Jury says Cuban did not commit insider trading
miamiherald.com
miamiherald.com
But if I were Cuban I would not complain to loudly about being hounded by the SEC. Fact of the matter is his selling right before the PIPE was announced was very lucky and those type of coincidences rarely happen in real life.
I think you mean "convict," not "indict." An indictment, decided by a grand jury in the United States, is basically an accusation, and it happens before a trial. A conviction is what happens with a trial jury or petit jury.
cuban's argument wasn't that he was lucky or the timing of his sale was a coincidence--nobody thinks that was the case--his argument was that he never agreed not to trade on the confidential information.
Close, but not quite. Here's the TLDR of the case:
Mark owns a bunch of Mamma.com stock he bought on the open market.
The CEO of Mamma calls Mark, tells him the company is planning a new private offering of stock, with the hope that Mark would participate as a buyer and add more shares. However, Mark is not interested, probably because he is no longer confident about Mamma.com, and since the offering would dilute the value of the shares he already holds, he sells them immediately.
So Mark traded on inside information, yes. However, that does not make his action illegal. It would only be illegal if Mark had agreed to keep the information confidential.
It is important to note that Mark here is not an officer or similar in the company, and so he does not fit that definition of an insider. However, the legal theory is if someone who is an officer, such as the CEO, communicates with a third party like Mark with an agreement to keep the information confidential, then the fiduciary responsibility to keep the information confidential transfers to Mark. This would make Mark's trade illegal insider activity.
This was the crux of the case: the CEO says he told mark the conversation was confidential and that Mark agreed. Mark says he never agreed to any confidentiality. The Jury believed Mark at least to the standard of reasonable doubt.
The reason the confidentiality must be explicit is because otherwise bizarre and immoral situations could occur, such as overhearing a conversation at a restaurant making you legally responsible as an insider. Or a sociopathic/manipulative person could communicate information to a group in an on the record context creating a legal liability on the others present without their consent. Obviously that's not workable. If you've ever been on shareholder calls where it seems the executives are sticking tightly to a legal dept approved script, this is why.
If you're getting the feeling that insider trading cases are highly ambiguous and circumstantial, you'd be right. It's probably due for reform, but I won't pretend to know how to fix it. I would point out that insider information passing between third parties is a de-facto currency among professional traders, so enforcement does seem rather capricious.
In any case, I am not a lawyer, not your lawyer, and have no first hand information on this case other than what I've seen go by in the media.
I think he proved a major point today in how the SEC has no transparency and if not for his money, he wouldn't have had any choice but to lay down for them. It's a broken system.
Good for him!
Perhaps if you disagree that it's "clear cut", you at least agree that it was plausible. It wasn't simply bullying, that seems certain.
His defense was not that he didn't trade based on a tip, but that he never agreed to keep the tip confidential, and he challenged the definition of what an insider is.
This is a technicality. That's the problem with insider trading laws - "insider" isn't really defined. So, although it's often common sense and most people can make a judgment call on the spirit of the law, this often won't be sufficient for a trial. Still, this doesn't mean the SEC is wrong to pursue such cases.
Just knowing the timing alone would suggest a greater than 50% chance of him being guilty to me. I'd convict him in 5 minutes.
The government's claim: Mark Cuban was on a phone call where he was told information and promised not to trade based on it. He immediately went out and sold his stock.
Mark Cuban's claim: Mark Cuban was on a phone call where he was told information but didn't promise anything. He immediately went out and sold his stock.
Both of these claims would exhibit the same timing, so I don't see how timing can help decide the important question, which was whether he was technically an "insider" for the purpose of the law.
http://www.professorbainbridge.com/professorbainbridgecom/20...
Apparently, simply owning stock is not enough to make you an "insider". You have to be a fiduciary (i.e. be an officer, or a controlling shareholder, or on the board, or similar), or owe a fiduciary duty to the company.
- Cuban was the largest shareholder
- Cuban was told that the company planned to offer a deal that allowed for more purchases at a 10% discount, diluting his stock. He was told this before the public announcement, and sold his stock the day before the public announcement.
None of this was really disputed. What was disputed was whether or not Cuban had a conversation that acknowledged he was an insider and that he couldn't sell, and whether or not there was an implied confidentiality agreement. This would suggest admission of guilt as well as satisfy the "misappropriation" definition of insider in the article you linked, since they couldn't satisfy the fiduciary definition.
So, he traded based on non-public, adverse information, and saved himself from a substantial loss. Despite this, the SEC failed to convince the jury that he fit any formal definition of "insider".
I think we can all agree that whoever bought all of his stock prior to the public announcement of the dilution did not have his advantage, and his advantage came solely from a position of privilege within the company.
That really doesn't matter, since it was a puny 6%.
For those that don't know: http://en.wikipedia.org/wiki/STOCK_Act was passed to prevent insider trading in Congress, but Congressmen have been quietly pushing and scaling back insider trading laws, basically rendering the law useless.
While trying to learn more about white collar crime, I uncovered a website, sharesleuth.com. The owner was writing stories on stock fraud/white collar crime, and we exchanged a few emails.
A few weeks later I found out Mark Cuban was backing him, and short selling the companies he found to be fraudulent. Cuban was doing this for two reasons: #1 To bring attention to white collar crime and #2 If the SEC wasn't going to shut down the companies, he might as well make money while doing it...inevitably bringing it back to #1. It looks like he was successful in drawing their attention.
A previous Wired article on Sharesleuth: http://www.wired.com/techbiz/people/magazine/15-10/mf_shares...
X-post from HN thread on the pump and dump I uncovered: https://news.ycombinator.com/item?id=5236372
Connection, coincidence, or a little of both? I don't believe that Cuban is innocent per se, but I also don't believe that his prosecution wasn't politically motivated.
Given the circumstances, it sure looks like insider trading. ..
There's an important difference between the two.
there's no guilty/not guilty/innocence distinction here because this wasn't even a criminal case, it was a civil case.
in addition, the statement "the government didn't prove insider trading" is tantamount to the statement "mark cuban did not commit insider trading" because the case boiled down to a disputed question of fact, and what actually happened is unknowable.
"He wasn't proven innocent" is a rhetorical attack that can be made against virtually anyone who has been tried and not convicted in the US.
Indeed doubly off-topic as this is a civil matter.
But it still should be noted that, given prosecutors in the US have a high (up to 90%+) conviction rate, not being proven guilty is pretty good as far as exoneration goes.
In the eyes of the law, he is innocent.
Judges admonish juries that people are "innocent until proven guilty" becaues most jurors aren't sophisticated enough to make the distinction.
This is a slogan, not a legal statement.
This whole debate, which is entirely moot since it's not a criminal trial, arises from the fact that "guilty" and "not guilty" (and "innocent" I guess) have both informal meanings and formal legal meanings, and those meanings are different. The OP used the formal meaning, in a formal context. People tossing about the informal meaning are not adding to the discussion.
"innocent" = "not guilty". Guilt is a binary state.
EDIT: Though, as this was a civil case, neither "guilty" nor "not guilty" were possible results.
Guilty = beyond a reasonable doubt that the defendant committed the crime alleged.
Not guilty = the government did not prove beyond a reasonable doubt that the defendant committed the crime alleged
Innocent = beyond a reasonable doubt (i.e., factual impossibility) that the defendant did not commit the crime alleged.
It is exceedingly rare for a jury to make a finding of innocence since (a) few prosecutors will agree to a jury instruction allowing this finding, and (b) if there is the necessary evidence to prove innocence, the judge will throw out the related charges before the decision gets to the jury. If the judge throws out the charge, whether the judge will further make a finding of innocence depends on the defendant--usually the defendant must move the court for such a finding and few do. However, in some jurisdictions judges have the leeway to make that finding without a motion by the defendant.
Except in the case of things like the Scottish three-verdict system (which doesn't follow the conditions that you lay out), this is generally not true.
Particularly, in the US, generally "guilty" and "not guilty" are the only possible verdicts in most criminal cases (there are certain cases where "not guilty by reason of insanity" or "guilty but mentally ill" are also available), and there is no verdict that requires proof of innocence beyond a reasonable doubt.
It's moot anyway: this wasn't a criminal case.
Yeah, it is. That's exactly what "not guilty" means.
> They determine whether the government was able to prove its claim of guilt.
Right. Because people are presumed innocent. The failure to overcome the burden of proof to rebut a presumption means that the presumption is true. That's what a legal presumption means.
> It's moot anyway: this wasn't a criminal case.
Agreed. In fact, I said that upthread.
No, it isn't. Stop attempting to slaughter language and logic. All "not guilty" means is the state of guilt could not be proven. That does NOT imply innocence.
It is completely possible for a defendant to be guilty of a crime but be found not guilty -- that is, neither innocent nor guilty -- by virtue of lack of evidence, or process error, or whatever.
Here is a professor proving you wrong [1]:
>This means that the jurors found [the defendant] not guilty; it does not mean that they found her innocent. It does not even mean that any or all of them believe she had nothing to do with the demise of her daughter. All it means is that the jury was not convinced beyond a reasonable doubt that Anthony committed the offenses of which she was accused (other than giving false information to the police, the minor charge she was convicted of). In other words, the prosecution failed to meet the high standard to which society holds the state in criminal cases.
And here is a criminal lawyer proving you wrong [2]:
>Juries never find defendants innocent. They cannot. Not only is it not their job, it is not within their power. They can only find them "not guilty." ... A verdict of "not guilty" can mean two entirely different things. It can, of course, mean that you believe the defendant (I would use my client's name) is innocent. However, it can mean something entirely different. A verdict of "not guilty" can mean a verdict of "not proven." Even if you are very sure the defendant is guilty, but the state has not proven it "beyond a reasonable doubt," then it is your sworn duty to return a verdict of "not guilty."
Now will you drop the unjustified arrogance?
[1] - http://articles.philly.com/2011-07-07/news/29747182_1_reason...
[2] - http://www.oregoncriminalattorney.com/Criminal-Defense-Overv...
"Not guilty" is not a claim to absolute knowledge, where as "innocent" is. And that's an important distinction.
It's just ridiculous that Congress conducts insider trading while other people are persecuted for it.
Insider trading laws are a violation of the first amendment, as restricting what I can communicate to someone else is censorship and abridgement of free speech.
Your first point is wrong as well. If insider trading were legal there would be a huge incentive for insiders to keep inside information away from the public. This would lead to slower dissemination of inside information. It would also lead to great economic collapse because no-one would trust stocks anymore.
Insider trading laws do not violate the first amendment because they do not restrict speech, but actions (i.e., trading).
I fail to see what's amoral about trading based on information that other people don't know. There are no two people who know the exact same things. All trade is based on asymmetric information.
Seeing as how you are moving the goalposts now you probably see very clearly what is amoral about insider trading.
How is that comparable to insider trading? There is no fraud involved with insider trading.
If the engine is about to burst, caveat emptor.
It is likely that the repeal of insider trading laws would prompt a greater investment in discovering insider information and making that information known to the market faster. Firms that do nothing but specialize in getting insider information would crop up. Those in the know would eventually have to assume that their counter-parties may have the same information perhaps through the same information contact or through different ones that have the same info.
If you really play through the scenario of removing the restriction posed by insider trading laws, you'll see that things aren't really better or worse in terms of the greater good. Without insider trading laws, there is no victim since the victim knows they are playing a different game. The laws themselves are responsible for permitting victimization to occur in the first place since it implies the expectation of trust where there often isn't any.
Could you explain this claim?
If insider trading is illegal you will want to announce this news as quickly as you can so that your company is viewed as being transparent and shareholder friendly.
This sort of info is already kept secret for as long as possible, for both contractual and commercial reasons. At least if the officers are trading on it the info is leaking out in some way. So, for this specific example, allowing insider trading will decrease volatility. (I'm not convinced that's so valuable, but it's the sort of thing many people care about.)
I can't think of any company that acts as if they care to be "viewed as being transparent and shareholder friendly", so apparently that isn't so important.
I don't know anything about Mark Cuban, but loosing this case will certainly demoralize them. It's really really hard to convict people and they eventually stop trying.
The reason there are capital requirements for insurers is that, without them, you can get "free money" by selling insurance contracts that are backed by nothing. Doing that under another name is just as fraudulent.
Especially in the case of insurers writing such contracts, you don't have to take witness' word for the fact they were evading capital requirements. The contracts and available capital make the whole case.