A mulligan among friendly golfers is a do over or penalty free replay of a bad shot. Weekend duffers in friendly matches give each other do-overs from time to time.
Pros like Phil Mickelson, however, do not get mulligans. It’s an unfair advantage which is not legal under the strict rules of golf.
Likewise, the pros on Wall Street have to play by the rules. No mulligans on the Street.
But that doesn’t mean that Wall Street traders and their celebrity pals don’t try to sneak a free, illegal shot now and again.
Just ask SAC Capital traders Michael Steinberg or Mathew Martoma, both of whom are heading to prison for their transgressions. Indeed, trading stocks while in the possession of material non-public information, known commonly as insider trading, is a crime. Steinberg and Martoma were guilty of such fraud.
Now, the FBI is investigating whether Mickelson, three-time winner of pro golf’s prestigious Masters tournament and a fan favorite, engaged in illegal insider trading, according to a report over the weekend in the Wall Street Journal.
It’s a story of money, power and celebrity, commingling in a way that shows, yet again, the Wall Street game is rigged in favor of the big guy. Move over, Mom and Pop. The bigwigs are playing by their own rules, whispering sweet stock tips to each other as they prepare to tee off for a round of golf at an exclusive country club.
The FBI, along with the Securities and Exchange Commission, “are examining whether Mickelson and (Las Vegas gambler) Billy Walters traded illicitly on nonpublic information from (activist investor) Carl Icahn about his investments in public companies, people briefed in the probe said,” according to the Journal.
According to multiple reports, Mickelson has denied any wrongdoing just as Martha Stewart did when questioned about her trading of ImClone stock. Stars like Mickelson and Stewart may feel entitled to the friendly stock tips their exalted status brings them, however, they are not above the law.
Phil’s golfing buddy Walters made a fortune betting on sports and just so happens to be buddies with activist investor Ichan. The strategy for the activist investor is to take a large position in a publicly traded company’s stock and put public pressure on the company’s management. Ideally, such activist investors are supposed to put management’s feet to the fire in order to improve the company’s stock price and benefit shareholders.
Sounds good on paper, but in reality activist investors often generate publicity to benefit themselves. “Investigators are focusing on potentially abusive practices among such activists, including whether they are leaking information about their stakes before making public disclosures,” according to the Journal.
The Feds are focusing on Icahn’s 2011 bid for Clorox that sent the share price soaring, according to the Journal. The stock price tanked later that year after Ichan sold his shares.
The Feds are looking to see whether Ichan tipped off Walters to his bid, who in turn tipped off Mickelson, who traded with advance knowledge of Ichan’s bid. “Sometimes, Walters has suggested stocks for Mickelson to consider buying,” according to the Journal. “On Wall Street, rumors had swirled that word leaked out ahead of Icahn’s Clorox bid. Large, highly risky trades had been made in Clorox options four days before his bid.”
The legalities here are murky. In order to prove insider trading, the feds need to show a breach or violation of the duty to keep the information secret. The Feds, however, are up to the task and have a stellar insider trading record obtaining 85 convictions and guilty pleas in 90 cases in the last five years.
Mickelson makes over $60 million a year and surely didn’t need the money from the alleged Clorox trade. One thing is for sure, this story shows the little guy stock trader and amateur golfer that the money game is rigged. On Wall Street, the little guy will never get a mulligan.
Zamansky LLC are investment and stock fraud attorneys representing investors in federal and state litigation and arbitration against financial institutions.