Posted on 05/19/2016 5:44:38 PM PDT by george76
Late in July 2012, Phil Mickelson, one of the world's most famous golfers, received a phone call from a well-known professional sports gambler, William "Billy" Walters.
At the time, U.S. authorities say, Mickelson owed Walters a gambling debt, and Walters had a hot stock tip: buy shares in the food company Dean Foods Co.
Four days later, Mickelson owned $2.4 million worth of Dean Foods shares, according to the U.S. Securities and Exchange Commission. A few weeks after that, he reaped a $931,000 profit when the company announced a spinoff that sent its share price soaring. Mickelson then paid off his debt to Walters.
On Thursday, U.S. authorities said Mickelson agreed to turn over more than $1 million in profits and interest as part of an insider trading case brought against Walters and the former CEO of Dean Foods, Thomas Davis.
"Simply put, Mickelson made money that wasn't his to make," Andrew Ceresney, the SEC's enforcement chief,
...
It is unclear whether Mickelson benefited from an appellate court ruling in 2014 that limited the ability of authorities to bring insider trading charges against individuals who get inside information second- or third-hand, rather than directly from a corporate insider.
...
The SEC said Mickelson had placed bets with Walters both before and after July 2012, when the gambler called Mickelson with his Dean Foods tip.
Walters and Davis, the former Dean Foods CEO, engaged in a years-long scheme to trade in the food company's stock ahead of major corporate announcements, according to federal authorities. Davis already has pleaded guilty.
The $2.4 million position that Mickelson took in Dean Foods using three brokerage accounts dwarfed his other investment holdings in those accounts, which together amounted to less than $250,000, the SEC said.
(Excerpt) Read more at reuters.com ...
No problem when Congress members do this every day, though.
What exactly is insider trading?
This is what I can tell you about insider trading, what I learned having worked at a publicly traded pharmaceutical company in the Finance department in the late 90’s through the early 2000’s. Because of my job and the sensitive financial information that I would be often be privy to, when I was hired I had to take a two-day class on insider trading and an annual refresher course each year I worked there.
You casually overhearing two guys talking in an elevator about a big stock split next week and you buying that stock based only on that information, if you didn’t know them and they didn’t purposely give you that information, you just overheard, that most likely will not get you into trouble but that is still technically illegal and could make you guilty of insider trading if your trades were unusually high, caught the attention of the SEC and could be definitively traced back to the two “insiders” in the elevator.
Stock broker recommendations are not considered “insider trading” IF they are based on market research and publically available information.
A company guy tells another guy, who tells another guy, who tells another guy, who tells you. Is that insider training?
Yes. It may be harder to prove the more degrees of separation there is, but it is still insider trading if the trading was based on use of “material information” that is undisclosed, not yet made public. And “material” and “not yet publically disclosed” are the key phrases.
When a company “insider” - whether that insider is a high level company executive or a low level accounting drone like I was, is privy to information that could and likely will affect the stock price – up or down – before that information is made available to the general public, i.e. via quarterly SEC filings, company PR releases, publically published quarterly earnings reports and conference calls, information such as on mergers or acquisitions or for a Pharma – the outcomes of clinical trials and FDA approvals or denials on a new drug, again, before becoming public knowledge and that information is passed on to others and to others and so on, on the basis of being “inside” information, i.e. not yet know to the public and stocks are purchased or sold for a profit on that basis, yes - that is “insider trading”. And everyone involved, whether they traded and profited or not or just passed on the information to others, can be prosecuted for insider trading.
After my first SEC insider trading training, it scared me enough that I basically learned to keep my mouth shut, not even telling my husband about things happing in at work or with the company until that information was made public. There were many times my husband would ask me “how was work today” and my answer was often limited to “OK” or on things like what I and a co-worker had for lunch.
FWIW, employees of this company were given company stock as part of our annual bonuses and we also had an employee stock purchase plan (which I administered from the payroll side) and of course we could as private citizens purchase and trade in our company’s stock through an outside broker.
However, there were times when employees were subject to a trading blackout – we were not allowed to purchase or sell any company stock for a period of time – this was usually just prior to either positive or negative financial information being publically released and was overseen and enforced by our inside council and according to SEC rules. And all company employees, including non-employees who were on the BOD’s – all their trading activity on our company’s stock had to be reported to the SEC.
So for example, let’s say I am aware of an FDA approval for a new drug or I am privy to a downsizing that will result in a layoff of 20% of our workforce (both being the types of things I knew about in advance because of my job) and I go home and tell my husband before this becomes public knowledge and he sells or buys stock for a profit on that basis – we are both could be guilty of insider trading.
Now let’s say I tell my husband and he doesn’t trade on our stock but he tells his best friend about the “inside” information that I told him about and that friend sells or buys stock for a profit on that basis, my husband may not be found guilty of insider trading but his friend and I could be even though I didn’t say anything directly to my husband’s friend.
Or another scenario is that I tell my husband before this becomes public knowledge and he tells his boss about it and his boss sells or buys stock for a profit on that basis and then he gives my husband a cash bonus as a reward – all three of us could be in big trouble.
Or in the Phil Mickelson case- his bookie is privy to insider information from an insider who like Phil also has a big gambling debt and both the bookie and Phil make huge and unusual trades that result a profit and that in Phil’s case, is allegedly in turn used to pay off his gambling debts – that’s what got Mickelson in trouble. Once the SEC started investigating Walters and Davis they looked at all unusual stock trades and made the connection Mickelson had to Walters.
IMO, Mickelson who BTW is not facing criminal prosecution but as a "relief defendant" in the SEC's civil complaint – just having to pay back with interest, his profits on the trades, he got off very easy in thanks to some recent court rulings that has made it harder to prove insider trading.
Mickelson is not facing criminal prosecution because he hired the well connected, former White House counsel, lawyer for Castro, Ted Kennedy .. Gregory Craig.
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