In a unique and high-profile case, the U.S. Securities and Exchange Commission recently named golfing great Phil Mickelson in an official complaint on a case involving insider trading.
The SEC accused Mickelson of profiting from insider knowledge of company moves involving Dean Foods – knowledge the three-time Masters winner spun to a $1 million profit only a week after receiving the stock tip, the SEC reports. Mickelson received the tip from William Walters, a professional gambler.
Mickelson’s attorney has said all the money made on trade would be returned.
The story received national prominence at a time when The SEC’s Division of Enforcement is ramping up efforts to hold individuals engaged in insider trading more accountable.
“Insider trading is a high priority for the SEC,” notes Andrew Ceresney, the SEC’s enforcement director, in a public statement. “Over the last six years, we have charged more than 650 defendants in civil insider trading cases.”
For financial advisors, the takeaway from the Mickelson case is caution, as the SEC aggressively monitors the financial industry for signs of insider trading.
Industry professionals say that, yes, caution should be a top priority – but their investment models matter, too.
“From a financial advisor’s perspective, this one is pretty easy,” says Mark Carruthers, a certified financial planner based in Congers, N.Y. “Clients should stick with asset allocation and thus ETFs or mutual funds – that alleviates any insider trading concerns.”
Even financial industry professionals who may be tempted to discuss insider dealings with clients, or who do so inadvertently, should know that Uncle Sam has really ratcheted up efforts to snare insider traders.
“No one should act on, or share insider information with anyone outside of a trusted working group,” notes Alexander Zervakos, chief executive officer of Securex Filings in Colorado.
“The SEC and stock exchanges have departments using sophisticated monitoring tools to identify unusual activity. While typically only the biggest insider trading cases or those with the high profile names are discussed in mainstream media, there are almost weekly press releases from the SEC announcing new charges or settlements.”
“The chance of getting caught acting on insider information is highly likely and not worth the potential profits,” Zervakos adds.
Other industry experts say advisors can take matters one big step further and help their clients protect themselves from any insider trading investigations – and protect themselves, too.
“Anytime a client acts inconsistently with his historical investment profile, his or her advisor should inquire who recommended the transaction and what due diligence has the client performed on its rationale,” says Peter Anderson, a partner at Sutherland Asbill & Brennan. “Based on the responses, the advisor may decide to decline to handle the transaction.”
Financial advisors who take risks like Mickelson and Walters should know better. As far as the SEC is concerned, where there’s smoke, there’s fire – and things can heat up quickly if industry insiders are playing fast and loose with inside information.
Brian O’Connell is a former Wall Street bond trader and author of the best-selling books, such as The 401k Millionaire. He’s a regular contributor to major media business platforms. He resides in Doylestown, Pa. Brian may be reached at firstname.lastname@example.org.
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