Woah, Momma. Cuban facing insider trading charge.

poin, This was a PIPE, not a public stock offering. There is a huge difference between the two. This was privately-issued equity linked to the stock that Cuban had bought at at market prices. It was DESIGNED to dilute the value of what he owned, by using his shares as a type of collateral to raise money. Hand-selected private investors were sold equity equal to what Cuban owned, but they got their equity a price that was below the market value of the common stock. It's legal, but it does screw shareholders typically, because it immediately devalues the common stock. Not only did management screw him that way, they put him in the awkward situation of telling him they were about to do it. So he was left in a position that if sold he could be violating securities law and if he didn't sell he was going to get royally screwed. How would you react if you had that phone conversation?

I'm not sure what your disagreement with me is. Even the biggest law & order person at the commission will make a BIG distinction between what happened with Cuban and what happened with someone like Martha Stewart, who sold ahead of bad earnings news to avoid a loss. That distinction is why Cuban is not up on criminal charges. And because of SEC disclosure rules, he might actually be able to argue that the onus was on management to protect other investors, not on him, because by law if he was intentionally notified, that CEO may have had a fiduciary responsibility to notify everyone at the same time.

 

Poin, You are not following or not understanding. Martha Stewart's insider trading violation had to do with her owning a biotech stock. She was friends with the CEO of the company. The company's stock was trading high on expectations of FDA approval of a drug that had been in trials. The company was sitting on news that the trials hadn't gone well and the drug wasn't going to get approval. The CEO told Stewart, who then sold her stock ahead of the news and before the stock plummeted.

Mark Cuban's insider trading violation had to do with him owning a stock that was going to get slaughtered by a private-equity offering -- a decision made by management of the company that raised capital at the expense of its large common-stock shareholders, like Mark Cuban.

I am making a distinction between what Martha Stewart did and what Mark Cuban did. MOST people--and perhaps you disagree--see a level of sliminess in what Stewart did. When you invest in a biotech stock, the inherent risk in the investment is that drugs going through the pipeline may not pan out. When that happens, you made a bad investment. Your loss, though, is the result of the company not performing, not the result of management purposely diluting your stock value with a financial transaction you can't control. In Cuban's case, any loss he might have taken had nothing to do with the company's earnings or product pipeline, which are typically the things that drive stock price. It had to do with him getting screwed by that PIPES transaction. And because of insider trading laws he was left with a "damned if you do, damned if you don't" choice over a decision that wasn't in his interest and which he couldn't control. If he sold, he was possibly guilty of insider trading. If he didn't sell, he had just gotten off the phone with someone who was telling Cuban he was personally going to make his stock worth less by offering private equity to some hand-picked investors at a reduced cost.

There's just a difference between the two things. People get disgusted by insider trading when it is a corporate officer who has a fiduciary responsibility and he uses his insider info to enrich himself. They get disgusted at the Martha Stewarts who don't suck up the fact that the invested in a biotech company that didn't perform on its merits the way she had hoped and uses insider info to avoid a loss. It's just hard for me to put Mark Cuban in that same category when 1) he had no fiduciary responsibility and 2) His loss would have had nothing to do with the fundamentals of the company; it would have had to do with a PIPES transaction structured by management and designed to screw him.

There is a difference, even if both possibly fall under the purview of insider trading laws.

Cuban actually has the defense I outlined above as a possibility, but the problem is you don't challenge the SEC by calling them liars, the way he has. It just makes them come after you harder. Martha Stewart could have paid a large fine and walked away but she was indignant and lied. If Cuban tells them to fuck themselves, they may go to the mattresses with him. He'd be smarter to just pay a fine, that in the scheme of things is chump change for him, and move on. But Cuban being Cuban he might not do that.