AA's Insider Trading Scandal
AA's Insider Trading Scandal
When Alcoholics Anonymous members help each other, they are hoping for a spiritual reward: you have to “give it away to keep it.” It’s not for nothing that AA dates its origins not to when Bill Wilson got sober, but months later to when he helped Bob Smith get sober. But according to a surprising Securities and Exchange Commission (SEC) lawsuit filed last month, a Pennsylvania AA member Timothy McGee found a way to make the rewards of his twelve-step work financial as well as spiritual.
Listening to other alcoholics is often annoying. They call at all hours: from emergency rooms, from divorce courts, from the closet in their parents’ house during Thanksgiving dinner. Who wouldn’t want to get paid? AA has no laws, after all; even its rules are only suggestions. The federal government, however, has many laws, and the SEC is bringing civil charges of insider trading against McGee because of his breach of AA confidentiality.
“[Mr. McGee] stole information shared with him in the utmost confidence, and as [a] securities industry professional he clearly knew better,” SEC official Elaine Greenberg told The New York Times Dealbook blog.
This is the first time that the government has ever found AA confidentiality to be binding as a matter of law—or, at least, fiduciary responsibility. In previous cases—including a notorious 1994 New York state criminal case in which an AA member shared the hazy details of a double murder he had committed during a blackout—communications in AA have not been granted the so-called Shield Law's protections that prevail between husband and wife, attorney and client, or cleric and penitent.
McGee and a fellow member of AA, whose anonymity has been protected by the SEC, had about nine years of sobriety. They had a lot in common: both were executives, family men and tri-athletes. McGee, a money manager, lent an ear as his buddy began complaining about his responsibility overseeing the sale of his insurance company, Philadelphia Consolidated Holding, to a larger firm. When the mounting stress caused his friend to relapse, McGee encouraged him to keep sharing. McGee also bought almost $400,000 worth of stock in his buddy’s company, earning a quick and dirty $300,000 after the merger. And, in a new twist on giving it away to keep it, McGee passed the privileged information about the impending sale to a colleague at his company, Ameriprise Financial Services, who in turn shared the tip with his entire family, his 89-year-old grandmother, as well as a friend in Hong Kong. According to the SEC, this group of new investors pocketed more than $1.8 million when the company’s stock increased by 64% after the sale in July 2008.
When the stress caused his friend to relapse, McGee encouraged him to keep sharing. McGee also bought stock in his buddy’s company, earning a quick and dirty $300,000 after the merger. And, in a new twist on giving it away to keep it, McGee passed along the privileged information.
Established in 1934 (a year before AA) in the wake of the Great Crash, the SEC is a five-person commission charged with making sure the stock market is fair, orderly and efficient. Insider trading—investing in stocks based on privileged information not available to the general investor—is decidedly unfair. “Individuals who participate in AA and share information in meetings or in private discussion with other AA members are asked to abide by a policy of anonymity, which is the ‘Twelfth Tradition’ of AA,” wrote the SEC commissioners in their civil lawsuit filing against McGee, his colleague Michael Zirinsky and others. “A purpose of the ‘Twelfth Tradition’ is to encourage participants to speak with others before, during or after each AA meeting.”
The accuracy of the regulators’ interpretation of the twelfth tradition is debatable—to me, it is more about spiritual anonymity than about keeping my mouth shut—but the SEC has admirably explained another AA principle from Step Ten: “restraint of pen and tongue.” Accordingly, it may come as a surprise to many AA members that McGee’s AA buddy should have kept his own mouth shut. He had a legal (and spiritual) obligation not to name names to fellow AA members, including the names of his own company and its corporate suitor. “The confidentiality of information shared between members of the AA program is underscored at each meeting where participants are reminded that “‘what is discussed here stays here,’” opines the SEC filing. Since the insurance executive believed that he and McGee had a confidential relationship, the information he gave McGee is labeled nonpublic by the SEC. Trading based on nonpublic information is a crime.
The details of the SEC filing tell a heartbreaking story. The man referred to only as “The Insider” struggled to stay sober as he approached his ten-year anniversary in AA, doubling up on meetings. But it was to no avail. At the beginning of July 2008, he confided to McGee that he was drinking again. McGee listened—and bought more than 10,000 shares of Philadelphia Consolidated. Let’s hope he also counseled his friend, who was not charged in the case, to return to AA.
When rules are broken in AA—when a treasurer steals the treasury, when a trademark is violated, when secrets are leaked, when what was meant as private information turns up on Facebook—AA officially stands back and lets the group police itself. Alcoholics are a defiant bunch, and it was part of Bill Wilson’s genius to understand that rules would drive them away. It’s impossible to get kicked out of AA; it’s difficult even to be banned from a particular meeting. No matter what the feds say, Timothy McGee is still welcome in any AA meeting anywhere.
Susan Cheever, a regular columnist for The Fix, is the author of many books, including the memoirs Home Before Dark and Note Found in a Bottle, and the biography My Name Is Bill: Bill Wilson—His Life and the Creation of Alcoholics Anonymous.