The Gambler, Golfer, Chairman: A Web of Debt and Inside Tips

Gambler Charged in Insider Scheme: What Happens Next?
  • Dean Foods’ former chairman pleads guilty as gambler indicted
  • Mickelson denies wrongdoing, agrees to repay nearly $1 million

The tips came to Billy Walters, the Las Vegas high-roller, by prepaid burner phones and during lunch meetings. From there some were fed to Phil Mickelson, one of the world’s most beloved golfers. The code word at the center of the scheme: “Dallas Cowboys.”

What began with a friendship forged over gambling, golf and business turned into a six-year insider-trading plot involving two men who owed money to Walters -- former Dean Foods Co. chairman Tom C. Davis and Mickelson, federal authorities said Thursday.

QuickTake Insider Trading

On Thursday, they laid out this tale of corporate intrigue, gambling debts and ham-handed cover-ups. The scheme was brazen. Davis engaged in the sort of old-fashioned insider trading dance -- between a tipper and tippee -- that flourished in the 1980s. And it was simpler than recent cases involving high-profile hedge fund managers that have declined since appellate judges set more restrictive standards on insider trading.

Walters was indicted and arrested in Nevada, and Davis pleaded guilty earlier this week. Mickelson, who wasn’t mentioned by name in the criminal complaint, said he reached an agreement with the U.S. Securities and Exchange Commission to return proceeds of nearly $1 million. He wasn’t cited for wrongdoing.

‘Tomorrow’s Headlines’

Walters, 69, bought and sold shares based on tips, making more than $40 million total in illicit profit and avoided losses. In exchange, he gave Davis loans, business opportunities and investment capital of nearly $1 million.

“It was all good news and bad news for Walters, because he had the information before everyone else -- he had tomorrow’s headlines today,” Manhattan U.S. Attorney Preet Bharara said Thursday at a news conference.

“When the board member of a Fortune 500 company feeds inside information to a professional gambler who makes a fortune on well-timed trades in that company’s stock, that is a form of corruption,” he said.

Mickelson “is innocent of any wrongdoing,” his lawyer, Gregory Craig, said in a statement. “Phil was an innocent bystander to alleged wrongdoing by others that he was unaware of.”

‘Lawful Gambler’

Walters, who was arrested Wednesday night at the Bali Hai Golf Club near the Las Vegas strip, also denied wrongdoing.

“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.”

Walters, wearing a red polo shirt with white stripes after spending the night in the Las Vegas courthouse jail facility, appeared before a federal judge Thursday and was granted release on a $1 million bond. He was ordered to appear in Manhattan federal court on June 1. As a condition of his bail, he must also submit to drug testing and transfer his firearms to a third party.

Walters is a well-known Las Vegas gambler who keeps a low profile after earlier brushes with the law. 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 Nevada’s biggest sports bettors. He had a $20 million jet and seven homes, the program reported.

Golf Course

Davis, 67, and Walters met more than 20 years ago at a golf course in Southern California, where both owned homes and met often to play. In 2001, Davis retired as a managing partner at a national investment bank and joined the Dean Foods board.

Their relationship turned criminal in 2008, Davis admitted during his guilty plea on May 16. It began on Feb. 25, 2008, when Walters and Davis spoke on the phone, and Davis leaked him full-year forecasts and quarterly results for Dean Foods, according to the indictment of Walters.

That day, Walters called his broker and bought 200,000 shares of Dean Foods, the largest U.S. milk processor. The pattern was set. More calls, more stock buys by Walters, soon hitting 2.2 million shares. When Dean Foods announced its earnings on April 30, 2008, Walters made $2.6 million in profit, the U.S. said.

Before Dean Foods announced its second-quarter earnings guidance that June, Davis told Walters how it would go, according to prosecutors. Over several days, Walters bought 3.95 million shares, capturing as much as 37 percent of the daily volume. His profit? More than $6 million, the U.S. said.

Lifestyle Maintenance

In April 2010, Davis was “desperate for money" because he owed $78,000 in taxes, and had tens of thousands in credit card debt. He also “had heavily margined his brokerage account” and couldn’t “maintain his lifestyle,” according to the SEC.  

On April 9, 2010, the two men met in Las Vegas, where Davis told him Dean Foods had hired investment bankers to explore a unit’s spinoff. The next day, Walters arranged for Davis to get a $625,000 loan, Bharara said. When the stock market opened the next business day, Walters bought 1 million shares, later raising his stake to 1.5 million shares.

Weeks later, Davis tipped Walters that Dean Foods would miss Wall Street estimates, according to prosecutors, and Walters sold off his entire stake on May 3 and May 4, allowing Walters to avoid losses of $7.3 million, Bharara said.

‘Huge Credit Risk’

More debts cropped up. In 2011, Davis needed to repay a gambling debt to a Las Vegas casino. Davis took $100,000 from a Dallas charity for a battered women and children shelter to cover that. Three months later, when he needed to return the money to the shelter, as well as to cover the $178,000 he owed on a venture to operate a private jet, he borrowed $350,000 from Walters, according to the SEC.

“Walters funded Davis, despite the fact that Davis had proven himself a huge credit risk,” the SEC said.

In 2012, as Dean Foods planned to spin off its WhiteWave Foods Co. subsidiary, Walters spoke to Davis many times, gleaning inside information, according to authorities. WhiteWave was where Mickelson entered the picture, according to the SEC. On July 27, 2012, Walters called Mickelson, who owed him money. They exchanged text messages that day and a day later. On July 30 and 31, Mickelson bought shares of Dean Foods valued at $2.4 million in three brokerage accounts, according to the SEC.

WhiteWave Spinoff

Mickelson had never previously bought Dean Foods shares, and his brokerage account holdings before that were less than $250,000. After the WhiteWave spinoff was announced on Aug. 7, 2012, Walters’s shares increased by $17 million and Mickelson sold his for a profit of $931,000, according to the SEC.

Walters had a motive for tipping off Mickelson to the Dean Foods announcement, the SEC said. Mickelson had placed bets with Walters and owed him. Mickelson repaid him in September 2012 in part with the proceeds he’d made on the Dean Foods deal, according to the regulator.

Darden Trading

A second company was also involved in the Davis and Walters scheme: Darden Restaurants Inc., the Orlando-based owner of the Olive Garden restaurant chain. Davis was approached by a shareholder group that was pushing the company to make changes, and he received confidential information about those plans, the SEC said.

He leaked information to Walters, who bought nearly $30 million in Darden shares and made about $1 million in profit, according to the SEC.

As the U.S. began to piece together the plot, Davis began to cover up his actions, he admitted. In May 2014, he tossed a prepaid cell phone into a body of water to thwart U.S. prosecutors, according to his guilty plea. They used the Dallas Cowboys as code for Dean Foods.

Davis perjured himself in testimony to the SEC, lying about his finances and net worth, the accuracy of his tax returns and those of a Dallas-based charity he oversaw, and whether he had tipped Walters, according to his plea.

When asked by the SEC in May 2015 if he had tipped Walters, Davis said: “I never gave him any confidential information. I’m quite certain about that.”

He resigned from the Dean board in August 2015.

For his part, Walters refused to testify to the SEC, citing his constitutional right against self-incrimination.

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