The SEC’s ‘Mickelson Treatment’: Bring No Charges, Collect $1 Million

Even as Phil Mickelson agreed to surrender almost $1 million in what the government called ill-gotten stock market gains, his legal team claimed a victory.

The three-time Masters winner wasn’t charged with any wrongdoing. Two others were accused of insider trading and other offenses Thursday in a years-long scheme that sent one lucrative stock tip Mickelson’s way.

Prosecutors and regulators announcing those charges were barraged with questions about their decision-making regarding Mickelson, including how authorities could claw back money from him if they didn’t say he’d done anything wrong.

The U.S. Securities and Exchange Commission characterized Mickelson as a so-called relief defendant, saying he was “unjustly enriched” and should surrender those gains. The SEC’s enforcement chief, Andrew Ceresney, said Mickelson traded and made money on tips obtained by others.

“You shouldn’t get to profit from money made on the illegal conduct of others,” Ceresney said.

Relief Defendants

SEC cases involving relief defendants aren’t uncommon, particularly in insider-trading matters, legal experts said. The category often includes family members or others whose accounts are used without their knowledge by criminals.

But Mickelson personally engaged in stock trading and made a profit, the SEC said, based on a tip he received. That’s different from an unknowing wife or child whose accounts are used to stash illicit profits, said Stephen Crimmins, a former SEC enforcement attorney who is now a partner at the law firm Murphy & McGonigle.

For Mickelson, it’s an outcome that allows him to avoid a taint that could endanger rich sponsorships with companies including KPMG LLP and Callaway Golf Co., which both said Thursday they would continue their relationships with him.

For the SEC, it’s an approach that may open the door to future complications in other cases. Defense attorneys may seek the “Mickelson treatment” for clients who said they don’t know where stock tips came from or if anyone got a substantial benefit for giving them, some lawyers said. Other defense counsel could balk at having clients return money in the absence of allegations of wrongdoing.

In using the relief defendant status, “the SEC is seeking trading profits without having to prove the trader did anything illegal,’’ said Thomas Zaccaro, a former SEC enforcement attorney who is now at Zaccaro Morgan LLP in Los Angeles. “It’s certainly unusual.”

Infrequent Trader

In its complaint, the SEC painted Mickelson, who has earned tens of millions of dollars from golfing and sponsorships, as an infrequent stock trader. He had less than $250,000 in his brokerage account in the summer of 2012, when he exchanged some text messages with his friend William “Billy” Walters, a Las Vegas gambler.

Shortly after, Mickelson took a $2.4 million position in Dean Foods Co., the SEC said. Dean’s shares rose 40%. Mickelson realized a profit of $931,000, the SEC said.