2009 Archives

In Insider Trading Case, Law Profs Come off Bench for Cuban


The following is from the Feb. 4, 2009, online edition of The Wall Street Journal.

February 4, 2009

Dallas Mavs owner Mark Cuban — the subject of an SEC complaint over insider-trading — has a nice starting squad for his legal battle. Five big-wig law profs from Yale, Harvard, UCLA, Chicago and SMU have filed an amicus brief on Cuban’s behalf.

First, the background: In November, the SEC filed a complaint alleging that in 2004 Cuban was informed by the CEO of Mamma.com, a company in which Cuban held stock, that the company would raise money by issuing low-priced shares, a move that would probably hurt the value of Cuban’s shares. Cuban then allegedly sold his stake in order to avoid getting hit by the stock price drop after the low-priced share offering became public. Key questions: Did Cuban agree that the info the CEO gave him would be confidential? And, if so, could he still trade on it? (Note that Cuban’s lawyers have not conceded that he agreed to confidentiality.)

In the amicus, filed Monday, the profs — Alan Bromberg, Allen Ferrell, Jonathan Macey, Todd Henderson and Stephen Bainbridge — argue: “In the context of a business relationship, a confidentiality agreement alone is insufficient to create a fiduciary or similar relationship of trust and confidence between the parties. . . . a confidentiality agreement alone creates only an obligation to maintain the secrecy of the information, not a fiduciary or fiduciary-like duty to act loyally to the source . . . ”

They argue that a rule adopted by the SEC to address when “a breach of a family or other non-business relationship may give rise to liability under the misappropriation theory of insider trading” is inapplicable and contradicts Supreme Court precedent by creating liability without a fiduciary or similar relationship of trust and confidence.

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