4yourlives
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".

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

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jbm
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.

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

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joanou
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.

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

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crabapple
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

~~~
sachinag
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.)

~~~
fallentimes
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...](http://www.marginalrevolution.com/marginalrevolution/2004/02/good_news_our_s.html)

Is not a coincidence.

~~~
sachinag
Dan, I agree - but to say that "everyone's doing it" is crazy. It's easier to
trade on material, non-public information if you're exposed to it on a regular
basis because your patterns aren't readily apparent.

That said, there are a lot of people who will trade on rumors that they
consider "inside information" that things don't work out as well as you'd
think they would. Look at the volatility in stocks right before earnings
announcements. It's hysterical.

~~~
fallentimes
Agreed, which is why I said the original OP was almost certainly exaggerating.

You can long or short volatility :).

