Insider Trading Investigation, or Political Revenge?

The SEC and FBI are investigating Carl Icahn, golfer Phil Mickelson and Las Vegas bettor Billy Walters in what is described as an insider trading probe. Icahn made a bid to take over Clorox in 2011, and Walters and Mickelson apparently made money investing in Clorox shares at around that time. The question under investigation is whether Walters and Mickelson got nonpublic information from Icahn about his intentions with regard to Clorox. As I understand it, Walters and Mickelson are friends, while Icahn says he has met Walters, but has never met Mickelson.

I know nothing about the merits of the case. It is possible that some or all of those under investigation violated securities laws. On the other hand, this could well be another instance of the Obama administration using federal agencies to harass the president’s political opponents. It is a curious fact that all three of the targets of the investigation have been outspoken critics of President Obama or of Democrats generally.

During the 2008 presidential campaign, Icahn said that Obama “would be a terrible president,” because “I don’t think Obama really understands economics.” That turned out to be an understatement. While Icahn has expressed disenchantment with Republicans more recently, his contributions have historically tilted heavily toward Republicans.

In 2013, Billy Walters contributed $100,000 to the Congressional Leadership Fund, a GOP super pac.

And in January 2013, Mickelson complained about high federal and state taxes, and suggested that he may need to move out of California because of high tax rates there. This was viewed as a public relations blunder, and the golfer later apologized. (For what? Beats me.) But he is nevertheless remembered by many as an outspoken critic of excessive taxation.

Could the current Obama administration investigation be intended to deter other figures in the world of sports and entertainment from making statements inconsistent with Democratic Party narratives? And to punish high-profile individuals who have contributed to Republican candidates? We don’t yet know. Perhaps the accusations will turn out to be well-founded. But the case, given what we know about the Obama administration’s misuse of federal agencies to attack the president’s critics, merits close attention.

One more thing: insider trading is a form of cronyism. At one time, it was considered entirely appropriate. Why would you invest in the stock market, some said, unless you know something that other people don’t? Insider trading was made illegal by the Supreme Court in the Texas Gulf Sulphur case, decided in 1966. The court held that trading on the basis of material, non-public information violates the SEC’s Rule 10(b)(5), which broadly prohibits fraud in connection with securities transactions. (When we got to the Texas Gulf Sulphur case in my second-year Corporations class, our professor said, “Now pay close attention. This case is going to make you a million dollars.”)

In contrast, cronyism in the public sector, far from being illegal, is alive and well. Many, many contributors to the Democratic Party have subsequently made millions, if not billions, on government contracts, “green” energy projects and the like. But these fraudsters, who use their political connections to enrich themselves at the expense of the public, go entirely unpunished, as they have committed no crime. Just ask Harry Reid.


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