In the Rough: Phil Mickelson Being Investigated for Insider Trading

On May 31, 2014, the Wall Street Journal reported that PGA superstar Phil Mickelson was being investigated by the FBI and SEC for violating insider-trading laws. Mickelson is being investigated along with activist shareholder and investor Carl Icahn, and gambler Billy Walters. At this point in time, Mickelson, Icahn and Walters are not facing charges. Mickelson has stated he has “done absolutely nothing wrong” and that he is cooperating with the investigation. While it is unfortunately common for athletes to be under investigation by authorities for various felonies, insider-trading allegations against professional athletes are exceedingly rare, and many sports fans are probably asking, “what is insider trading?”

What is “Insider-Trading”

Mickelson2

Insider trading is a term that refers to both legal and illegal conduct. Legal insider trading occurs when an insider (such as certain employees and company executives) in a publicly traded company buys or sells the stock in that company while following the reporting rules of the SEC. Insider trading is illegal when a stock (or other security) is traded in breach of a fiduciary or other relationship of trust or confidence while in the possession of material, nonpublic information about that stock being traded.[i] In addition, someone who has received material, non-public information (the “tippee”) can be prosecuted for insider trading if the person who passed along the material (the “tipper”) violated a fiduciary duty in passing along the information and if the tippee knew or should have known that the transfer of the information was a breach of the tipper’s fiduciary duty.

What Company did Phil Mickelson Potentially Trade On?

At this point in the reporting on the investigation, that is unclear. However, the inclusion of Carl Icahn in the investigation is interesting. Carl Icahn is best known for his work as an activist shareholder, where he purchases a sizeable portion of the a company’s stock and then uses that position to force changes in the company’s strategy or to force out the company’s executives and members of the board of directors.[ii] While an announcement that Carl Icahn is investing in a company usually leads to heartburn and sleepless nights for the company’s executives, shareholders are usually pleased by the bump in the stock price. From the Wall Street Journal report, it seems that Mickelson and Walters are being investigated for knowing what companies Icahn was going to target for purchase, rather than specific information about a certain company.

What’s Next?

First the FBI and SEC need to complete their investigation. Per the Wall Street Journal, the investigation began three years ago after Icahn attempted to buy Clorox for $10.2 billion. With the investigation becoming public now, the authorities could be coming closer to finishing their investigation and possibly pressing charges against Mickelson, Walters, or Icahn. If charges are made, then any trial is likely at least a year away.

Currently, there is no sign that Mickelson will be held out of any PGA events because of the investigation.  However, if Mickelson were to be charged with a felony or misdemeanor, the PGA Constitution, By-Laws and Regulations do allow for the PGA Board of Control to conduct their own disciplinary proceedings into the matter.[iii] Such proceedings can lead to various punishments, up to and including expulsion, regardless of the final outcome of any criminal proceedings.

 

[i] https://www.sec.gov/answers/insider.htm

[ii] http://en.wikipedia.org/wiki/Carl_Icahn

[iii] http://pdf.pgalinks.com/regmemos/2010_Constitution_1.pdf

 

Leave a Reply

Your email address will not be published. Required fields are marked *