Question: In March 2004 Internet broadcasting pioneer and Dallas Mavericks owner
In March 2004, Internet broadcasting pioneer and Dallas Mavericks owner Mark Cuban acquired 600,000 shares, a 6.3 percent stake, of Mamma.com. Later that spring, Mamma.com decided to sell more of its shares through a PIPE [private investment in public equity] offering. Shares issued in PIPE offerings are typically sold below the market price of the shares. Mamma.com's CEO called Cuban to invite him to participate. Before telling Cuban about the offering of shares, the CEO told Cuban he had confidential information for him, and Cuban agreed to keep whatever information the CEO shared confidential. The CEO then told Cuban about the PIPE offering. Cuban became very upset and said, among other things, that he did not like PIPEs because they dilute the existing shareholders. At the end of the call, Cuban told the CEO "Well, now I'm screwed. I can't sell." The CEO then sent Cuban a follow-up e-mail, encouraging him to contact Mamma.com's investment banker handling the offering. Cuban called the banker and spoke for eight minutes. During that call, the banker supplied Cuban with additional confidential details about the PIPE. In response to Cuban's questions, the banker told him that the PIPE was being sold at a discount to the market price and that the offering included other incentives for the PIPE investors. With that information and one minute after speaking with the investment banker, Cuban called his broker and instructed him to sell his entire stake in Mamma.com. Cuban sold 10,000 shares during the evening of June 28, 2004, and the remainder during regular trading the next day. Did Cuban illegally trade on inside information under Rule 10b-5?
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