In light of the U.S. Open wrapping up this past weekend we’d like to congratulate Dustin Johnson on his first career major victory and talk about one of his competitors who was also recently in the spotlight.
Some of you may have seen in the news that Phil Mickelson got himself in a bit of a pickle with the SEC over some insider trading allegations.
So what happened exactly? Phil got a call from his investor buddy who urged him to buy shares of Dean Foods. This friend knew a board member who told him about a new spinoff that should bump up the stock price. Phil followed orders and bought 440 shares. In the subsequent weeks Dean’s price went up 40% and Phil wound up making a cool $931,000 on the trade. Sounds a little like insider trading.
It turns out that what Phil did was not actually deemed illegal by the court. Due to some court decisions favorable to wall street, you now have to know that the original tipper benefited from giving out insider information for you to get in trouble as a second hand recipient.
Wait, back up. So If someone knows a guy who knows a CEO and he just feels like giving some free insider information that’s ok? By the current precedent, kind of, but not really. Phil didn’t get to keep his earnings on the trade, but he also wasn’t charged with a crime. His investor buddy, however, did get arrested as well as the leaky board member who gave the information to square up some money he owed.
I’m personally glad Phil isn’t doing time because I really like watching him golf, but more and more some of these court decisions based on legal precedent don’t add up. This interpretation of the previous court decision basically makes a don’t ask, don’t tell scenario where connected individuals down the line can act on information as long as no one proves they knew where it came from. I guess it does protect people from those bad friends feeding them insider trading information without knowing though…
I am surprised the USGA didn’t try to get involved and hit Phil with a few penalty stokes for good measure since it’s now their favorite thing to do.
All the best,
Wesley R. Nicholson, Mike Allen and Aaron Everdyke
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