A MAVERICK ACHIEVES SOMETHING NOBLER THAN SIMPLE REBELLION: WHY SHARESLEUTH IS LEGAL UNDER SECTION 10(b) AND RULE 10b-5, AND WHY IT SHOULD REMAIN THAT WAY
2007; RELX Group (Netherlands); Linguagem: Inglês
ISSN
1556-5068
Autores Tópico(s)Diverse Research and Applications
ResumoTHE WHOLE WORLD LOVES A MAVERICK, AND THE WHOLE WORLD WANTS THE MAVERICK TO ACHIEVE SOMETHING NOBLER THAN SIMPLE REBELLION. - KEVIN PATTERSON In 2006, Mark Cuban, the mercurial owner of the Dallas Mavericks NBA franchise announced his most controversial venture to date: Sharesleuth.com. Controversy was nothing new to Cuban, who had propelled his technology startup, Broadcast.com through a legendary 1998 IPO, had sold it to Yahoo for $5.7 billion the following year, and had subsequently founded a number of hotly debated entrepreneurial ventures. Sharesleuth's mission was, though ambitious, fairly benign on its face: It aimed to provide independent reporting aimed at exposing securities fraud and corporate malfeasance to an online audience. Cuban hired award winning St. Louis Post-Dispatch reporter Christopher Carey to manage the website, and promised to undertake an anti-fraud, pro-investor stance as the site's foundational journalistic strategy. Cuban heralded Sharesleuth as a new model for Internet journalism, and a formidable threat to crooked executives. There was only one catch: In an effort to make the project financially viable, Cuban revealed that he would take positions in securities on the basis of malfeasance Carey uncovered prior to publication of the findings. There are a million ugly stories in the financial underground, Cuban declared. We plan on finding them and sharing and profiting from them. Within moments of the announcement those listening carefully might have heard a curious sound: The voices of many a securities lawyer, financial journalist and market analyst asking in relative unison - Can he do that?This piece will examine the legality of Cuban's Sharesleuth venture, and will endeavor to demonstrate that Cuban has not engaged in any illegal activity. The first part of this article briefly describes the Sharesleuth business model, its publications to date, the contemporary legal standards for insider trading through an analysis of the doctrinal development of Section 10(b) and Rule 10b-5 under the Securities Exchange Act of 1934, and the arguments cited by Sharesleuth's critics. In the second part, the article explains why Sharesleuth's business model is legal on the basis of the Court's historical application of Section 10(b) and Rule 10b-5, and concludes that Sharesleuth does not constitute stock manipulation, does not contain misrepresentation or omission, and does not contain findings that qualify as material, nonpublic information. The third part examines whether the government can prohibit Sharesleuth's behavior, and concludes that it cannot. The final part examines whether the SEC should regulate Sharesleuth in light of market efficiency considerations, and concludes that it should not.The analysis offers a novel look at the intersection of insider trading law and for-profit online journalism, with an eye toward market efficiency. While much has been written about Cuban and Sharesleuth in the Blogosphere, this will be the first treatment of the issue in a scholarly forum. In addition to the attention this analysis pays to an interesting contemporary issue that may be either litigated or legislated against in the future, its broader significance in light of public interest surrounding corporate malfeasance cases makes it especially timely.
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