Press Release
| July 17, 2009
Insider Trading Charges Against Mark Cuban Dismissed
(Washington DC, July 17, 2009) - Dewey & LeBoeuf lawyers in the Washington DC, New York, and Houston offices have won an important victory against the SEC in the Mark Cuban insider trading case. On July 17, Chief Judge Sidney Fitzwater of the U.S. District Court for the Northern District of Texas dismissed the SEC's case against Mr. Cuban without prejudice. Mr. Cuban is the owner of the Dallas Mavericks basketball team and the case has been the subject of intense media scrutiny. The SEC alleged that Mr. Cuban entered into a confidentiality agreement with Mamma.com, a Canadian company that operated an Internet search engine, and received material nonpublic information about a stock offering. Mr. Cuban subsequently sold his shares of Mamma.com and avoided a substantial loss when the company's stock price declined after the offering was publicly announced.
In Mr. Cuban's motion to dismiss, Dewey & LeBoeuf argued that the violation of a confidentiality agreement was insufficient to create insider trading liability. Moreover, to the extent that the SEC had codified that position in SEC Rule 10b5-2(b)(1), it was an invalid exercise of the agency's rulemaking power. Judge Fitzwater agreed on both points and held: (a) for insider trading liability to exist the person "must agree to maintain the confidentiality of the information and not to trade on or otherwise use it;" and (b) because SEC Rule 10b5-2(b)(1) attempts to predicate liability "on a mere confidentiality agreement lacking a non-use component, the SEC cannot rely on it to establish Cuban's liability." The SEC has thirty days from July 17 to file an amended complaint.
The Dewey & LeBoeuf team consisted of Partners Stephen Best, Ralph Ferrara, Lyle Roberts, Christopher Clark, and Hank Asbill.
This memorandum is intended only as a general discussion of these issues. It is not considered to be legal advice. We would be pleased to provide additional details or advice about specific situations. For additional information on this important topic, please feel free to call upon your Dewey & LeBoeuf relationship partner. No part of this publication may be reproduced, in whole or in part, in any form, without our prior written consent.
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