U.S. District Judge Sidney A. Fitzwater heard argument today on Mark Cuban’s motion to dismiss the Securities and Exchange Commission’s insider trading lawsuit against him, but did not issue a ruling. As previously discussed here, the SEC alleges that on a phone call with the CEO of Mamma.com, Cuban agreed to keep any information he received about an upcoming PIPE offering confidential and, by doing so, entered into a fiduciary relationship of trust and confidence with Mamma.com as required for insider trading liability. Cuban later sold his shares of Mamma.com in violation of this duty, the SEC alleges.
In his motion to dismiss, Cuban argues that:
- No court has ever held that a confidentiality agreement alone creates a fiduciary or fiduciary-like duty to act loyally to the source of the information.
- The SEC has failed to allege any facts supporting the notion that a fiduciary or similar relationship of trust and confidence existed between Mr. Cuban and Mamma.com under Texas law.
- Even under “federal common law,” the SEC has still failed to adequately plead the existence of the requisite relationship. He states that no federal court has found that a single phone call can create the necessary pre-existing relationship and that that the only case with a similar alleged fact pattern – United States v. Cassese – expressly rejected the idea.
The AP reports that Cuban attended the hearing, “sporting a black suit rather than his usual T-shirt and jeans,” and sat quietly in the front row of the court gallery throughout the proceeding.