When big things happen, sometimes there are a lot of moving parts that compel a lot of questions. At those times, we here at Golf News Net answer those questions in our FAQ. In this FAQ, we discuss what insider trading is and what is has to do with Phil Mickelson.
What is ‘insider trading’?
In simple terms, insider trading constitutes the buying and selling of publicly traded equities based on non-public information that, if made public, would impact the trading price of said equity. Basically, insider trading is trying to make money using information other traders don’t yet have.
Why is Phil Mickelson being investigated by the FBI and Securities and Exchange Commission?
Mickelson is being investigated as part of a probe into potential insider trading surrounding two stocks: Clorox and Dean Foods.
In the Clorox case, the FBI and SEC are trying to discover if Mickelson used insider information passed along to him by Las Vegas sports-betting magnate and golf-course owner Billy Walters to profit. Walters, who plays golf with Mickelson, may have received info directly from activist investor Carl Icahn concerning his July 2011 attempted (and eventually failed) takeover bid for Clorox. The bid, originally $76.50 per share, brought about a big jolt in the share price.
As it relates to Dean Foods, Icahn is not involved. However, Walters and Mickelson are being investigated for the timing of trades in early August 2012 in the company. Dean Foods announced stronger-than-expected earnings on Aug. 7, 2012, as well as a public offering for a company subsidiary, that sent the stock prize soaring.
How would the feds know if Mickelson received this info from Walters on either stock?
The FBI and SEC are trying to glean from phone records and other communications if this information was shared.
If this information was shared, is it definitely ‘insider trading’?
Not necessarily, especially in the case of Clorox, for several reasons:
- Icahn’s takeover bid for Clorox ultimately failed, with the bid potentially based on algorithmic valuation of the share price and not confidential information shared with him by Clorox
- Icahn was not on the Clorox board (as he typically is), so he did not have a duty of confidentiality
- Icahn may not have duty of confidentiality to his own investors, meaning he could share that information freely
- SEC rules guiding information about unsolicited, private takeover bids is vague
Will Phil Mickelson be charged with insider trading?
It’s unclear right now. This information would not be made public were it not for sources at the agencies, meaning they wanted the information to be made known. Since August 2009, Manhattan U.S. Attorney Preet Bharara’s office, which is involved in this investigation, has convicted 81 people of insider trading with no acquittals, according to Reuters.