Insider Trading as Misfeasance: The Yielding of the Fiduciary Requirement

Mark Cuban is a billionaire entrepreneur and active investor. One of his more recent ventures is as majority partner in Sharesleuth.com, a web-based reporting site “aimed at exposing securities fraud and corporate chicanery.” Mark Cuban has also made news of late as a defendant in an action brought against him by the Securities Exchange Commission (SEC) for insider trading. The SEC alleges that he violated section 10(b) of the Securities Exchange Act of 1934 and 17 C.F.R. § 240.10b-5 (Rule 10b-5) when he sold his stock in Mamma.com, Inc. after the company’s CEO told him material, confidential information concerning a private investment in public equity (PIPE) offering Mamma.com planned to make. Cuban owned a 6.3% stake of Mamma.com, making him the company’s largest known shareholder. Before the announcement of the PIPE, Mamma.com’s CEO called Cuban to let him know about the company’s plans and to invite him to participate in the PIPE. Before apprising Cuban of the upcoming PIPE, the CEO first secured Cuban’s assurance that he would keep the information confidential. Cuban agreed and ended the call by saying,