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Can Cuban Do That?

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Can Mark Cuban really trade stocks based on advanced knowledge of stories that will be published on, the blog he is funding that will focus on exposing corporate fraud?
Cuban says that he will use the information gathered by investigators for Sharesleuth to buy and sell stocks before the stories are published. Presumably he would seek to profit by short-selling stocks of companies where his investigators have uncovered wrong-doing, expecting the stock price to fall after the wrong-doing is exposed to the public.
But wait a minute! Isn’t that insider-trading or something? Can journalists trade on their stories in advance of publication?
DealBreaker’s exclusive analysis after the jump.

Some of the most famous cases of insider trading have involved trading on pre-publication information from the business press. In 1985 a young Wall Street Journal writer named Foster Winans was convicted of leaking advance information the would appear in his ''Heard on the Street'' column to a stockbroker at Kidder, Peabody & Company. The recent arrests of Eugene Plotkin, David David Pajcin, Stanislav Shpigelman stemmed in part from an alleged scheme to get advanced knowledge of Business Week’s reporting.
So won’t Cuban run into trouble if he trades on his insider knowledge of what will appear on Sharesleuth? Maybe not. The case against Winans rested on a somewhat complex theory of insider trading that may not apply to Cuban.
The most basic type of insider trading involves someone inside a public company trading stocks based on information that is has not been made public. The head of a pharmaceuticals R&D division selling stock in his company stock after he discovers that the company’s latest super-drug also makes patients grow rabbit ears, for example.
Now Winans didn’t work for the companies whose shares the brokers he leaked to traded. He worked for the Wall Street Journal. He wasn’t a classic “insider” at all. So how can you be an insider-trader when you are not really an insider?
To get Winans the prosecution relied on a theory called “misappropriation”—they said his broker friends were trading on information Winans had a duty to keep confidential. Who did he have the duty to? It turns out he had a duty to his employer, the Wall Street Journal, to keep information in his column confidential until publication. Trading on that information was misappropriation.
But Cuban will own Sharesleuth, and he can set the rules up anyway he wants them. He cannot violate a duty of confidentiality to his own enterprise if he never makes a rule requiring such confidentiality. And since he’s already said he plans to trade on the information, we can be pretty confident there is no such rule. With out a duty of confidentiality, there can’t be a Winans style case against Cuban.
So Cuban’s in the clear, right? Not so fast. There’s more than one way to fillet a fish. Next week we’ll continue our examination of Cuban’s controversial plan.