SEC Cracks Down on the Golf Course

Aug 26th 2014
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Summer is a time for kicking back and playing a few round of golf with friends, for example. But if you're on the green, you'd better be careful: The SEC may be looking over your shoulder.

In July, the SEC announced that it had "charged a group of friends, most of them golfing buddies, who made more than $554,000 of illegal profits from trading on inside information about Massachusetts-based American Superconductor Corporation", according to a release. The SEC alleged that Eric McPhail obtained confidential information from an American Superconductor executive who was a close friend and fellow country club member. McPhail then shared that information with his golfing buddies, who are accused of profiting from the information McPhail passed on to them.

This led the SEC to emphasize that insider trading is insider trading; it doesn't have to take place on dark streets between men in trench coats to be illegal. Paul G. Levenson, director of the SEC's Boston Regional Office, said in the release that "whether the tips are passed on the golf course, in a bar, or elsewhere, the SEC will continue to track down those who seek an unfair advantage trading stocks."

That was not a one-time problem. A few days ago, the SEC announced another golf-related insider trading case, again in Massachusetts. According to the release, Patrick O'Neill, then a senior vice president at Eastern Bank, learned that his employer was planning to acquire Wainwright Bank & Trust Company. O'Neill tipped Robert H. Bray",a fellow golfer with whom he socialized at a local country club." Bray profited for this inside knowledge, according to the SEC, making almost $300,000 in illicit profits.

Again, Levenson had to stress that "country clubs or similar venues may give people a false sense of security that leads them to think they can get away with trading on unlawful stock tips."

Fortune magazine dug down and found some more details about just how brazenly the alleged culprits behaved. According to SEC documents, says the article, McPhail closed out an email describing a tip by noting he expected to be rewarded: "I like Pinot Noir and love steak . . . looking forward to getting paid back…Good Luck . . . SHHHHHHHHHHHHHH!!!!!!!!!!!!!!"

In an article about the O'Neill case, Fortune reported that the government is emphasizing the close social ties between O'Neill and Bray: "they were both golfers and members of the same local country club and they socialized at the country club's bar." Fortune also notes that the government is saying that "Bray's construction company at one point paid O'Neill's then college-aged son to create a computer rendering of a townhouse that the company later built."

However, the biggest golf-related case may have turned out to be nothing. Rumors were flying earlier this year that famed golfer Phil Mickelson was involved in an insider trading case regarding the purchase of Clorox stock. However, a subsequent New York Times article made it clear that the rumors were not true, and that the SEC and FBI "have found no evidence that Mr. Mickelson traded Clorox shares."

At least Mickelson knows where to go for accounting advice: He's sponsored by KPMG, and is frequently photographed wearing a hat with the firm's logo.


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