The Volokh Conspiracy

It seems to me that Cuban must have followed the advice of some lawyer to do what he did, because his first reaction was that hed been trapped and tricked into not selling:

14. The CEO prefaced the call by informing Cuban that he had confidential information to convey to him, and Cuban agreed that he would keep whatever information the CEO intended to share with him confidential. The CEO, in reliance on Cuban's agreement to keep the information confidential, proceeded to tell Cuban about the PIPE offering. Cuban became very upset and angry during the conversation, 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." (until after the public announcement)

Cuban was kind of open about the fact he was selling anyway:

25. Cuban later publicly stated that he had sold his Mamma.com shares because the company was conducting a PIPE, which issued shares at a discount to the prevailing market price and also would have caused his ownership position to be diluted. Cuban never disclosed to Mamma.com that he was going to sell his shares prior to the public announcement of the PIPE.

It is almost inconceiveable that he did this without first getting legal advice that he had a right to sell in these circumstances - that nobody could tell him this and then prevent him from selling in advance. He'd have been better off not being told, as he might have gusssed.

(What was the advice? Perhaps the advice was grounded on the idea that Mamma didn't really have an honest motive for telling Cuban - they were not consulting him, they were just trying to prevent him from selling any shares before the offering for whatever reason. Or was it simply that he had an absolute right to sell and his motives could not be inquired into? Of course if it was the latter ground he kind of spoiled it by publicly confirming his reason was the information he had been told.)

The only thing this reminds me of is General Eisenhower telling reporters information about D-Day so that they couldn't print what they might have gusssed.

So, did Cuban keep his promise to keep the information confidential? It seems that Cuban selling his shares in Mamma.com, Inc. is not the same as breaching a promise to keep the info private.

I don't think the issue is breach of contract, but rather trading on insider information.

I don't know Cuban, but I know the type of person who would react to dilution with "you can fucking sue me!" and then sell anyway.

The fact that they told him to because that would stop him from selling is interesting, but what evidence is there that he would have sold had he not been told?

It makes you wonder why the dilution of the value of shares is not the crime?

If you want to prevent a major stockholder from unloading his shares while you execute your plan to rifle the company assets and escape to Rio, just tell him your plan, whether he asks or not.

Why would the board think that the major investor would suddenly start selling? If it's something that Cuban could determine publicly, then that's Cuban's defense.

One supposition is that "Cuban was harmed by the CEO telling him because he couldn't then sell his shares." However, if the CEO hadn't told him, then Cuban would have had no reason to sell.

Maybe there was some other reason that Cuban would have sold his shares in that period -- say, he needed money for another investment, or lost faith in the company. I can see this being hard to determine, except that his own statement says that his motivation was because of the insider information he acquired. Oops.

I've known both asshole investors and asshole boards. We could be dealing with both or neither here.