RECENT DEVELOPMENTS IN INSIDER TRADING CASES: HAS THE PENDULUM SWUNG BACK TO THE DEFENCE?
Recent developments in US insider trading cases have shown the limitations on prosecutions and Securities and Exchange Commission (SEC) enforcement actions, particularly those involving chains of ‘tippers’ and ‘tippees’ charged with receiving and trading on material, non-public information. This article will discuss how recent trial and appellate outcomes highlight limitations for insider trading cases and will suggest some resulting practice implications.
SEC vs. Cuban
The SEC sustained the first of these recent losses in SEC vs. Cuban, in which the agency had alleged that Mark Cuban engaged in insider trading in securities of internet search firm Mamma.com, Inc. by selling his stock prior to the announcement of a private stock offering that might have diluted the value of Cuban’s shares. The SEC argued that Cuban violated an agreement made during an eight-minute unrecorded call with the firm’s chief executive officer (CEO) not to disclose the pending offering or to trade on it.
On 16 October 2013, after less than four hours of deliberation, a jury found Cuban not liable for insider trading, after determining that the SEC had failed to prove any of the disputed elements of its claims against him. At trial, the SEC confronted a number of challenges of proof, including the absence of any recording of the alleged conversation in which confidential information purportedly was disclosed (a conversation that Cuban testified he did not recall), the decision of the Canadian resident CEO not to testify at trial, and a former SEC official’s testimony for the defence that the information Cuban received was immaterial and available to the average investor.
Apr-Jun 2015 issue
Cohen & Gresser LLP