- U.S. announces criminal charges against Davis, Walters
- Two used code words and prepaid phones to pass tips, U.S. says
Dean Foods Co.’s former chairman, Tom C. Davis, and secretive Las Vegas gambler William “Billy” Walters were charged with an insider-trading scheme that also entangled golfer Phil Mickelson.
In a conspiracy that played out over six years, Walters told Davis to use "Dallas Cowboys" to refer to Dean Foods on the phone he was given. As investigators closed in on the pair, Davis tossed the phone into a body of water and attempted to destroy documents, prosecutors said in announcing the case Thursday.
The two men were friendly with Mickelson, who wasn’t charged by prosecutors but asked by the U.S. Securities and Exchange Commission on Thursday to return proceeds from transactions in which he profited. His lawyer said he will repay profits earned on a 2012 investment that came under U.S. scrutiny.
"Phil is innocent of any wrongdoing,” his lawyer, Gregory Craig, said in a statement after the case was announced by federal prosecutors in New York on Thursday. “Phil was an innocent bystander to alleged wrongdoing by others that he was unaware of.”
Davis pleaded guilty in Manhattan federal court on May 16, and Walters was arrested Wednesday night in Nevada. The two forged a friendship over "sports, golf, gambling and business," before Davis leaked information about Dean Foods’ financial outlook and performance, earnings, and the spin-off of an organic food distributor in 2012, prosecutors said.
In exchange, Walters offered business opportunities, investment capital and loans totaling almost $1 million to Davis, authorities said. No requests were made for repayment of the loans until newspaper reports surfaced about the investigation, and Walters then began to pay his debt.
"Bill Walters is a true American success story, whose extraordinary accomplishments as a lawful sports gambler have been widely recognized and lauded,” his lawyer, Barry Berke, said in a statement. “Mr. Walters and his counsel look forward to his day in court where it will be shown that the prosecutors’ accusations are based on erroneous assumptions, speculative theories and false finger-pointing."
The investigation made headlines last year with news that the government was probing Davis, Walters and Mickelson ahead of billionaire investor Carl Icahn’s $10.2 billion offer in 2011 for Clorox Co. Neither Clorox nor Icahn were mentioned in the court papers on Thursday. Icahn hasn’t been accused of wrongdoing.
Walters is a well-known Las Vegas gambler known to keep a low profile after earlier brushes with the law. He has shed little light on his winnings or net worth. In early 2011, he told CBS’s “60 Minutes” in a rare interview that he wagered millions of dollars on football and basketball and had never had a losing year as one of Vegas’s biggest sports bettors. He had a $20 million jet and seven homes, the program reported.
Around the same time, though, Walters owed as much as $15.25 million to the Federal Deposit Insurance Corp., stemming from the 2006 sale of the Stallion Mountain golf club in Las Vegas by a company he owned, according to documents in two lawsuits involving him. He won dismissal of three indictments from 1986 to 1999 charging him with conspiracy and money laundering, according to a document he filed in a civil lawsuit.
Walters and Davis brought others into their scheme, prosecutors said. In April 2010, Walters met Davis for lunch in Las Vegas, where Walters agreed that a third person who isn’t identified in court papers would give a $625,000 loan to Davis. In return, Davis passed a tip about Dean Foods to Walters, they said.
Six days later, Walters telephoned the third person for one minute, and the next day that person bought 1,000 shares of Dean Foods, according to prosecutors.
Prosecutors also refer to another person who owed a gambling debt to Walters. They spoke by phone and texted in July 2012 before the person bought 240,000 shares in Dean Foods, using three brokerage accounts. The person had never previously traded in the stock and earned a profit of about $931,000, prosecutors said.
The timing and description of those trades broadly match the SEC material about Mickelson. The SEC doesn’t accuse Mickelson of wrongdoing but names him as a “relief defendant” from whom it seeks to recover allegedly ill-gotten gains.
Davis resigned from his post without explanation last year and said he’s been cooperating with the government. The scheme ran from 2008 to 2014, and Davis also gave tips to Walters about Darden Restaurants Inc., the Orlando-based owner of the Olive Garden restaurant chain. Walters earned profits of $32 million and avoided losses of $11 million by trading on tips about the company, prosecutors said.
“Mr. Davis resigned from the Dean Foods Board of Directors in August 2015 and is no longer affiliated with the company,” a company spokesman said. “Dean Foods has been cooperating with the government’s investigation and will continue to do so.”
Davis testified falsely to the SEC on May 18, 2015, according to a charging document known as a criminal information. Prosecutors said he lied when asked if he gave non-public information to Walters and said: “I never gave him any confidential information. I’m quite certain about that.”
Davis was charged with conspiracy to commit securities fraud, conspiracy to commit wire fraud, securities fraud, wire fraud, perjury, and obstruction of justice. A criminal information often precedes a guilty plea.
Walters, who was indicted by a grand jury, was charged with conspiracy to commit securities fraud, conspiracy to commit wire fraud, securities fraud and wire fraud.