The Securities and Exchange Commission settled charges against Phil Mickelson, a professional golfer, for trading and making profits on non-public information regarding a publicly traded company he received from an individual to whom he owed money at the time. The individual, William Walters, is a professional sports gambler, said the SEC. According to the agency, on multiple occasions from 2008 through 2012, Mr. Walters received “highly-confidential” non-public information regarding Dean Foods, a publicly traded company, from Thomas Davis, a director of the company. During the relevant time, Mr. Davis also provided Mr. Walters confidential information he obtained about another publicly traded company, Darden Restaurants, Inc., too. The SEC claimed that, during the relevant time, Mr. Davis had significant financial problems. The SEC charged that Mr. Walters helped Mr. Davis with his financial problems, by providing him almost US $1 million, in return for the insider-trading tips. Mr. Walters passed along to Mr. Mickelson some of the trading tips on Dean Foods, claimed the SEC. While the SEC charged Mr. Walters and Mr. Davis with illegal insider trading under applicable law and SEC rule, Mr. Michelson solely was charged with being “unjustly enriched” for trading on the insider tips he received from Mr. Walters. To resolve his charges by the SEC, Mr. Mickelson, without admitting or denying any of the SEC’s allegations, agreed to disgorge almost US $932,000—his trading profits from the insider tips—and interest. The SEC seeks disgorgement of profits, a fine and other relief against Mr. Walters and Mr. Davis. Separately, the US Attorneys’ Office in New York City filed criminal charges emanating from the same alleged facts against Mr. Walters and Mr. Davis. Mr. Davis pled guilty and admitted to his participation in the alleged illegal scheme.
Legal Weeds: Fascinatingly, the SEC cited no statutory or rule basis for its charge in its complaint against Mr. Mickelson that he was unjustly enriched for receiving and trading on insider tips provided by Mr. Walters. Moreover, Mr. Mickelson was not charged in the related criminal action against Mr. Walters and Mr. Davis at all. This is clearly a fall-out from the 2014 Todd Newman decision where a federal appeals court in New York set aside Anthony Chiasson’s and Mr. Newman’s criminal conviction for insider trading on, among other grounds, the US government’s failure to demonstrate their knowledge that they were trading on impermissibly obtained confidential information. (Click here for a discussion of the Newman decision in the article, “Appeals Court Sets Aside Insider Trading Convictions Saying Traders Distance From Corporate Insiders Too Far” in the December 14, 2014 edition of Bridging the Week.)