8 ms·

Jury says Cuban did not commit insider trading

86 points by edw519 13y ago

jordanmessina 13y ago
Here's a video of the press conference after the verdict: http://www.youtube.com/watch?v=F82EHPP3bkM http://www.youtube.com/watch?v=F82EHPP3bkM
curiouslurker 13y ago
Methinks he actually committed insider trading. But when you own the City's popular basketball team, bring home a championship and bankroll citywide celebrations no jury will convict you!
- Mikeb85 13y ago
  +1 Given the circumstances, it sure looks like insider trading. ..
- walshemj 13y ago
  Why did the SEC not try to move the venue of the trial?
- siegecraft 13y ago
  October 17, 2008 - Mark Cuban announces bailoutsleuth.com November 17, 2008 - SEC charges announced 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.
  - cma 13y ago
    Sort of like the Qwest CEO who was the only head of a major telecom to deny access to the phone companies in the illegal tapping scandal, and was shortly thereafter charged with insider trading (I don't know anything about the merits of the case): http://en.wikipedia.org/wiki/Joseph_Nacchio http://en.wikipedia.org/wiki/Joseph_Nacchio
jasonwilk 13y ago
Glad to see this is over for Mark. Definitely worth noting he spent far more on his lawyers to win this case than what it would have cost him to just pay the fines and have the SEC get a quick win for bullying. 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!
- lawnchair_larry 13y ago
  How do you figure this was SEC bullying? Looks like a clear cut case of insider trading to me.
  - shreyansj 13y ago
    How do you figure this is clear cut case of insider trading. What's your evidence to reach that verdict, that the jury apparently failed to see?
    - dmazin 13y ago
      The evidence is the testimony that Cuban was told by the CEO about the offering. The jury needed to believe it beyond reasonable doubt, but we don't need to because as individuals, our tolerance for coincidence is much lower than it is for juries.
      - staunch 13y ago
        Actually, since this is civil I think the bar is lower than in a criminal case. They probably only needed to prove that he's guilty based on the "preponderance of the evidence". Essentially that it's more likely he did it than he did not do it. 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.
        mcherm 13y ago
        How on earth does the timing affect this? 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.
tedunangst 13y ago
Guess he gave the NSA whatever they wanted after all.
- sneak 13y ago
  For those downvoting the parent comment, read the following to get the joke: https://en.wikipedia.org/wiki/Joseph_Nacchio https://en.wikipedia.org/wiki/Joseph_Nacchio
ars 13y ago
And people wonder why the government never brought anyone to trial for the recent financial collapse. 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.
- Zigurd 13y ago
  It's substantially different in that some derivatives are equivalent to insurance, but the entities writing those contracts do not meet capital requirements for insurance. 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.
hristov 13y ago
He got off because it was ultimately a question of his word against the word some other guy. And the other guy had an axe to grind. And Cuban is very popular in Dallas, being the owner of the local basketball team. So the jury decided there is not enough evidence to indict. 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.
- csense 13y ago
  > the jury decided there is not enough evidence to indict. 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. [1] http://en.wikipedia.org/wiki/Indict#United_States http://en.wikipedia.org/wiki/Indict#United_States
  - hristov 13y ago
    You are right. I know the distinction but for some reason I thought this was a grand jury.
- smalter 13y ago
  it appears to me that you're misunderstanding the case. 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.
  - jasonwatkinspdx 13y ago
    > 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.
rosser 13y ago
The jury didn't say he "did not commit insider trading"; they said the government didn't prove that he committed insider trading. They didn't say he's innocent of the charges, but that he's not guilty of them. There's an important difference between the two.
- stevesearer 13y ago
  I was on a jury for a trial involving an alleged dui offense and what you mention is exactly the reason we found the defendant to be not guilty.
  - untog 13y ago
    How did that feel? I ask the question very genuinely. It sounds as if you suspected the accused was guilty, but that the evidence did not back it up. How did you feel about letting him go?
    - ElChacal 13y ago
      What is your point and how is that relevant?
- gibwell 13y ago
  Who are you to talk when the allegations made against you have never even been heard in court, let alone tried in front of a jury?
- beambot 13y ago
  Can a jury ever find a defendant "innocent"? I thought the only two options were "guilty" and "not guilty".
  - dragonwriter 13y ago
    > Can a jury ever find a defendant "innocent"? I thought the only two options were "guilty" and "not guilty". "innocent" = "not guilty". Guilt is a binary state. EDIT: Though, as this was a civil case, neither "guilty" nor "not guilty" were possible results.
guest0123 13y ago
If insider trading is such a big deal to the government, they can start by banning congressmen and congresswomen from having the ability to do so. For those that don't know: http://en.wikipedia.org/wiki/STOCK_Act 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.
dreamdu5t 13y ago
Insider trading laws should be repealed. People selling shares based on nonpublic information introduces said information to the market more quickly. It's also a victimless act, a willing buyer and a willing seller decide to trade based on the information they know, with shares that were purchased without any agreement to not sell them based on the information the owner knows. 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.
- hristov 13y ago
  It is not a victim-less act. The person that goes into a transaction without knowing insider information usually believes they were cheated. Quite rightfully so. 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).
  - dreamdu5t 13y ago
    Cheated of what? Owning a share does not entitle you to profit. 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.
    - RobAtticus 13y ago
      Should I be allowed to sell you a car that's a lemon just because you cannot see that? If I know the engine is about to die, but you test drive it and it seems fine, is that really right?
      - maxerickson 13y ago
fireworks10 13y ago
Wait what, this guy is 55?
bsims 13y ago
In 2007 I was in the midst of uncovering a pump and dump scheme while communicating with the SEC (who were incredibly non-responsive and incompetent). 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_sharesleuth?currentPage=all 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 https://news.ycombinator.com/item?id=5236372

86 points by edw519 13y ago

Here's a video of the press conference after the verdict: http://www.youtube.com/watch?v=F82EHPP3bkM http://www.youtube.com/watch?v=F82EHPP3bkM

curiouslurker 13y ago

Methinks he actually committed insider trading. But when you own the City's popular basketball team, bring home a championship and bankroll citywide celebrations no jury will convict you!

Mikeb85 13y ago
+1 Given the circumstances, it sure looks like insider trading. ..
walshemj 13y ago
Why did the SEC not try to move the venue of the trial?
siegecraft 13y ago
October 17, 2008 - Mark Cuban announces bailoutsleuth.com November 17, 2008 - SEC charges announced 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.
- cma 13y ago
  Sort of like the Qwest CEO who was the only head of a major telecom to deny access to the phone companies in the illegal tapping scandal, and was shortly thereafter charged with insider trading (I don't know anything about the merits of the case): http://en.wikipedia.org/wiki/Joseph_Nacchio http://en.wikipedia.org/wiki/Joseph_Nacchio

jasonwilk 13y ago

Glad to see this is over for Mark. Definitely worth noting he spent far more on his lawyers to win this case than what it would have cost him to just pay the fines and have the SEC get a quick win for bullying. 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!

lawnchair_larry 13y ago
How do you figure this was SEC bullying? Looks like a clear cut case of insider trading to me.
- shreyansj 13y ago
  How do you figure this is clear cut case of insider trading. What's your evidence to reach that verdict, that the jury apparently failed to see?
  - dmazin 13y ago
    The evidence is the testimony that Cuban was told by the CEO about the offering. The jury needed to believe it beyond reasonable doubt, but we don't need to because as individuals, our tolerance for coincidence is much lower than it is for juries.
    - staunch 13y ago
      Actually, since this is civil I think the bar is lower than in a criminal case. They probably only needed to prove that he's guilty based on the "preponderance of the evidence". Essentially that it's more likely he did it than he did not do it. 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.
      - mcherm 13y ago
        How on earth does the timing affect this? 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.

tedunangst 13y ago

Guess he gave the NSA whatever they wanted after all.

sneak 13y ago
For those downvoting the parent comment, read the following to get the joke: https://en.wikipedia.org/wiki/Joseph_Nacchio https://en.wikipedia.org/wiki/Joseph_Nacchio

ars 13y ago

And people wonder why the government never brought anyone to trial for the recent financial collapse. 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.

Zigurd 13y ago
It's substantially different in that some derivatives are equivalent to insurance, but the entities writing those contracts do not meet capital requirements for insurance. 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.

hristov 13y ago

He got off because it was ultimately a question of his word against the word some other guy. And the other guy had an axe to grind. And Cuban is very popular in Dallas, being the owner of the local basketball team. So the jury decided there is not enough evidence to indict. 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.

csense 13y ago
> the jury decided there is not enough evidence to indict. 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. [1] http://en.wikipedia.org/wiki/Indict#United_States http://en.wikipedia.org/wiki/Indict#United_States
- hristov 13y ago
  You are right. I know the distinction but for some reason I thought this was a grand jury.
smalter 13y ago
it appears to me that you're misunderstanding the case. 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.
- jasonwatkinspdx 13y ago
  > 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.

rosser 13y ago

The jury didn't say he "did not commit insider trading"; they said the government didn't prove that he committed insider trading. They didn't say he's innocent of the charges, but that he's not guilty of them. There's an important difference between the two.

stevesearer 13y ago
I was on a jury for a trial involving an alleged dui offense and what you mention is exactly the reason we found the defendant to be not guilty.
- untog 13y ago
  How did that feel? I ask the question very genuinely. It sounds as if you suspected the accused was guilty, but that the evidence did not back it up. How did you feel about letting him go?
  - ElChacal 13y ago
    What is your point and how is that relevant?
gibwell 13y ago
Who are you to talk when the allegations made against you have never even been heard in court, let alone tried in front of a jury?
beambot 13y ago
Can a jury ever find a defendant "innocent"? I thought the only two options were "guilty" and "not guilty".
- dragonwriter 13y ago
  > Can a jury ever find a defendant "innocent"? I thought the only two options were "guilty" and "not guilty". "innocent" = "not guilty". Guilt is a binary state. EDIT: Though, as this was a civil case, neither "guilty" nor "not guilty" were possible results.

guest0123 13y ago

If insider trading is such a big deal to the government, they can start by banning congressmen and congresswomen from having the ability to do so. For those that don't know: http://en.wikipedia.org/wiki/STOCK_Act 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.

dreamdu5t 13y ago

Insider trading laws should be repealed. People selling shares based on nonpublic information introduces said information to the market more quickly. It's also a victimless act, a willing buyer and a willing seller decide to trade based on the information they know, with shares that were purchased without any agreement to not sell them based on the information the owner knows. 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.

hristov 13y ago
It is not a victim-less act. The person that goes into a transaction without knowing insider information usually believes they were cheated. Quite rightfully so. 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).
- dreamdu5t 13y ago
  Cheated of what? Owning a share does not entitle you to profit. 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.
  - RobAtticus 13y ago
    Should I be allowed to sell you a car that's a lemon just because you cannot see that? If I know the engine is about to die, but you test drive it and it seems fine, is that really right?
    - maxerickson 13y ago

fireworks10 13y ago

Wait what, this guy is 55?

bsims 13y ago

In 2007 I was in the midst of uncovering a pump and dump scheme while communicating with the SEC (who were incredibly non-responsive and incompetent). 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_sharesleuth?currentPage=all 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 https://news.ycombinator.com/item?id=5236372