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Victory on a Different Court: Beating Insider Trading Allegations

Three years ago, Dallas Mavericks owner Mark Cuban celebrated his team’s NBA championship victory over the Miami Heat. Now, he is celebrating a victory over a different foe: the Securities and Exchange Commission (SEC). The SEC had accused Cuban of using knowledge he gained from inside information to sell his stock in an Internet search engine company after he learned of news that would depress the price of that company’s shares. The SEC wanted Cuban to repay $750,000 in losses that he avoided, plus penalties. The jury disagreed. It found that the SEC failed to prove its claim that Cuban agreed not to make any trades based on the inside information he received, a claim Cuban denied.

What is insider trading?

You commit Illegal insider trading when you buy or sell a company’s stock based on non-public information you receive about the company. In prosecuting insider trading, the SEC must usually rely on circumstantial evidence to prove its case. Examples of the circumstantial evidence the SEC could rely on might include:

  • Sales: An officer of a drug company sells shares the day before release of a report that the company’s new anti-cancer drug is ineffective.
  • Purchases: An officer of a drug company buys thousands of the company’s shares a day before release of a report that the company’s new anti-cancer medicine is a new wonder drug.

Insider trading: Civil or criminal prosecution

The SEC’s case against Mark Cuban was brought as a civil proceeding.  At worst, that would mean that Cuban might have had to pay significant monetary damages, but he was not facing any prison time. The SEC has the option to turn the file over to the local U.S. attorney’s office to be pursued as a criminal matter. This option is much less commonly employed, as it usually depends on the number of people involved in the scheme, the amount of money at stake and whether a prosecution might have a deterrent effect if the defendants are rich and famous.

Insider trading is a complex offense requiring the services of experienced attorneys who understand the area of securities fraud and federal criminal defense. The Ohio criminal defense attorneys at Yavitch & Palmer Co., LPA have extensive experience and skill and can protect your best interests in federal court.

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