5 things to know about the Mickelson trading probe

Federal regulators are looking into possible insider trading involving the famous golfer, corporate raider Carl Icahn and sports gambler Billy Walters.

By MSN Money Partner Jun 2, 2014 12:31PM
By Michael Rothfeld and Susan Pulliam, The Wall Street Journal

The Wall Street Journal broke the news Friday about an insider-trading investigation involving three powerful individuals in their respective realms: Carl Icahn, the once-swashbuckling corporate raider who has settled into a life of activism, trying to force change in companies or boards that he views as depriving value to stockholders; William "Billy" Walters, one of America's most successful sports bettors, who is also an accomplished amateur golfer and golf-course developer; and Phil Mickelson, a three-time Masters Tournament champion and one of the world's most popular professional golfers.

The investigation, by the Federal Bureau of Investigation and the Securities and Exchange Commission, has been going on for three years, but federal authorities have not yet made a determination if any wrongdoing has occurred, people close to the matter said.

Still, the revelation of the probe prompted Mr. Mickelson to respond to media questions during a tournament in Dublin, Ohio, Saturday, where he said he had done nothing wrong. And Mr. Icahn issued statements saying he knew of no investigation and considered the reporting of it to be irresponsible. He said he is careful to observe all legal requirements in his activities. So far, Mr. Walters has declined to comment.

While the story continues to develop, here are five things to understand about the nature of the probe:

1. What investigators are trying to determine

Agents want to know if Mr. Icahn passed along non-public information to Mr. Walters about stakes in companies he was taking and if Mr. Walters traded on that information, according to people with knowledge of the matter. They also want to know if Mr. Walters passed along any of that information to Mr. Mickelson and if Mr. Mickelson traded on it. 

Among the deals they are examining is Mr. Icahn's accumulation of a 9.1 percent stake in Clorox (CLX) in 2011. In July of that year, Mr. Icahn made a $10.2 billion investment in Clorox, which caused the stock to jump. Investigators are also looking into whether Mr. Walters passed along non-public, potentially market-moving information to Mr. Mickelson that didn't involve Mr. Icahn's investments. For example, they are looking at activity involving Mr. Mickelson's trading of stock in Dean Foods (DF), which Mr. Icahn said he never invested in.

2. What's unknown about the investigation

Quite a bit. Keep in mind, investigators were still gathering information when the probe was revealed. They had not yet decided if any wrongdoing had happened. And it isn't clear what legal theory the investigators would use to build a case against the three men, even if they determine that Mr. Icahn did tell Mr. Walters something that Mr. Walters or Mr. Mickelson acted upon. 

A discussion of potential stakes in companies by activists like Mr. Icahn is in an area of securities law that is controversial and still being explored by legal scholars. Some lawyers advise their investing clients that such leaks don't violate securities laws because they don't represent any breach of duty to keep the information secret. Others see it as potentially harming shareholders. Federal securities law does prohibit trading based on nonpublic information about tender offers that are in the works.

3. How the men are connected

Mr. Icahn told Journal reporters that he doesn't know Mr. Mickelson. But investigators are looking at what could be a chain of information, rather than a closed circle. Mr. Icahn knows Mr. Walters. Mr. Walters knows Mr. Mickelson. 

Here's how: Mr. Icahn became friends with Mr. Walters when Mr. Icahn's company owned the Stratosphere Hotel in Las Vegas from 1998 to 2008. Mr. Icahn was once an avid poker player and enjoys betting on football games. The two have spoken about stocks. In turn, Messrs. Walters and Mickelson play golf together, said people familiar with their relationship. Sometimes Mr. Walters has suggested stocks for Mr. Mickelson to consider buying, one of the people said.

4. How this has affected MickelsonFile photo of Phil Mickelson in July 2012 (© Hunter Martin/Getty Images)

Mr. Mickelson (pictured) was willing to take questions about the probe after his round of golf Saturday at the Dublin tournament. In fact, he spoke longer than PGA officials wanted. He confirmed that FBI agents approached him on Thursday, the first day of the tournament. But he did not say what they asked about, and he declined to answer several other questions about the investigation, including when he was first contacted by the FBI or whether he had made certain investments now under scrutiny. He said he has been fully cooperating with the FBI agents, and is happy to do so in the future until this gets resolved. 

When a reporter asked if he thought he could put the distraction of the investigation past him as he prepares for the U.S. Open, Mr. Mickelson said he thought he could. "I think as a player you have to be able to block out whatever's going on off the golf course and be able to focus on the golf course." He added: "Honestly I've done nothing wrong."

5. How this fits into the larger puzzle

This is part of the government's increased focus on insider trading, which has resulted in 85 convictions and guilty pleas out of 90 people charged by prosecutors in Manhattan federal court since August 2009. (None has been acquitted; five cases are pending.) Most of these cases have involved Wall Street traders, corporate executives and others in the financial world. Messrs. Icahn, Walters and Mickelson are among the highest-profile group of figures to be in the government's sights.

More from The Wall Street Journal

Tags: CLX
Jun 2, 2014 1:24PM
A rich guy involved in insider trading?? No way
Jun 2, 2014 4:36PM
Basically Wall Street and those well connected to it have done everything in their power to make sure that what should be considered insider trading, isn't anymore.They have also done everything to give every advantage to those who already have wealth while doing everything to make sure the working poor and fading Middle-Class are at a distant disadvantage. And yes the Markets are Rigged. So what else is new?

The National TV Hosts of most so-called  Big Media won't do anything nor say anything to kill the Golden Goose that they all currently benefit from. Insiders get massive Stock Options for virtual nothing while others get insider information as a added benefit. The rest of us get Empty promises.

Jun 2, 2014 4:15PM

Most of what must be known about the possible insider trading among Icahn, Walters, and Mickelson isn't stated in articles to-date. Icahn's Clorox acqusition, for instance, isn't said to be connected to anything Walters or Mickelson did or didn't do. Mickelson's trades of Dean Foods, for instance, aren't said to be connected to Icahn or Walters.


Still to drop must be not one, but both, shoes. Golf shoes? I doubt it, but one never knows, do one . . ..

Jun 2, 2014 5:58PM

There's no insider trading here.  None of these guys got specific information from Clorox that induced them to invest.  So if an "outsider" tells others that he might invest in a company and the others also invest, there's nothing illegal going on. 

 If that is being talked about is illegal then every time a broker recommends an acquisition to a client because some analysis in the brokers firm recommends the buy, that should be classified as insider trading.  Every time a friend tells you they invested in a stock and you then decided to buy that stock too, is that now going to be classified as "insider" trading?

The FBI should be spending more time looking for real criminals and less time trying to ruin the reputation of those they just don't like.

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