Mark Cuban sued for Insider Trading

[JD45]

Yes, you can go to jail for insider trading. But so far, no criminal charges have been filed. And they probably won't. This is a new area for insider trading and he may very well prevail in court.

What do you mean it is a new area? They're accusing him of violation of the SEC Act of 1933. This isn't a new area, but rather the oldest area there is--they are accusing him of having material non-public information and making a stock transaction based on that. Unless you set up a blind trust for selling shares at a pre-determined time prior to having specific material knowledge, once you come into possession of non-public material information you are not allowed to make a related stock transaction.

New area means this has not been considered insider trading before. And the Act did not specifically outlaw insider trading. It is just a broad anti-fraud language. The courts are constantly interpreting and expanding it. Until the 60's insider trading was not considered illegal or covered by the act.

[JES12]

[ohara]

What got Martha Stewart in trouble was lying to the Feds. She did the same as him, but then lied about it when the Feds questioned her. The Feds will question Cuban, and he better not lie. Dont lie to the Feds. Tell the truth, pay a very large fine, and be contrite and remorseful. Tell a lie, and then they bust your butt and you end up doing time. If they threw Martha in the slammer, they will have no problem throwing Cuban in there. Be smart Mark.

[mrmreg]

It wasn't that he knew they were doing to the offering. Everyone knew that, so that would not have been insider information. What's alledged is that he knew the offering was going to be done at less than the current market price (not a good thing) and so he hauled off and sold the other shares he already owned ahead of the offering. If they can prove he had direct knowledge of this, I would be shocked if criminal charges are not to follow.

I also wonder, even if he only were found guilty civily, where does that leave him with the NBA? Do they have any provisions that allow them to boot an owner who is found guilty of his sort of crime? After the whole ref thing last year, they can't want to have any part in this sort of press. I know this doesn't directly involve the NBA, but he's got to be about the most high profile owner in the league, so it still reflects on their integrity.

All PIPE transactions are done at less than the current market price. The share sold are unregistered, so they can't be sold on the open market. Since they are not liquid, they are always worth less than shares registered for sale on the open market. Ultimately the company will register the shares so they can be sold, but that takes time.

Companies can issue stock that's already registered, in which case it usually goes for somewhere in the neighborhood of the current market price, depending on the perception of what the company plans to do with the money. I don't know the details of how this issue was handled, but even if it was unregistered as you say, the issuer will usually agree to register it in fairly short order, so the discount isn't much. Dillution of shares is usuallly the bigger concern for investors, so it is typical that a stock will drop once the issuance is announced. If Cuban knew of the plans to issue the stock before the public knew, and then sold his shares prior to the release of this news, that's trading on inside information.

[Realmavsman]

I think Cuban was pissed that this company was going to issue more shares which basically deluted his shares. And how can your really blame him. If I buy 100 shares in a company and they have only 1000 shares outstanding then I own 10% of the company. Now if that company comes back and says we are going to issue 1000 more shares then my ownership in the company just dropped to 5%. I don't blame him for being angry about it and selling his shares. The problem is that he was not suppose to know it was happening before it happened and once he found out that became insider info.

He may end up having to pay a hefty fine but I don't see him going to jail like Martha Stewart.

[GopherIt!]

Too bad he didn't have insider knowledge on the Kidd deal...

[realfung]

stupid