Icahn won’t be joining the Mount Rushmore of insider trading

Over the last couple of decades, Raj Rajarathnam, Martha Stewart and Steve Cohen have become the new Mount Rushmore of insider-trading scandals. And they're giving the new generation of finance a masters class in what to do and NOT to do when the Feds come knocking.

So, when the headline hit late on a Friday night that a well-known activist investor, a pro golfer and a Las Vegas sports bettor were being investigated for insider trading, it zapped everyone on Wall Street — like a wandering dog wearing an electric collar.

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Phil Mickelson and Carl Icahn.

By Saturday morning every compliance officer on Wall Street had already had several email exchanges and a conference call with the managing directors of their respective hedge funds. It was time to dust off the employee manual again and double underline and highlight the sections about insider trading. And you know what they were thinking: If any of these guys — Carl Icahn, Phil Mickelson or Billy Walters — can go down, so can we.

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How they would catch him

By all estimations, the guy they're going after is Icahn. Sure, Mickelson makes for a sexy headline — and Walters probably has the most points racked up against him — but if you're the feds, the guy you want is Icahn.

The question everyone on Wall Street is asking right now is: What do they have on Icahn?

Wiretaps, cooperating witnesses and smoking-gun emails are the primary ways to catch illegal tipsters and tipees. Recent history has shown us that, without it, it's a pretty hard case to prove. All the circumstantial evidence in the world usually isn't enough to get the conviction.

Rajarathnam, the former chief of Galleon (where I worked for two years), was convicted because of wiretaps. Martha Stewart's hand was caught in the Holiday Garden Tree Cookie Jar — they got her on lying about her trade, not the actual trade itself. SAC Capital's Steve Cohen is currently writing the instruction manual on how to NOT get caught. The feds might have been able to make Cohen change the name of his firm and create a small dent in his net worth, but he's still in business. The key phrase here is: plausible deniability. If you're able to set up a dynamic around you where no illegal information is being passed to you — or by you — then it's almost impossible to prove.

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Now that the Icahn investigation has been leaked to the media, that pretty much makes wiretaps moot. Even if investigators are able to obtain them, they'd be useless. Think about it: Would you incriminate yourself knowing that the FBI is monitoring your every call, email or text? And if the FBI had anything incriminating from a wiretap before the leak, they would've already made an indictment.

So, that leaves, cooperating witnesses as the only real viable option. The standard operating procedure in all insider trading cases is going after the little guy and getting him to flip. Put the heat on the pawn, the one who didn't benefit handsomely from the activity, and threaten a prison sentence. Then work your way up until you get the guy you're going after.

The feds have already tried to infiltrate someone within Icahn's camp. But according to reports, they didn't have enough leverage, so it's led them to a dead end. Without enough bullying power, it's really hard to get someone to flip.

Did Icahn even do anything wrong?

Icahn wasn't an insider of Clorox and even if he tipped off his friends of what stock he was going to buy—is that illegal? That's not clear yet. Even if Icahn activity is considered underhanded, I think it'll be extremely hard to get him. He's like Steve Cohen: You may think something's not quite right there, but he's insulated himself from wrongdoing.

Billy Walters is probably the most at risk here. Unfortunately for him, just by the mere fact of residing in Las Vegas, the general public discounts two morality points from your character. He also has a past history of charges in illegal gambling and money laundering. If he knew of Icahn's plan to tender the company (even though Icahn never did) and he profited from the information and passed it along, he might be more at risk. But I would think someone like Bill has been around the block enough times that he would know how to avoid getting snagged by a wiretap and wouldn't put anything in print.

Read MoreThe truth about insider trading: Turney Duff

"Honey, please hold all my calls unless Martha Stewart is on the line," I can imagine Phil Mickelson saying to his wife. I think he's most at risk for getting caught in the Martha Stewart trap. So far, it appears as if Mickelson is either clueless or playing dumb — which can work up to a point. And I'm sure he's been advised by his lawyers to say nothing. But if the swinging heat lamp is ever pointed at his face, he needs to do the opposite of Martha Stewart. The only wrong move Phil can make right now is to lie. As long as he cooperates with the FBI and tells them exactly how it went down he should be fine.

Did Mickelson and Walters act on insider information? It would take me about fifteen minutes to answer that. All you'd need to do is look at their trading history. It's very similar to card counting in Blackjack. It's simple: When the count is high, meaning the odds are in the bettors favor, you increase your bet. The casinos monitor every gambler to make sure they aren't increasing their bets only during advantageous decks. If Mickelson and Walters trading history suggests they took an abnormally larger bet than their usual trades it would suggest they were acting on a tip.

But here's the thing: That doesn't make them guilty. And, it doesn't necessarily lead back to Icahn.

Walters seems like he'd swallow a cyanide pill before talking. And Mickelson? He may be a pro golfer, but he's an amateur at the Wall Street game. If he got caught, like Martha Stewart, it would be his ego that took him down. The question is: Do the Feds care about him enough without Icahn?

Commentary by Turney Duff, a former trader at the hedge fund Galleon Group. Duff chronicled the spectacular rise and fall of his career on Wall Street in the book, "The Buy Side." The paperback edition comes out June 17 and Sony bought the TV/movie rights to the book. Duff is currently working on his second book, a Wall Street novel. Follow him on Twitter @turneyduff.

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