Insider Puzzle: Cuban Faces Fine, But Martha Stewart Got Prison


With Dallas Mavericks owner Mark Cuban facing civil insider-trading charges, is wondering what it takes for securities fraud to become a crime. The short answer: It depends on the prosecutor. The SEC does not have authority to bring criminal charges — it can only refer allegations to law enforcement. Then prosecutors decide whether to pursue a criminal case. Prosecutors can be swayed by how egregious the allegations are or how much money is involved.

And they are more likely to target people who should have known they were breaking the law. People like Martha Stewart: a former stock broker, director of the New York Stock Exchange and one-time resident of the Alderson Federal Prison Camp for women. (In Stewart’s 2004 insider-trading criminal case, a judge dismissed securities-fraud charges against her, but a jury convicted her of obstruction of justice.) Because of its high-profile status, Stewart’s case is precisely the type that the SEC refers for criminal prosecution. “The SEC pushes criminal penalties if they think it’ll get attention” and serve as a deterrent to others, Robert Brunig, the former head of the SEC’s Forth Worth trial unit told us.


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