Interesting quote from Cuban's blog a few years ago (also noted by TC):
"I had purchased stock in Mamma.com in hope that it could be an up and coming search engine. I thought I had done some level of due diligence. Talked to the company management. Talked to some employees who worked in sales. Read the SEC Filings. I knew that they had a checkered past and had been linked to stock promoter Irving Kott, and that their law firm still handled some of Kotts business, but the CEO, Chairman, lawyers all said that things were reformed and the company was focused on its business.
Then the company did a PIPE financing. Im [sic] not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I dont [sic] want to own stock in companies that use this method of financing .
Why? Because I dont [sic] like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants.So I sold the stock."
My take is that the company was about to do some bush league shit (which is what PIPE financings often are) and he didn't like it. Because he didn't like it, he sold his shares and wasn't very secret about it. Seems reasonable to me. Regardless, I'd like to read more facts.
Unfortunately, "law" isn't always about "right" or "wrong".
Of course he is allowed to sell the stocks if he wants to. But if he knew more than the other shareholders and sold because he knew the stock would plummet, it's neither lawful nor "right".
According to the article, he knew he was not allowed to sell his stake. Maybe he was upset and was not thinking straight, but if the events happened as depicted in the article, there is no other way to describe this than "wrong".
I have trouble seeing how insider trading is "wrong", myself. Somebody bought or sold stock who was going to buy/sell at that time anyway. How did the actions of the inside trader hurt them?
Life is full of insider advantages. People profit from personal connections and information all over the place. Why should we pretend the stock market is any different? Especially considering how flimsy the charade really is. "Insider trading" is truly rampant and enforcement is an arbitrary joke.
To me this is exactly the kind of thinking that lead to the financial crisis. People selling shonky investments to people who trusted in them and justifying it the same way that you are.
I believe that the fairer and more transparent systems are the most efficient. The 'no rules' system you describe would quickly degenerate into a scamfest with far less participants and far less liquidity. Better to actually enforce the rules that exist to reduce the 'rampancy' of insider trading in my opinion.
Oh and I don't think I'll be investing in your startup.
You can't think of it like that, in the context of a single transaction. If an insider has the right to trade on their insider knowledge, they have an incentive to turn around and use their insider influence to create opportunities to benefit from that right.
What's almost as bad is how ambiguous the rules are. At one point in my life I studied for the CFA, and the Ethics section (which included Insider Trading among other things) was one of the hardest sections because everything was so cryptic and muddy.
