Friday, November 22, 2013

Securities and Exchange Commission v. Cuban case brief

Securities and Exchange Commission v. Cuban case brief summary
634 F.Supp.2d 713 (2009)


CASE SYNOPSIS
Plaintiff Securities and Exchange Commission (SEC) sued under, inter alia, § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The SEC alleged insider trading against defendant under the misappropriation theory. Defendant moved to dismiss the complaint under Fed. R. Civ. P. 12(b)(6).

CASE FACTS
The SEC alleged that, after defendant agreed to maintain the confidentiality of material, nonpublic information concerning a planned private investment in public equity (PIPE) offering by a certain company he sold his stock in the company without first disclosing to the company that he intended to trade on this information, thereby avoiding substantial losses when the stock price declined after the PIPE was publicly announced.

ISSUE
Whether the SEC adequately alleged that defendant undertook a duty of non-use of information required to establish liability under the misappropriation theory of insider trading.

DISCUSSION

  • The court granted defendant's motion to dismiss. 
  • The court held that, because the SEC failed to allege that defendant undertook a duty to refrain from trading on information about the impending PIPE offering, and because the SEC could not rely on the duty imposed by 17 C.F.R. § 10b5-2(b)(1) alone, defendant could not be held liable under the misappropriation theory of insider trading liability, even accepting all well-pleaded facts as true and viewing them in the light most favorable to the SEC.
CONCLUSION
Defendant's motion to dismiss was granted. The SEC was given permission to replead.

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