A Heart as Far from Fraud as Heaven from Earth...Or Not

Abstract:     
In 2008 the SEC indicted Dallas Mavericks owner and media mogul Mark Cuban for insider trading based exclusively on information obtained while under an oral confidentiality agreement. The government argued that this agreement was sufficient to establish the necessary duty required under misappropriation theory based on SEC Rule 10b5-2(b)(1) passed in 2000. This note argues that a confidentiality agreement is insufficient for establishing the requisite fiduciary or fiduciary-like relationship under misappropriation theory. Further, this note argues that the SEC’s attempt to circumvent the requirement for a fiduciary or fiduciary-like relationship by promulgating Rule 10b5-2(b)(1) overreaches the power given to the SEC under the Securities Exchange Act.

Number of Pages in PDF File: 44

Keywords: 10b5-2(b)(1), 10b-5, Cuban, Insider trading, misappropriation theory, confidentiality agreement

JEL Classification: K22

Accepted Paper Series