U.S. would face hurdles bringing case against Icahn, Mickelson: lawyers

Mon Jun 2, 2014 1:14am EDT
 
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By Mica Rosenberg

NEW YORK (Reuters) - Questions about how to apply securities law to activist investors could complicate any potential insider trading case against billionaire Carl Icahn, pro-golfer Phil Mickelson and Las Vegas gambler William Walters, legal experts said.

U.S. federal investigators are looking into whether Mickelson and Walters may have traded illegally on private information provided by hedge fund manager Icahn, a source familiar with the matter said on Friday. None of the three men has been accused of any wrongdoing, the source said.

Icahn's style of investing is to aggressively buy stock with the aim of changing the direction of corporate boards, which makes him an outsider when federal insider trading laws have traditionally focused on corporate insiders, according to legal experts.

The federal probe centers on trades in Clorox Co by Walters and Mickelson as Icahn was making moves to access the company's board in 2011, the New York Times reported.

After accumulating a 9.1 percent stake in Clorox, Icahn made a bid valued at more than $10 billion to buy the consumer products company, which sent stock soaring.

Even if Icahn did leak information about his plans regarding Clorox, he may not necessarily have violated the law. Prosecutors would have to show he had breached a fiduciary or confidentiality duty by disclosing material, nonpublic information that was later traded on.

"A true quirk of insider trading rules is that the person who creates the information that's material and confidential has the freedom to use that for themselves and to authorize others to use it," said James Cox, a professor of securities law at Duke University.

"That’s part of our capitalistic spirit, that people who create the ideas should be able to exploit them,” he said, noting that this could complicate a potential government case.   Continued...

 
Carl Icahn gives an interview on FOX Business Network's Neil Cavuto show in New York February 11, 2014. REUTERS/Brendan McDermid/Files