The 'Cuban' Case: Lessons for Insider Trading Law

Mark Cuban, the high-profile owner of the Dallas Mavericks, was the subject of a Securities and Exchange Commission insider trading case for almost five years. After many twists and turns, including an initial dismissal that was reversed by the U.S. Court of Appeals for the Fifth Circuit, the case finally went to trial in federal court in Dallas recently. On Oct. 16, a jury returned a defense verdict. The result in the case appears to have turned largely on the jury’s view of the facts and witnesses. But the case also included much wrangling over a variety of unsettled legal issues that make for interesting contrasts with other similar cases, including a number in the Southern District of New York.

Mamma and the PIPE

The Cuban insider trading case arose from Cuban’s role as a major shareholder of a company then called Mamma.com. In 2004, Mamma.com decided it wanted to do a PIPE (private investment in public equity) transaction, which would involve seeking investors to buy stock in the company in private transactions, at a discount to the market price. The announcement of such a transaction often causes the market price of the company’s stock to drop.