Formula One's Multi-Million-Dollar Insider Trading Case
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With the Formula One summer shutdown coming to an end this week — the 14 day period where teams are not allowed to work on their cars’ design, development, or production — the race to a championship officially kicks back into gear this Sunday at the Belgian Grand Prix.
But while everyone was away enjoying their holiday, the Montréal Journal dropped an investigative report that could potentially send shockwaves throughout the sport.
The report reveals that authorities from the European stock exchange are investigating a potential case of insider trading between two of F1’s most powerful men — Billionaire Lawrence Stroll, part-owner of the Aston Martin F1 team & father of Quebec driver Lance Stroll, and Toto Wolff, Co-Owner, Team Principal, and CEO of the Mercedes-AMG Petronas F1 team.
Let’s run through it.
The details go like this — a group led by Canadian billionaire businessman Lawrence Stroll announced last year that they were buying a 16.7% stake in the struggling Aston Martin brand. The deal was later revised due to COVID-19, with Stroll and his group eventually purchasing about 25% of the company for nearly $450 million in March 2020.
But just over a month later, Lawrence Stroll and his investment group ended up selling a small piece of their newly acquired equity to Mercedes Team Principal Toto Wolff. The price that Wolff paid isn’t public, but the market rate for the 0.95% stake that he purchased was about $22 million at the time.
The shares in Aston Martin were then transferred from a Stroll-related company based in the British Virgin Islands, a tax haven, to a Wolff-related company based in Guernsey, another tax haven.
To be clear, there is no problem with that, at least legally. Billionaires and other successful business people tend to shelter profits through offshore entities to lower their taxable income all the time. The real questions arose after the transaction closed.
Less than one month after Toto Wolff spent $22 million to acquire a 1% stake in Aston Martin, the luxury car company named Tobias Moers as their new CEO, the current Head of Mercedes AMG.
Even more interesting? Just months after appointing Tobias Moers as CEO, Mercedes also announced that they would be acquiring an additional stake of up to 20% in Aston Martin in exchange for cash and sharing technology. Remember, Toto Wolff holds a 33% stake in the Mercedes-AMG Petronas F1 Team and is Team Principal & CEO of the team.
So, to recap, Aston Martin hired the former Head of Mercedes AMG and received an equity investment from the German car company just months after Mercedes F1 boss Toto Wolff spent $22 million to acquire a 1% stake in the brand.
The result? Aston Martin’s stock price has increased more than 60% since April 2020, resulting in Toto Wolff’s equity stake now worth about $36 million, or an investment gain of ~$14 million in just over a year.
The first red dot represents the date that Aston Martin hired Tobias Moers from Mercedes AMG, while the second red dot represents the announcement that Mercedes would be acquiring an additional 20% stake in the company.
To be clear, I have no idea if Toto Wolff did anything wrong here. Not only is it best to let the legal system play out before making any judgments, but insider trading cases are notoriously hard to prosecute due to the hard evidence needed to prove one gained an advantage through having access to confidential information.
My point being, if Toto Wolff and Lawrence Stroll discussed the hiring of Mercedes employees and future investments from the company before the deal, I highly doubt they were doing it over email and text messages.
Regardless, this is definitely something worth watching as it could have severe implications for Formula One and expose some of the back-door dealings that have long plagued the global sport.
Have a great day, and I’ll talk to everyone tomorrow.
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