The patron saint of wannabes everywhere
From time to time, we’ve provided tips on insider trading for those who are so inclined.
Previously, the advice has all come at the expense of those who learned the hard way of how not to do things.
For the first time, we’ve got a tip from a celebrity who got away with it!
A quick reminder of the previous tips:
Now, courtesy of Dallas Mavericks majority* owner Mark Cuban, we’ve got affirmative advice from someone who actually used it and got away with it!
Agreeing to keep quiet isn’t the same as agreeing not to sell.
A quick recap: Cuban owned 600,000 shares of Mamma.com. The board told him they were going to be offering more stock, but at a discount to the then-current market price, which would dilute the existing shareholders and bring the stock price down to, or below, the offer price. He basically told them it was a crappy idea, walked out of the meeting, said “I won’t tell anyone,” and sold his stock. They did the offering anyway, the stock dipped 9.3%, and Cuban saved himself $750,000.
Not surprisingly, the SEC didn’t like that, so they charged him with insider trading. Cuban’s defense was basically, “I never told anyone about the impending offering, just like I promised, but I never agreed not to sell.”
Professor Bainbridge has a thorough analysis of the basis for the decision. As usual, we focus solely on the salacious.
Paul Coggins (Yale BA ‘73, Oxford BA ‘75, Harvard JD ‘78) of Fish & Richardson represented Cuban. He thinks the SEC is unlikely to refile, but some folks at Davis Polk disagree. According to that client memo, we should take the result with a grain of salt.
For recipients of material nonpublic information, our advice is not to rely on this decision. The case was decided at the trial court level, is not binding on other courts, and the SEC has been given the right to file an amended complaint. Whether or not the SEC chooses to replead the case or to appeal the decision, we are certain that it will not accept the case as the final word and will continue to seek enforcement action on facts like these. Thus, while the decision will provide comfort to parties who have to defend themselves for what they have done, we would not use it as a basis for deciding what you should do. The prudent judgment continues to be that if you have agreed to keep information confidential, you should not use it as a basis for trading.
If you’re hellbent on insider trading, at least you’ve got a glimmer of a defense under these unique circumstances.
And you know a good lawyer to call.
Just make sure it’s worth your while – and we accept tips!
* He’s currently in another big fight with minority owner Ross Perot.
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THAT IS A GREAT ANALYSIS – you should right a book – these tips are AH-MAZING. Accurate and humorous.