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How To Avoid Being Wiretapped: The Carl Icahn Case Study

Tyler Durden's picture




 

One thing is certain about the much discussed investigation into possible insider trading involving Carl Icahn and Phil Mickelson - it is guaranteed to go exactly nowhere and fast. Not just because it would not help the already crumbling image of "fair and efficient" markets that one of the most prominent investors of the past several decades had to resort to such illegal gimmicks, but because by the time Carl Icahn's army of lawyers is done with the SEC (assuming there even is a formal probe to begin with), the corrupt regulator (has Mary White recused herself yet?) will be left in a heap of smouldering rubble.

Reuters explained why the SEC's case is so very weak:

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.

* * *

Roland Riopelle, a former government prosecutor, said Icahn may have had a duty to his own investors to keep certain information confidential. If that duty was breached, the government could argue he violated insider trading laws, he said.

 

"It could come down to whether (Icahn's fund) had written rules that would prohibit this kind of disclosure or conduct," Riopelle said. "If they didn't have any rules, then (they) are not going to have a case." "Every case of this kind really comes down to the granular facts," he said.

 

Icahn sent a letter in July 2011 to Clorox's chairman offering to purchase the company for $76.50 a share and saying he could arrange debt financing for the deal. He later raised the bid to $80.

 

If Icahn had launched a formal tender offer, it would have triggered a different standard of disclosure rules under the SEC's 1968 Williams Act, said John Coffee, an expert in corporate governance at Columbia Law School.

* * *

 

Prosecuting Mickelson and Walters would present a different set of challenges, the experts said.

 

A case against them could hinge on a pending decision expected from the 2nd U.S. Circuit Court of Appeals that could make it harder for the government to prosecute insider trading cases.

Naturally, should the SEC determine it has a case against Icahn, it would then have to prosecute all powerful, market-moving entities that can move a market with an announcement or research report, and which either sell or give out for free advance notice that such an event is coming in the near future.

Furthermore, one must also remember that when it comes to US justice, just like the HFT-dominated markets, there are two tiers - one for everyone, and one for the uber rich. This is doubly true when one considers that Icahn is not only uber-rich but also angry, and the last thing anyone wants to see (ask Ackman) is an angry Icahn. This is what he told Bloomberg in regard to the investigation:

“We do not know of any investigation. Further, we are always very careful to observe all legal requirements in all of our activities. We believe that making inflammatory and speculative statements, especially when we’ve had an unblemished record for 50 years, is completely irresponsible on the part of the Wall Street Journal.”

Count IEP as one party that will not be renewing its WSJ subscription. Which is ironic: as the WSJ - which broke the news of the inquiry in the first place - reported, "a snag has hit the insider-trading investigation of investor Carl Icahn, golfer Phil Mickelson and sports bettor William "Billy" Walters: News of the probe derailed government efforts to secretly deploy wiretaps, which have been key components of many successful insider-trading cases."

Uhm, doesn't this mean that Icahn should be grateul to the WSJ, not accusing it of "irresponsible inflammatory statements" - without the WSJ's report, the SEC could have proceeded to tap all three implicated parties.

However, there was one specific aspect of the Icahn investigation pertaining to the possibility of wiretaps, that will likely soon become a staple when it comes to SEC inquiries into hedge fund malfeasance. From Reuters:

The investigators believed it was hard to wiretap Icahn without him finding out because he owned a stake in a telecommunications company through which surveillance might have to be conducted, the Wall Street Journal reported, citing one of its sources.

So the take home lesson is simple: want to avoid being wiretapped in some SEC probe? Just buy a telecom company.

 

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Mon, 06/02/2014 - 11:16 | 4816831 Seize Mars
Seize Mars's picture

Icahn's Teflon status has nothing to do with his paper "ownership" of telecom shares.

It has everything to do with him being..."special."

Let's just be honest about it, ok?

Mon, 06/02/2014 - 11:34 | 4816879 Relentless101
Relentless101's picture

Special! Seize Mars, I wouldn't trade with you even if you were the last person on earth!

Mon, 06/02/2014 - 11:55 | 4816981 Seize Mars
Seize Mars's picture

Huh?

Mon, 06/02/2014 - 12:43 | 4817150 Relentless101
Relentless101's picture

LOL. 

https://www.youtube.com/watch?v=hCZRk1lL90Q

At about 19:30 I think, Icahn tells Ackman in their playground fight that he wouldn't invest with him if he were the last man on earth. Point being, he is special, as in having the intellect of a child. But after reading my comment, it doesn't make much sense. Mulligan?

Mon, 06/02/2014 - 12:53 | 4817210 metastar
metastar's picture

"want to avoid being wiretapped in some SEC probe? Just buy a telecom company." ... or a government.

Mon, 06/02/2014 - 13:30 | 4817355 BlindMonkey
BlindMonkey's picture

Or a judgeship. This might be the least costly option.

Mon, 06/02/2014 - 11:40 | 4816916 ThisIsBob
ThisIsBob's picture

Perhaps he is just smarter than the bozos at the SEC.  How hard could it be?

Mon, 06/02/2014 - 13:32 | 4817363 BlindMonkey
BlindMonkey's picture

If you actually work rather than surf porn this is an automatic.

Mon, 06/02/2014 - 12:11 | 4817040 XRAYD
XRAYD's picture

A legend in how own mind, with a net worth to prove it!

Mon, 06/02/2014 - 11:18 | 4816834 QQQBall
QQQBall's picture

So if Icahn didn't have a rule against himself he didn't do anythng wrong. If he did violate a rule against himslef... does it really have to be this convuluted?

Mon, 06/02/2014 - 11:28 | 4816865 SpanishInquisition
SpanishInquisition's picture

I really don't get that either. If this is the case, how can the SEC go after the boyfriend of an administrative assistant at Disney for insider trading if he didn't even work for Disney? The same goes for Phil Mickelson and gambler in Las Vegas who weren't employees either.

Mon, 06/02/2014 - 11:18 | 4816837 Seasmoke
Seasmoke's picture

Can you hear me now bitchez ?????

Mon, 06/02/2014 - 11:24 | 4816849 SloMoe
SloMoe's picture

"...want to avoid being wiretapped in some SEC probe? Just buy a telecom company."

I guess I'm going to have to switch to T-Mobile. I can't afford to buy AT&T right now.

Mon, 06/02/2014 - 11:25 | 4816854 Jumbotron
Jumbotron's picture

"Icahn's Teflon status has nothing to do with his paper "ownership" of telecom shares.

It has everything to do with him being..."special."

Let's just be honest about it, ok?"

 

Well...true....but you have to be "special" in order to own that many shares of a telecommunications company which could afford you some protection. 

More than likely....he has a poltician or two in his backpocket with connections to the NSA either directly or through committees which could give him a heads up anytime he needs.

Mon, 06/02/2014 - 11:36 | 4816888 what's that smell
what's that smell's picture

there's a three tier system: one for the trickled-upon, one for the tricklers, and one for the uberchosenmensch.

smells like unleavened bread to me.

Mon, 06/02/2014 - 11:28 | 4816869 Vooter
Vooter's picture

Just look at that fucker's face...

Mon, 06/02/2014 - 11:55 | 4816873 NOZZLE
NOZZLE's picture

Anyone else feel that your citizenship has been rendered worthless?

1.  Unending money printing which devalues your labor.

1.1  In absolute violation of the 4th Amendment, your private telephone calls and emails intercepted, turned into searchable text, indexed catalouged and matched up with your financial information.

1.2  Credit given to deadbeats that allows them to compete with you for housing thereby driving up the price of housing to stratosheric levels.

2. A border that has a one way conveyor belt of third world trash hosing your voting rights down the sewer.

3.  An EPA that issues regulation after regulation that makes it impossible to do anything inlovling the production of energy except windmill and solar shits.

4.  Voter fraud that is condoned and encouraged instead of punished with death

5.  Markets where insiders are told when the FED is going to pump and for how long.

6.  .0000285% interest on your savings and 10% annual food inflation.

7.  Banks that are handed fiat money and told to buy all the worthless paper that was printed by companies like Westgate Resorts, as if the clowns that purchased time shares will make more than 5 payments.

8.  An assclown affirmative action president that trades 5 sociopathic killers for one looser who spat on his own country while in uniform (ya mean like Frenchsois Kerry). 

Mon, 06/02/2014 - 12:01 | 4817002 Seize Mars
Seize Mars's picture

Well, ya know, yeah.

Mon, 06/02/2014 - 13:28 | 4817334 RaceToTheBottom
RaceToTheBottom's picture

Your US citizenship has NOT been rendered useless.

 

It is still an obligation to file 10 years of tax returns even after you give it up....

 

So you got that going for you, which is nice...

Mon, 06/02/2014 - 15:00 | 4817621 Jano
Jano's picture

sorry to ask such question, am not a us citizen: what you say, with 10 years to keep some tax papers , this applies also to a person which dies and is cremated?

has the heritage keep those records?

Mon, 06/02/2014 - 17:30 | 4817920 Pure Evil
Pure Evil's picture

It really depends upon the income, whether it was a business, etc.

The general rule is 7 years look back. Now if the person died this year then the IRS can look back 7 years. If the person died over seven years ago, then the estate is free and clear.

Of course its always smart to talk to a CPA or tax accountant on these matters and not rely on anything you read on a blog.

You can always call a CPA or tax accountant on the phone and get this information. Or you can make an appointment. Sometimes these guys don't charge for the first half hour or first hour. If there's significant monies involved then you need to get professional advise if you think there's any serious problems.

If the person filing is just a W-2 worker and only claimed the standard deduction over the last 7 years, then pretty good bet no problems going forward.

It's when the tax returns become rather convoluted, meaning the filer is taking advantage of as many deductions and credits as possible, as in a business, then it becomes advantageous to save the pertinent data for as long as possible even after death.

Now if the filer ran a cash business the IRS can look back 7 years and file a claim against the estate of the deceased person for any unpaid taxes and penalties.

Which means any heirs that received proceeds from the estate would have to cough up any monies to cover the back taxes and interest penalties. But, at the same time they're not responsible to pay out more than they received.

The only other person that could be on the hook for the whole amount would be the tax return co-signer, like the spouse.

Luckily for the deceased since they're passed on they can't go to jail and neither can the heirs unless they co-signed the tax returns.

If the IRS does decide to audit the best thing to do is find tax expert that deals with IRS audits as soon as possible, especially if significant amounts of money are involved.

Mon, 06/02/2014 - 13:46 | 4817400 kchrisc
kchrisc's picture

"Anyone else feel that your citizenship has been rendered worthless?"

If you are referring to DC US "citizenship" (subjugation), no, as it is less than worthless.

If you are referring to my American citizenship, also no, as my gold, silver, steel, lead and guillotine backstop that.

Mon, 06/02/2014 - 11:42 | 4816922 JRobby
JRobby's picture

Use a satellite phone. They probably listen to those too. Who knows?

Mon, 06/02/2014 - 12:51 | 4817202 Jumbotron
Jumbotron's picture

As far as I know...sub-space frequencies are still pretty secure.

Mon, 06/02/2014 - 13:39 | 4817383 BlindMonkey
BlindMonkey's picture

Unless you tap every end of that SAT connection after decryption. Add to that that you have pushed a known and predictable randomization algorithm into open source so your compute load is lower than what it would otherwise be.

Face it: unless you are a computer superman, nothing you THINK is private.

Mon, 06/02/2014 - 12:02 | 4817006 disabledvet
disabledvet's picture

"You can indict a ham sandwich."

You don't see Carl Icahn taking to airwaves telling Mary Jo White to stick it where the sun don't shine...mmmmmkay?

This is a textbook "phishing" expedition where get accused of something and now it's "time to fess up."

The standard answer used to be "that's what I have a lawyer for"...but Eichman and Mickelsohn are blabber mouths who bet on everything...sitting ducks for a Government investigation.

Of course there is felonious activity going on...but more important is the calculation of how much pressure you can bring on these guys...and of course since "the media is their outlet" the answer is A LOT.

Already they have been forced to say something prima facie untrue...the Government already knows this...so now you get prosecuted.

The first and primary goal is the hang the two in the Court of Public Opinion...and so far they hit these two clowns right between the eyes.

Phil is the easiest target because that guy plays to the public as his job. If he's not hiring a publicist (as "Jesus Christ Superstar" I offer my services) then he has a lot more than just his golfing career at risk.

Carl is suppose to know all this already...but while he's been spot on when it comes to Apple he's a clueless dope when it come to Social Media.

This is not true when it comes to the Government since technically speaking "they don't exist."

Even I'm struggling with "the new rules" here...other than to say "tell the truth, admit to failings, think of the larger picture."

Mon, 06/02/2014 - 12:04 | 4817019 alien-IQ
alien-IQ's picture

Too Big To Wiretap?

Mon, 06/02/2014 - 12:19 | 4817025 williambanzai7
williambanzai7's picture

Icahn is special in the sense that he has survived in the hostile M&A business for close to 40 years. He has plenty of shit thrown at him by the Fortune 500 and he is no dummy. He is considered an enemy of corporate America. That is why I find the whole silly scenario very hard to believe.

Moreover, the notion that a hostile raider is a "control person" and as such has access to non-public information obtained by virtue of his status as a quasi fiduciary is a very very long shot to prove.

Good luck porn patrol!

More stupid fucking headlines from the same people who could not find a way to nail Fuld and Mozillo.

In a country where all the dealer banks are allowed to front run the Fed and Congress plays the stock market, we are supposed to believe that these insider trading fantasies by hedge funds are causing the global financial crisis.

Give us all a fucking fringe low brow break.

Mon, 06/02/2014 - 12:21 | 4817073 Say What Again
Say What Again's picture

I agree wit chu Mr. B.

And add to that the fact that the sovereign entities are in there with unlimited funds in their account to move markets in whatever direction they want for a very long time.  Do you think they might hedge their positions with a few carefully placed option on ES or YG futures prior to them starting their campaign?

Mon, 06/02/2014 - 12:26 | 4817088 williambanzai7
williambanzai7's picture

Off course they do. But for some obvious reason all of that is impervious to scrutiny.

And btw, I rather doubt that the white shoed munchkin currently chairing the SEC would ever accept an engagement from a corporate troublemaker like Icahn.

Mon, 06/02/2014 - 12:17 | 4817059 Larry Dallas
Larry Dallas's picture

What WB7 said.

Mon, 06/02/2014 - 12:17 | 4817061 centerline
centerline's picture

NSA has got this bitch.  And virtually eveyone else who matters.  Just a matter of how the game is playing out in the shadows.  Eventually it will get ugly.  Just not yet.

Mon, 06/02/2014 - 13:27 | 4817340 caustixoid
caustixoid's picture

That's it right there!  The NSA is the ultimate power in the country.  The SEC might not be able to tap Icahn's phone, but the NSA sure as hell can.   The NSA has the ultimate 'inside knowledge' if they can know every trade before it happens.   The SEC may look at porn, but if I had the NSA's ability I'd be listening to Dimon and Blankfein like a hawk, then calling my broker.  Maybe Keith Alexander has retired because his portfolio is doing pretty well?  Who the hell is going to police that???

The mob should be giving lessons at business schools on how to conduct deals: personal meetings, no cellphones, talk with your hand over your mouth.  

Mon, 06/02/2014 - 12:45 | 4817174 nosoeawe
nosoeawe's picture

Bullshit once again put out by the white house propoganda machine, which runs 24x7 right next to their counterfeiting press. The facts are Phil Mickelson is a republican and Icahn said obozo would be a horrible president in 08 and donated to romney's campaign in the last election. obozo's flacid ego just can't take it when someone of prominence sees through his burqua and imaginary red lines and goes to the other side. Obozo has already demonstrated his vile tendancy for revenge targeting United States citizens like tea party affiliates / members. he now set his sights on those w/stature while he still has time.

same propoganda machine that spun the Veterans Affair train wreck out of the news in lieu of the currently kicked to death hostage exchange

 

Mon, 06/02/2014 - 12:46 | 4817178 Captain Willard
Captain Willard's picture

Icahn is a prominent Republican campaign contributor. He famously said in 2008 that Obama would make a "terrible" President. Mickelson is a well-known supporter of conservative causes and is a very active and successful investor. I don't know anything about the Vegas gambler.

But the real surprise here is that Obama and his henchmen have taken this long to get around to messing with Icahn.

The sad truth is that the apparatus of government is used openly for political vendettas now. Of course this perhaps has been true throughout American history off and on. But Obama seems to be particularly active in this regard.

It's all about stifling dissent.   

Tue, 06/03/2014 - 19:30 | 4821551 MeelionDollerBogus
MeelionDollerBogus's picture

Is it? I thought it was stifling the law.
Stifling dissent is the job of Seargent Pepperspray's Lonely Baton's Club band.

Mon, 06/02/2014 - 13:13 | 4817291 Duude
Duude's picture

Best way to avoid insider trading is to get hired to staff with either the executive or congressional branch. Yes, its still illegal.......technically, but the Congress passed and the president signed a bill that scuttled any attempt at investigating any allegations. 

Mon, 06/02/2014 - 13:46 | 4817398 BlindMonkey
BlindMonkey's picture

The best way is to get appointed to a cabinet seat. You can then liquidate your positions tax free.

Mon, 06/02/2014 - 13:49 | 4817409 pashley1411
pashley1411's picture

Article would hve been better if it had noted Icahn's public (as opposed to dark pool) campaign contributions.   Who doubts that, for a high enough price, in this FS of A, Obama himself will come over and kiss your butt?

Mon, 06/02/2014 - 13:57 | 4817435 esum
esum's picture

the jiveass regime shits its pants AGAIN... 

ONLY IN AMERIKA CAN YOU HAVE AN ag WHO OPENLY SAYS "AH WILLS NOT PROSECUTES MAAAAAAAAAAAAAAAAAH PEOPLES" and remain in office...... who flaunts the Constitution, wont investigate any libtard and is openly corrupt... both coconut head and the great bumbler have a racist chip on their shoulder and we are stuck with a sendthrift james ewing in drag who travels the world touring with friends and family running up the taxpayer tab... 

obumbler openly commits treason and walks... trades 5 al queda leaders for a traitor (breaks the law) and walks... plus at least a dozen other times he violated the law.... including supp0orting aiding and abetting the enemy in time of war (funding and arming the al queda in syria and the muslim brotherhood in egypt).. and walks. the so called law is only for law abiding citizens ... the rest are exempt... the clown show continues...

 

Mon, 06/02/2014 - 13:58 | 4817436 Moon Pie
Moon Pie's picture

this is ridiculous.

Tue, 06/03/2014 - 19:21 | 4821542 MeelionDollerBogus
MeelionDollerBogus's picture

I'll see your ridiculous & raise you to Redonkulous!

Mon, 06/02/2014 - 13:59 | 4817440 Walt D.
Walt D.'s picture

"want to avoid being wiretapped in some SEC probe? Just buy a telecom company."

Want to be imune from insider trading laws? Become a Senator or Congressman/woman.

Mon, 06/02/2014 - 15:12 | 4817656 discopimp
discopimp's picture

We don't have no Banana Republic, we has a Ripe Banana Republic!!

Do NOT follow this link or you will be banned from the site!