The Corporate Law Group

Not So Inside After All

Mark Cuban is an entrepreneur who sold to Yahoo for over $5 billion, and is the owner of the Dallas Mavericks. An SEC complaint against him for insider trading was recently dismissed. A company Cuban had invested in,, called him and told him if he would sign an NDA they had some secret stuff to tell him. He signed and they told him they were engaging in a so-called PIPES transaction (private investment in public entity; made more popular with the lessening of resale holding restrictions). Supposedly, Cuban hates PIPES transactions (they can result in so-called “death spirals”) and said, “Well, now I’m screwed. I can’t sell,” but then sold his 6% stake, avoiding $750,000 in losses. The SEC’s complaint relied on the misappropriation theory of insider trading, that due to some special relationship, typically a fiduciary one, a non-corporate-insider could not trade on confidential information. But it wasn’t clear Cuban could not trade; it was only clear that he would not disclose the information. Therefore the SEC’s complaint was dismissed. We’ve always included in NDA’s used for Reg. FD and insider purposes an acknowledgement that the recipient would not trade on the information received.
Paul Marotta

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