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Woah, Momma. Cuban facing insider trading charge.

Discussion in 'Sports and News' started by sabrefan, Nov 17, 2008.

  1. Point of Order

    Point of Order Active Member

    Re: Woah, Momma. Cuban nailed for insider trading.

    Thank you.

    I'm not intimately familiar with securities law, but the facts alleged in the complaint seem pretty flimsy to me. Knowing Cuban's reputation I would not at all be surprised to see him fight this and eventually win.
     
  2. poindexter

    poindexter Well-Known Member

    Re: Woah, Momma. Cuban nailed for insider trading.

    The Mamma.com CEO prefaced the conversation "by informing Cuban that he had confidential information to convey to him, and Cuban agreed that he would keep whatever information the CEO intended to share with him confidential," according to the SEC complaint.

    -- Cuban didn’t like what he heard. A stock offering would, of course, dilute his holdings unless he bought more shares. And news of the offering could drive the stock lower in the market as other investors reacted to the dilution issue.

    Cuban "became very upset and angry during the conversation," the SEC suit says. "At the end of the call, Cuban told the CEO, 'Well, now I’m screwed. I can’t sell' " -- presumably because Cuban knew he now had information that he had agreed to keep secret.

    At the invitation of the CEO, Cuban then spoke with the investment banking firm handling the private-placement deal. Cuban "was very upset and angry about the [stock offering] during the call" with the banker, the complaint says.

    -- One minute after hanging up with the banker, "Cuban called his broker in Dallas and told the broker to sell his entire 600,000-share Mamma.com position," according to the complaint.


    The broker sold 10,000 shares in after-hours trading on June 28 at an average price of $13.50. On June 29, Cuban sold the remaining 590,000 shares at an average price of $13.29.

    -- After markets closed on June 29, Mamma.com announced the private-placement deal. The stock plunged to $11.99 on June 30, and by July 8 had fallen to $8.


    I don't know if the Momma.com CEO is a reliable witness. If so, this seems a slam dunk.
     
  3. The Big Ragu

    The Big Ragu Moderator Staff Member

    Re: Woah, Momma. Cuban nailed for insider trading.

    Maybe. But you don't make a distinction between someone who buys and sells a stock based on confidential earnings info or significant news about a product, and someone like Cuban, who bought the stock for investment purposes and not based on insider info, and after he already had a large ownership stake in the company, found out that management was going to do something to raise cash that would personally hurt him, as someone who owned 6 percent of the company?

    Insider trading laws screwed him no matter what he did. If he sells, he's guilty of insider trading. If he's forced to hold onto a stock he was just informed is going to plummet in price because of a private-placement offering, he's being unfairly punished also. I'd have an easier time skewering him over this if he sold based on an earnings report due the next day. But he sold based on management doing something that wasn't in his interest as such a large shareholder. There is a huge difference.

    The reason the SEC didn't pursue this criminally is because even they understand the distinction I am making.
     
  4. Re: Woah, Momma. Cuban nailed for insider trading.

    So it's likely that Cuban pays a fine, right?
     
  5. poindexter

    poindexter Well-Known Member

    Re: Woah, Momma. Cuban nailed for insider trading.

    I do like HDNet.

    Hogan's Heroes reruns, in glorious hi-def, commercial-free, is the fucking bomb.
     
  6. The Big Ragu

    The Big Ragu Moderator Staff Member

    Re: Woah, Momma. Cuban nailed for insider trading.

    I would guess, yes. Knowing the guy a little, I wouldn't be surprised if he goes to court out of a sense of principle. Someone smart would have his lawyers playing let's make a deal.
     
  7. poindexter

    poindexter Well-Known Member

    What principle, that rules don't apply to him?
     
  8. The Big Ragu

    The Big Ragu Moderator Staff Member

    What I typed above. He wasn't trading based on earnings info or product news or something material to the profit or loss of the company itself. You can make a reasonable argument that insider trading laws in this case hurt him more than they protected other investors.

    I was just discussing this with someone who knows the law, and Cuban actually has a viable argument: he can reasonably argue that the onus was on the company to protect other investors, not on him. He's not in management and he didn't own more than 10 percent of the stock, so he had no fiduciary responsibility. The kicker is that SEC regulations regarding full disclosure require that if a public company intentionally discloses info to one person, it is required to simultaneously disclose that info to the public at large. If the disclosure is unintentional, it still has to promptly release the info.

    Judging by the SEC's own complaint, the CEO's communication with Cuban was intentional, which means the onus was on the company to release the info to the public at large. The fact that Cuban sold a day before the news was released is proof that that wasn't the case, and if that is the case, the company was in violation of disclosure rules and Cuban can reasonably claim that it wasn't his fault he was privy to insider info.

    I can honestly see him fighting this on grounds like that--maybe to no avail, but still.

    From a common sense perspective, and not from a legal parsing point of view, the reality is that management decided to dilute the value of the common stock and the CEO told someone holding 6 percent of the stock that they were screwing him. What is he supposed to do?
     
  9. poindexter

    poindexter Well-Known Member

    What is he supposed to do?

    Don't become the largest investor in a POS company like momma.com, which was bleeding cash and obviously needed to raise more.

    Insider laws happened way before Mark Cuban. They are there to protect ALL the investors, even the little guys who aren't privleged to calls from the CEO, and aren't able to dump their shares ahead of the bad news. You give the impression that somehow Cuban was wronged (What is he supposed to do?).

    What about all the other shareholders who didn't get calls from the CEO? Do you not understand that Cuban had an unfair advantage over them?
     
  10. The Big Ragu

    The Big Ragu Moderator Staff Member

    Yes, I understand that the playing field wasn't level. Maybe you skipped my posts on here in which I said that? He had info that allowed him to sell before the private-offering was announced. He had an advantage that other investors didn't.

    Insider trading laws are designed to create fairness and instill confidence in equity markets. In this case, the law did not have that effect. He got screwed. He didn't "dump his shares before bad news." Bad news would have been an oncoming bad earnings report that he knew about, but which hadn't been released yet. Or it would have been some other news material to the performance of the company. That is what people usually have in mind when it comes to dirty dealings with regard to insider info.

    In this case, he was made aware of a PIPE. Management decided to raise cash at the expense of common shareholders, by issuing private equity at a price well off where the publicly-traded stock was trading. Management made a decision to do something that diluted the value of Cuban's shares and then told him about it. So I'll ask again, what was he supposed to do? He acted rationally. What insider trading laws did was put him in a "damned if you do, damned if you don't" situation. If he sells he is guilty of insider trading. If he doesn't sell some asshole CEO is screwing his interests.

    He was wronged. And he was wronged much worse than the small investor who had a couple of hundred shares of common stock, because Cuban's 6 percent stake in the company was diluted way more than the stake of that small investor. It would be one thing if Cuban had been unaware of what was happening, but he was told he was about to get screwed. If I told you I was about to screw you financially somehow, you don't see how it would make sense for you to protect yourself?
     
  11. poindexter

    poindexter Well-Known Member

    Insider trading laws are designed to create fairness and instill confidence in equity markets. In this case, the law did not have that effect. He got screwed. He didn't "dump his shares before bad news." Bad news would have been an oncoming bad earnings report that he knew about, but which hadn't been released yet.

    Wow. Just wow.

    I don't know what world you are living in, but to a shareholder, the news of another stock offering (ever hear of the word 'dilution'?) is not just bad news, its horrible news.

    I assume at this point, you are writing this stuff to pull my leg. I no play no more.
     
  12. 21

    21 Well-Known Member

    Just fyi to the media morons who keep comparing this to Martha Stewart's case: Martha was convicted of four felonies--not civil charges--related to obstruction of justice and perjury.

    Just had to get that out there, I am stunned by the misinformation I've heard all day from people who should know better.
     
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