I was stunned to see the article in my local Pittsburgh Post-Gazette, SEC charges Mark Cuban with insider trading. Although Mark Cuban is probably best known for his high-profile ownership of the NBA Dallas Mavericks, he is also a Pittsburgh native who has had some Pittsburgh Pirates fans dreaming of him to someday buy the team and use his vast wealth to turn that sorry team around.
One part of the article really raised some questions in my mind.
But the biggest question and what makes this all so stunning is: Why would somebody so incredibly wealthy take a chance of going to prison over trying to keep from losing (for him) such a paltry sum of money?
OK, we’re talking about $750,000 dollars which is more than many have made in their entire lifetimes. But Cuban’s net worth is said to be over 2 billion dollars. Keeping in mind that a billion dollars is 1,000 million dollars, it is clear that the amount of money in question is a small fraction of 1% of his net worth.
Would anybody be foolish enough to risk a prison sentence for that? For now, we must presume Cuban to be innocent until proven guilty. But what about Martha Stewart with an estimated worth of over $600 million who was convicted of a similar crime centering on insider trading?
The laws around insider trading are actually quite complicated. For those wishing to learn more, check out this article in Wikipedia.
Most surprisingly for me, I learned from the article that there are those who have made arguments for legalizing inside trading. It has been argued by some that inside trading is beneficial in that it makes the markets more efficient. Others argue that it is a victimless crime since both the seller and buyer are entering into a transaction voluntarily. In fact, it is the US that enforces insider trading laws far more stringently than many other countries.
While large investors with their resources inevitably have some advantages over smaller investors, one of the hallmarks of the US stock markets is their regulations that do their best to keep all investors on as level a playing field as possible. The stock market is more than just a place for high-flyers to make their millions. It is also a place for the average person to invest his or her savings for things like college tuition or a secure retirement that are a part of the American Dream. The advantage that those on the inside gain from trading stocks is offset by the losses of those on the outside that don’t have the system rigged in their favor.
While there’s always the slim possibility that the janitor may stumble onto inside company information while cleaning out the trash cans, in the real world the people with the access to the beneficial inside information are the rich and powerful in the corporate boardroom along with those who are rich and powerful enough to have connections to them. For these people to try and take advantage of inside trading to make even more money is little more than outright greed. Let’s face it, the rich and powerful have enough legal advantages over the rest of us. We certainly don’t need to add any illegal ones!
One part of the article really raised some questions in my mind.
During a phone call that lasted almost nine minutes, according to the complaint, he promised to keep the information about the stock sale private but then "became very upset and angry" and said, "Well, now I'm screwed. I can't sell."Other than his broker ratting on Cuban which would be hard to believe, how can the SEC know so much detail about a particular phone call unless they were tapping his phone? And if they were tapping his phone, what were the reasons for doing it? The answers should make for an interesting trial for the media to follow.
He later called his broker and told him to sell all his holdings in the company, the complaint said. At the time of the sale Mr. Cuban owned a 6.3 percent stake, which made him the company's largest-known shareholder.
"Sell what you can tonight and just get me out the next day," he said, according to the complaint.
But the biggest question and what makes this all so stunning is: Why would somebody so incredibly wealthy take a chance of going to prison over trying to keep from losing (for him) such a paltry sum of money?
OK, we’re talking about $750,000 dollars which is more than many have made in their entire lifetimes. But Cuban’s net worth is said to be over 2 billion dollars. Keeping in mind that a billion dollars is 1,000 million dollars, it is clear that the amount of money in question is a small fraction of 1% of his net worth.
Would anybody be foolish enough to risk a prison sentence for that? For now, we must presume Cuban to be innocent until proven guilty. But what about Martha Stewart with an estimated worth of over $600 million who was convicted of a similar crime centering on insider trading?
According to U.S. Securities and Exchange Commission in a federal indictment, Stewart avoided a loss of $45,673 by selling all 3,928 shares of her ImClone stock in late 2001. The day following her sale, the stock value fell 18%.It’s hard not to wonder what Stewart and Cuban (if he is found guilty) were thinking of. Moral values aside, when large amounts of a particular stock are bought or sold by individuals right before a major company announcement that affects the price of the stock, this immediately raises a giant red flag to the SEC for them to investigate. Could they be like other people in these positions with such giant egos that they didn’t think they could ever be caught?
The laws around insider trading are actually quite complicated. For those wishing to learn more, check out this article in Wikipedia.
Most surprisingly for me, I learned from the article that there are those who have made arguments for legalizing inside trading. It has been argued by some that inside trading is beneficial in that it makes the markets more efficient. Others argue that it is a victimless crime since both the seller and buyer are entering into a transaction voluntarily. In fact, it is the US that enforces insider trading laws far more stringently than many other countries.
While large investors with their resources inevitably have some advantages over smaller investors, one of the hallmarks of the US stock markets is their regulations that do their best to keep all investors on as level a playing field as possible. The stock market is more than just a place for high-flyers to make their millions. It is also a place for the average person to invest his or her savings for things like college tuition or a secure retirement that are a part of the American Dream. The advantage that those on the inside gain from trading stocks is offset by the losses of those on the outside that don’t have the system rigged in their favor.
While there’s always the slim possibility that the janitor may stumble onto inside company information while cleaning out the trash cans, in the real world the people with the access to the beneficial inside information are the rich and powerful in the corporate boardroom along with those who are rich and powerful enough to have connections to them. For these people to try and take advantage of inside trading to make even more money is little more than outright greed. Let’s face it, the rich and powerful have enough legal advantages over the rest of us. We certainly don’t need to add any illegal ones!
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