On Friday the Federal District Court in Dallas dismissed the SEC’s insider trading case against Dallas Mavericks owner Mark Cuban. Cuban was accused of selling stock in an internet search company (Mamma.com) on the basis of material nonpublic information in breach of a confidentiality agreement. The Company was about to issue additional stock that was expected to decrease the stock price and dilute current owners.
Several commentators viewed the SEC’s position with skepticism, including five law professors who filed amici curiae on behalf of Mr. Cuban. The district judge agreed and ruled that promising to keep information confidential is not the same as promising not to trade on the basis of such information. Cuban only promised the former, and such a promise alone does not create a duty between Cuban and Mamma.com sufficient to amount to insider trading if such a duty is breached. If there was no duty, there can be no breach, and Cuban is not guilty of insider trading unless the SEC can allege new facts to establish the duty.