The Houston Chronicle relates:
The Dallas Mavericks are out of the NBA playoffs, and the spotlight is now following the team's controversial owner, Mark Cuban, to a different venue — federal court.
The insider trading suit filed against Cuban by the U.S. Securities and Exchange Commission last year is scheduled to receive its first hearing Tuesday when attorneys present oral arguments on a motion by the billionaire owner to have the case dismissed.
The hearing will provide yet another window to a case that has captured the attention of the country's legal minds, some of whom believe it represents an unprecedented step by the SEC...."The basis on which they're going after Cuban hasn't been tried before," said Peter Henning, a law professor at Wayne State University in Detroit who formerly worked as an attorney in the SEC's enforcement division. "Whether the SEC is going to be able to stretch (its authority) that far certainly remains to be seen."
The SEC alleges that Cuban engaged in insider trading when he sold his shares in a Canadian Internet search engine company, Mamma.com Inc., after receiving confidential information that the company planned to sell additional shares through a private offering in 2004. Cuban was able to avoid more than $750,000 in losses by selling his shares, according to the SEC.
The government's case is based on the contention that, by violating an oral agreement to keep the sensitive information confidential, Cuban committed insider trading.
Cuban and his legal team, while not admitting that the facts detailed in the suit are true, say the government's premise is wrong. They say Cuban, whose shares represented a 6.3 percent stake in Mamma.com, was never an "insider" because he didn't have a fiduciary or similar duty in his relationship with the company.
Cuban's motion to have the case dismissed has sparked a series of pleadings and briefs in which he has attacked the government's position and the government has pushed back with equally sharp elbows.
The SEC argues that a confidential agreement is sufficient to establish a fiduciary relationship and derides Cuban's attempt to say it isn't so.
"Cuban's argument that a person can promise confidentiality and then deliberately and furtively break that promise by trading on the confidential information is shameless," the SEC stated in a memo opposing his motion to dismiss. "Cuban accepted a duty of trust and confidence to the source of the information and was therefore legally obligated to abstain from trading or first disclose his plan to trade."
Five respected law professors have filed a brief in support of Cuban's position. The professors — Alan Bromberg of Southern Methodist University in Dallas, Stephen Bainbridge of UCLA, Allen Ferrell of Harvard, Todd Henderson of the University of Chicago and Jonathan Macey of Yale — weren't compensated for signing off on the brief, according to the document.
