A U.S. insider trading investigation of Carl Icahn's attempt to buy Oakland-based Clorox in 2011 has been hamstrung by reports tying it and trades in Dean Foods to golfer Phil Mickelson and sports gambler William Walters, a person familiar with the matter said.
Investigators are reviewing large option trades ahead of Icahn's $10.2 billion offer for Clorox, as well as trading by Mickelson and Walters in Dean Foods in 2012, the person said. None of the three men has been accused of any wrongdoing.
News reports last week revealing the existence of the probe will hinder the ability of investigators to successfully use wiretaps, cooperating witnesses or consensual recordings, said the person, who requested anonymity because the inquiry is continuing.
Such tactics depend on secrecy and have been crucial for the Justice Department in obtaining 85 insider trading-related convictions over the past seven years, including those of Galleon Group co-founder Raj Rajaratnam and former Goldman Sachs Group Director Rajat Gupta.
"The publicity is going to make this a lot more difficult, if there ever was a case," said Harvey Pitt, a former chairman of the Securities and Exchange Commission, in an interview.
The probe is being conducted by the Federal Bureau of Investigation in New York, the U.S. Securities and Exchange Commission and the office of Manhattan U.S. Attorney Preet Bharara, the person said.
Investigators are examining whether Icahn shared information on the Clorox takeover attempt with Walters, and whether Walters then shared it with Mickelson, the person said.
Icahn, 78, said in a telephone interview that he has "never given out inside information" and isn't aware of the probe. He added that he "never purchased" or was "involved in any way with Dean Foods," and that he never spoke to Mickelson.
"I have done absolutely nothing wrong," Mickelson, 43, said in a statement, adding that he is cooperating with investigators. Mickelson told ABC News that he was approached by FBI agents while on a golf course. Walters told the Golf Channel that he's not involved in insider trading.
In July 2011, Bloomberg News reported that options traders who bought Clorox calls on July 11 could profit almost eightfold just days after Icahn bid to buy the bleach maker.
More than 16,000 calls to buy Clorox changed hands on July 11, the most since October 2010 and 10 times the number of puts to sell, as the shares rose 2.8 percent. The most-active contracts were July $70 calls, which expired July 15, 2011. Those contracts rose as high as $4.73 from 10 cents the day before.
"I found it very interesting that the volume spiked Monday in options expiring today and then this morning you hear about a big deal being announced," said Steve Sosnick, equity risk manager at Timber Hill, at the time. "'It struck me as very unusual that someone was buying these earlier in the week. It's got that funny smell."
James Margolin, a spokesman for Bharara, and Florence Harmon, a spokeswoman for the SEC, declined to comment on the insider trading probe of the three men.
"It's the responsibility of the government to remain silent about investigations, not for law enforcement to engage in unprofessional public displays at high profile events leading to understandable questioning," said Jacob Frenkel, a former SEC lawyer, about reports of the federal investigation. "There is no excuse for failing to schedule a private interview with Mr. Mickelson outside of the public eye."