On March 5, 2013, the U.S. District Court for the Northern District of Texas (Court) allowed the SEC to proceed to trial in its civil enforcement action against Dallas Mavericks owner Mark Cuban for insider trading. The SEC accused Cuban of selling his shares in Mamma.com after learning material nonpublic information about the company’s planned private investment in public equity (PIPE) offering, thereby avoiding a $750,000 loss. The Court held that the SEC presented enough evidence to convince a reasonable jury that Cuban could be held liable on the misappropriation theory of insider trading because he agreed, “at least implicitly, to maintain the confidentiality of Mamma.com’s material nonpublic information and not to trade on it or otherwise use it.” See “When Does Talking to Corporate Insiders or Advisors Cross the Line into Tipper or Tippee Liability under the Misappropriation Theory of Insider Trading?
,” Hedge Fund Law Report, Vol. 6, No. 2 (Jan. 10, 2013). For reasons described in more detail in this article, this decision helps to further clarify what hedge fund investment professionals should and should not say and do when talking to corporate insiders. This article summarizes the factual background in the matter and the Court’s legal analysis, and enumerates some of the salient implications of this decision for the investment research process.