The Securities and Exchange Commission brought the second-highest number of enforcement actions in agency history in fiscal year 2008, including filing the highest number of insider trading cases.[FOOTNOTE 1] One of the commission’s more high-profile insider trading actions came late in 2008, when the SEC filed a civil complaint against billionaire entrepreneur and Dallas Mavericks NBA team owner Mark Cuban. On July 17, 2009, the U.S. District Court for the Northern District of Texas dismissed the SEC’s complaint against Cuban, marking the first time a court has analyzed specifically what kind of an agreement can give rise to insider trading liability based on the “misappropriation” theory.[FOOTNOTE 2] Chief Judge Sidney Fitzwater concluded that an agreement imposing an obligation to (1) keep information confidential, and (2) refrain from trading on or using the information for personal benefit can establish a duty to support liability under the misappropriation theory of insider trading. He granted Cuban’s motion to dismiss the complaint, finding that the requisite confidentiality agreement had not been pled, and gave the SEC 30 days to file an amended complaint. In light of the decision, counsel may wish to instruct public company and investor clients to clearly state their intentions regarding both keeping information secret and trading on information before sharing or receiving confidential company information.

THE TWO TRADITIONAL THEORIES OF INSIDER TRADING

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