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Insider Trading is No Game: SEC’s Increased Scrutiny of Insider Info Spread on the Links

December 18, 2014

Posted in Business Litigation, Business Start Ups, Corporate Law

The game of golf has long been associated with business owners getting together, enjoying a round or two and using the time together to work out deals. That’s all well and good when the parties stick to the rules of the game and laws that apply to business.

“Golf is becoming a recurring theme in insider trading cases,” Thomas Gorman, a former official in the Security and Exchange Commission’s (SEC) enforcement division, is quoted as saying by the Politico website, so you may want to stick to talking about that new wedge you just bought, not the fact your company may be a merger target.

The SEC recently brought two insider trading cases that center on the relationships between golfing buddies and how their chitchat turned into lucrative and illegal trading bonanzas, according to Politico.

  • One filed this summer targets seven friends who regularly played at Oakley Country Club outside of Boston. The SEC charged they made more than $554,000 through illegal trades involving information shared about American Superconductor Corporation (AMSC).
  • A similar case filed last year alleged an accountant at Big Four firm KPMG with gave stock tips to his golfing partner.

“Given the SEC’s success in finding insider trading cases in the golf world, that will give them incentive to continue pursuing investigations that involve golfers,” Robert Heim, a former enforcement attorney and assistant regional director at the SEC in New York is quoted by Politico. “I do anticipate in the next year or so we may see more cases involving golfers.”

The SEC often struggles to win insider trading cases but those cases get stronger when there is evidence of a relationship between someone who has insider knowledge and the person who made profitable trades with that information. Put those two people in the same golf cart and investigators could be well on their way to bringing charges. These cases also show how the culture of the sport, which caters to a wealthier professional class and provides plenty of time for shop talk, makes it a target for investigators.

In the case filed in July, the SEC filed insider trading charges against seven golf buddies, led by semi-professional golfer Eric McPhail. A member of Oakley Country Club in Watertown, Massachusetts, McPhail allegedly obtained valuable information from a fellow club member and executive at AMSC.

McPhail shared this information with his golfing friends and by trading on these tips before AMSC news was publicly announced, McPhail’s friends booked thousands of dollars in profits, according to court documents.

Not only was McPhail stupid enough to be involved with insider trading but he double bogeyed when he sent e-mails about it. “Nice profitable day for the boys,” McPhail wrote in a July 2009 email to his golfing friends after they made between $2,000 and $11,000 due to the insider information, the SEC alleged. “So when should I report in on which restaurant and massage parlor I want to be treated to?” he reportedly asked. If found guilty, the defendants could face up to 20 years in prison.

If you have any questions about insider trading, what kinds of actions are legal and illegal, contact my office so we can talk about your situation. If you’re under investigation for insider trading (or just think you are) or have been formally charged, I can help. Given the resources federal prosecutors have at their disposal, an insider trading charge carries heavy penalties and not something to be taken lightly. If convicted, your golfing days may be over for a very long time.