Cuban charged with inside trading..<meant to fix, just forgot>

[SPURSX3]

Mark Cuban charged with insider trading
SEC charges Dallas Mavericks owner with insider trading related to sales of Mamma.com.

NEW YORK (CNNMoney.com) -- Billionaire entrepreneur Mark Cuban, owner of the National Basketball Association's Dallas Mavericks, was charged Monday by the Securities and Exchange Commission with insider trading.

According to the SEC, Cuban sold 600,000 shares of Internet search company Mamma.com in June 2004 using non-public information.

Cuban is accused of calling his broker and instructing him to sell all of his stock from Mamma.com after receiving the confidential information from the company.

The SEC said Cuban learned that the company would raise money through a public offering, and he knew the stock price was about to fall.

When the offering was made public, the stock fell 9.3%, and Cuban avoided losses in excess of $750,000 by selling stock the day before, the SEC report said.

"As we allege in the complaint, Mamma.com entrusted Mr. Cuban with nonpublic information after he promised to keep the information confidential," Scott W. Friestad, Deputy Director of the SEC's Division of Enforcement said in the report. "Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all of his shares."

Efforts to reach Cuban for comment were not immediately successful.

Cuban has been identified as one of the bidders for Major League Baseball's Chicago Cubs for about a year, after the team was put up for sale by owner Sam Zell, chief executive of the Tribune Company (TXA). But baseball sources told the Chicago-Sun Times last week that Cuban is unlikely to get the league's blessing despite his deep pockets.

[jemagee]

Cuban could offer twice as much for the cubs as the highest bidder and wouldn't be allowed to buy the team

A public offering of an already traded stock is a secondary offering and they somehow scheduled one in 24 hours?

[westkoast]

Too bad he didn't get inside information on the person he fired Avery Johnson for.....

[SPURSX3]

somebody really does not want him buying the cubs.  why risk jail time for such small change in "cuban" standards...

[jemagee]

somebody really does not want him buying the cubs.  why risk jail time for such small change in "cuban" standards...

cause you think you're not going to get caught - like martha - they think it's a small thing - and no one will catch them

Bud SElig and Colangelo don't want bud to buy the cubs - the way transactions are handled in baseball really is ridiculous

[rickortreat]

Cuban insists he has done nothing wrong, and I would be interested in learning about the particulars before coming to a conclusion.

In the first place he is accused of selling stock on the basis of insider information. In this case the information being that the company required additional financing and was going to issue more shares.  Let's consider that for just a sec.  When you buy shares in a company you are an owner of that firm, the percentage you own is the number of shares you have divided by all the common shares of stock.  If the firm decides to create more shares out of nothing and sell them to the public, your percentage of ownership has declined and I don't know about you but I call that stealing!

So while the SEC is after Cuban, maybe they should be going after the company!  Cuban could also argue, that he was being punished by the company, since by informing him, they in effect prevented him from taking any action regarding his holdings, since otherwise he could be prosecuted for insider trading.

There is no need to act on private information.  The stock wasn't going to fall off until the word hit the street, and Cuban would not only have had time to sell his stock, but buy put options and profit from the decline, even without advance warning!

The SEC is filled with scum, as there is a lot of stuff going on in the back rooms that is illegal and the SEC does nothing.  Instead they go after famous people like Martha and Mark, pretending to do something important, while more people have lost more money than ever before in a market crash, and none of the people responsible for that are under indictment.

They should be going after the president of Lehman bros. who drove a huge investment banking firm out of business and caused massive losses to share holders and Lehman employees. They should also be going after the board members who approved the executive group, since these people were obviously incompetant, and fiscally irresponsible.

So put your own personal feelings aside. (As though you really know Mark Cuban and have a right to judge him) And lets see what the SEC has.  One thing I did hear, is that Cuban's case is a civil one, whereas Martha's was a criminal case.

[jemagee]

.  If the firm decides to create more shares out of nothing and sell them to the public, your percentage of ownership has declined and I don't know about you but I call that stealing!

A secondary offering does not create stock out of nothing - publicly traded companies do not issue ALL their common stock to the general public - because that would just be completely and totally asinine - only a portion of their stock is issued during an IPO and over time if more money is needed, a secondary offering occurs that issues more of the companies common shares to the common public.  I have never heard of a 'private' secondary offering such as this is puported to be - but it's going to come down to some tricky legal definitions regarding 'duty' and truly being an 'insider'.  While both are famous and both are accused of insider trading this seems a bit different than the martha stewart case to me (not to mention the stop loss on nasdaq stocks which while doable is slightly more complicated then just asking your broker about em)....god, 4 years in the IPO market and that job finally comes in a little bit handy

[Lurker]

Rick, let's say the company has net assets of $1 million.  It also has 100,000 shares of outstanding stock thus each share is worth $10.  So the company offers more shares at $10 a piece to the public.  How does this dilute the existing shareholder?

Any dilution in shareholder "rights" is in the form of future earnings.  If the earnings doesn't increase proportionately from the additional capital infusion then Cuban's earnings per share would decrease.  Selling his shares based on ownership knowledge that has not been released to the general public is the very definition of insider trading. 

If you were to have bought shares on the day before Cuban dumped his and then when the secondary offering was announced a week later and the price dropped 25% would you be happy that a laerge shareholder was able to benefit (avoid losses) from his "inside" knowledge?

[rickortreat]

It depends on whether the company had held additional shares in reserve for the sale, or if new shares are being created.  If the shares already existed, then there is no dilution, and as in your example, there are still 100,000 shares.  If however, the shares did not exist, and the company is "creating" new shares there are now 120,000 shares, then the nominal value of your shares would be diluted by 20% as would your expected return on investment.

The only way in which that would not be the case is if the company gave you additional shares to make up for the dilution, so your percentage of ownership remains the same.                                         

[Lurker]

It depends on whether the company had held additional shares in reserve for the sale, or if new shares are being created.  If the shares already existed, then there is no dilution, and as in your example, there are still 100,000 shares.  If however, the shares did not exist, and the company is "creating" new shares there are now 120,000 shares, then the nominal value of your shares would be diluted by 20% as would your expected return on investment.

The only way in which that would not be the case is if the company gave you additional shares to make up for the dilution, so your percentage of ownership remains the same.                                         

No it doesn't matter in my example because I used OUTSTANDING shares.  Authorized shares that are not issued are not outstanding.  Go back to business school.

[jemagee]

I never paid THAT much attention to secondary offerings, we hated them, had to take them and they had little to no pop...is it possible for a company to issue a secondary of shares that were 'created' out of air...i just kind of assumed that secondary offerings just released more already existing shares to the general public thereby reducing the percentage of shares owned by the company itself?