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A Sports Gambler and a Former Dean Foods Chairman Charged With Insider Trading High-Rolling Sports Gambler and a Former Dean Foods Chairman Charged With Insider Trading
(about 3 hours later)
Federal authorities announced criminal charges on Thursday against the former chairman of Dean Foods and a high-rolling sports gambler with ties to prominent athletes and corporate executives, a surprising escalation of a long-running insider-trading investigation.Federal authorities announced criminal charges on Thursday against the former chairman of Dean Foods and a high-rolling sports gambler with ties to prominent athletes and corporate executives, a surprising escalation of a long-running insider-trading investigation.
William T. Walters, a businessman better known as “Billy” who is often considered the most successful sports bettor in the country, was arrested by the F.B.I. at a Las Vegas resort late Wednesday. Thomas C. Davis, the former chairman of Dean Foods who stepped down last year after being suspected of leaking insider tips to Mr. Walters, also faces charges but is cooperating with the government, his lawyer said. William T. Walters, a businessman better known as “Billy” who is often considered the most successful sports bettor in the country, was arrested by the F.B.I. at a Las Vegas resort late Wednesday.
Thomas C. Davis, the former chairman of Dean Foods who stepped down last year after being suspected of leaking insider tips to Mr. Walters, also faces charges but is cooperating with the government, his lawyer said.
In addition to criminal charges from federal prosecutors in Manhattan, the men face a civil case from the Securities and Exchange Commission.In addition to criminal charges from federal prosecutors in Manhattan, the men face a civil case from the Securities and Exchange Commission.
Mr. Walters’s case bridges the world of sports and finance. In the course of the investigation, federal authorities examined trades not just by Mr. Walters, but by some of his friends, including the golfer Phil Mickelson. Mr. Walters’s case bridges the world of sports, gambling and finance, providing an unusual backdrop to an insider trading investigation. In the course of the investigation, federal authorities examined trades not just by Mr. Walters but by some of his friends, including the golfer Phil Mickelson.
The criminal charges against Mr. Walters and Mr. Davis carry a heightened significance for prosecutors, representing one of the most notable insider trading cases since an appellate court overturned two prominent convictions.The criminal charges against Mr. Walters and Mr. Davis carry a heightened significance for prosecutors, representing one of the most notable insider trading cases since an appellate court overturned two prominent convictions.
After the United States Court of Appeals for the Second Circuit overturned the convictions of two hedge fund managers in December 2014 — and in the process imposed the greatest limits on prosecutors in a generation — the government predicted a chilling effect on future insider trading investigations.After the United States Court of Appeals for the Second Circuit overturned the convictions of two hedge fund managers in December 2014 — and in the process imposed the greatest limits on prosecutors in a generation — the government predicted a chilling effect on future insider trading investigations.
Preet Bharara, the United States attorney in Manhattan, who led a sweeping crackdown on insider trading, warned last year of “a potential bonanza for friends and family of rich people.”Preet Bharara, the United States attorney in Manhattan, who led a sweeping crackdown on insider trading, warned last year of “a potential bonanza for friends and family of rich people.”
But in charging Mr. Walters and Mr. Davis with securities fraud, his office is sending a message to Wall Street and beyond that these cases can still be made. The charges could also become a test case in just how far prosecutors can go in the wake of the appellate court ruling. But in charging Mr. Walters and Mr. Davis with securities fraud, his office is sending a message to Wall Street and beyond that these cases can still be made. The charges could also become a test case in just how far prosecutors can go after the appellate court ruling.
A spokesman for Mr. Bharara declined to comment.A spokesman for Mr. Bharara declined to comment.
Mr. Mickelson, a three-time winner of the Masters golf tournament and one of the country’s highest-earning athletes, has not been accused of wrongdoing. Nor is there any indication that he will be charged, though he is listed in the S.E.C. complaint as a relief defendant, an acknowledgment that he was “unjustly enriched” through his trading and must disgorge his “ill-gotten gains” On at least two occasions, the F.B.I. contacted Mr. Mickelson to seek his cooperation in the case against Mr. Walters, people briefed on the investigation have previously said. Once, agents approached him on a golf course.
At the time of the trades, the S.E.C. said, Mr. Mickelson owed Mr. Walters money from gambling bets. Some of the nearly $1 million in trading profits Mr. Mickelson made went to reimburse Mr. Walters, who himself made more than $17 million from the trades. Mr. Mickelson, a three-time winner of the Masters golf tournament and one of the country’s highest-paid athletes, has not been accused of wrongdoing. Nor is there any indication that he will be charged, prompting his lawyer to say, “On that point, Phil feels vindicated.”
On at least two occasions, the F.B.I. contacted Mr. Mickelson, partly to seek his cooperation in the case against Mr. Walters, people briefed on the investigation have previously said. Once, agents approached him on a golf course. Still, he is listed in the S.E.C. complaint as a relief defendant, an acknowledgment that he was “unjustly enriched” through his trading and must disgorge his “ill-gotten gains”
A lawyer for Mr. Mickelson did not respond to a request for comment. Mr. Mickelson agreed to return all of the nearly $1 million in trading profit he reaped, according to his lawyer, Gregory Craig, who described Mr. Mickelson as “an innocent bystander.”
Mr. Walter’s lawyer said his client had done did nothing wrong. “Bill Walters is a true American success story, whose extraordinary accomplishments as a lawful sports gambler have been widely recognized and lauded,” the 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.” “Phil understands and deeply respects the high professional and ethical standards that the companies he represents expect of their employees, associates and of Phil himself,” Mr. Craig said in a statement. “He subscribes to the same values and regrets any appearance that, on this occasion, he fell short. He takes full responsibility for the decisions and associations that led him to becoming part of this investigation.”
The investigation centered on trading in shares of Dean Foods, the nation’s largest milk processor. The trading occurred around the time Dean Foods was planning to spin off a subsidiary, in 2012. At the time of the trades, the S.E.C. said, Mr. Mickelson owed Mr. Walters money from gambling bets. Some of the trading profit Mr. Mickelson made went to reimburse Mr. Walters, who made more than $17 million from the trades.
The authorities questioned whether the tip about the spinoff came from a board member at the company who knew Mr. Walters, who then shared the information with Mr. Mickelson, the people briefed on the investigations previously said. Mr. Mickelson may not have known the origins of the tip. Mr. Walters’s lawyer said his client had done nothing wrong. “Bill Walters is a true American success story, whose extraordinary accomplishments as a lawful sports gambler have been widely recognized and lauded,” the 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 centered on trading in shares of Dean Foods, the nation’s largest milk processor. The trading occurred around the time Dean Foods was planning to spin off a subsidiary, in 2012.
The authorities examined whether the tip about the spinoff came from a board member at the company who knew Mr. Walters, who then shared the information with Mr. Mickelson, the people briefed on the investigations previously said. Mr. Mickelson may not have known the origins of the tip
Mr. Walters and Mr. Davis, longtime friends who first met 20 years ago on a golf course, went to great lengths to conceal their arrangement, the government said.
They used disposable prepaid cellphones that Mr. Walters provided. They also created “a secret code” for Dean Foods, a Dallas company, referring to it as “the Dallas Cowboys.”
Last August, Dean Foods announced the immediate resignation of Mr. Davis, its chairman, in a regulatory filing. Jamaison Schuler, a company spokesman, declined at the time to comment on the resignation of Mr. Davis, 67, an investment banker who had been on the Dean Foods board since 2001.Last August, Dean Foods announced the immediate resignation of Mr. Davis, its chairman, in a regulatory filing. Jamaison Schuler, a company spokesman, declined at the time to comment on the resignation of Mr. Davis, 67, an investment banker who had been on the Dean Foods board since 2001.
Thomas M. Melsheimer, a Dallas lawyer representing Mr. Davis, previously stated that his client “voluntarily decided to step down from the board.” On Thursday, he said “Mr. Davis is pleased to be assisting the government in its investigation.” Thomas M. Melsheimer, a Dallas lawyer representing Mr. Davis, previously stated that his client “voluntarily decided to step down from the board.” On Thursday, he said Mr. Davis, who is 67, “is pleased to be assisting the government in its investigation.”
Through all the illicit trades that underpin Mr. Walters’s indictment, Mr. Davis is the common thread.
In addition to the 2012 spinoff, Mr. Davis provided Mr. Walters with “sneak previews” of at least six quarterly earnings statements for Dean Foods, the S.E.C. said. It started in 2008 and continued through 2012.
Mr. Davis also tipped Mr. Walters off to a not-yet-public activist campaign by a group of hedge fund investors who were looking to shake things up at Darden, the restaurant group that owns chains including Olive Garden, LongHorn Steakhouse and Capital Grille chains.
In the summer of 2013, Mr. Davis was approached by a representative of the group, which included Barington Capital, about its intention to acquire shares in the company and then push for structural changes. At the time, Mr. Davis had signed an agreement that he would keep the activist investors’ plans confidential and not tip anyone else off to buy shares in Darden. Barington is not named in the S.E.C. complaint and has not been accused of any wrongdoing.
But soon after, Mr. Davis sent a confidential presentation of the hedge fund’s plans code-named “Project Dee” to Mr. Walters, who authorities said then bought more than $30 million worth of Darden stock. When the news of the activist group’s plans became public, Darden’s stock price soared, allowing Mr. Walters to generate what the authorities said was $1 million in unrealized trading profits.
All told, Mr. Walters generated more than $40 million in trading profits and avoided losses, the government said.
Early in the investigation, federal authorities also looked at what role, if any, the billionaire investor Carl C. Icahn may have had in sharing information with Mr. Walters about the consumer products company Clorox. Mr. Icahn was mounting a takeover bid for Clorox.Early in the investigation, federal authorities also looked at what role, if any, the billionaire investor Carl C. Icahn may have had in sharing information with Mr. Walters about the consumer products company Clorox. Mr. Icahn was mounting a takeover bid for Clorox.
But that aspect of the investigation did not bear fruit, and Mr. Icahn is not suspected of wrongdoing. That aspect of the investigation did not bear fruit, and Mr. Icahn is not suspected of wrongdoing.
The case against Mr. Walters comes as prosecutors reassess their ability to pursue insider trading cases in the aftermath of the appeals court ruling, which overturned the case against two former hedge fund managers, Todd Newman and Anthony Chiasson. The case against Mr. Walters comes as prosecutors reassess their ability to pursue insider trading cases after the appeals court ruling, which overturned the case against two former hedge fund managers, Todd Newman and Anthony Chiasson.
The appellate court ruling constrained prosecutors from filing insider trading charges in investigations where tips were shared among friends, which could be the case for Mr. Walters. Specifically, the court required “proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential and represents at least a potential gain of a pecuniary or similarly valuable nature.” The Supreme Court denied an appeal from the government. Afterward, prosecutors in Manhattan voluntarily dismissed several other convictions, including the case against Michael Steinberg, a hedge fund manager represented by Mr. Berke, who also represents Mr. Walters. In effect, the appellate court ruling chipped away at Mr. Bharara’s insider trading track record, which was once contained no losses.
The Supreme Court denied an appeal from the government, and afterward, prosecutors in Manhattan voluntarily dismissed several other convictions. It started to chip away at Mr. Bharara’s insider trading track record, which was once undefeated. At its core, the appellate court ruling constrained prosecutors from filing insider trading charges against a group of friends, which is the case for Mr. Walters. Specifically, the court required “proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential and represents at least a potential gain of a pecuniary or similarly valuable nature.”
Unlike many of Mr. Bharara’s past targets, Mr. Walters is not a Wall Street trader. The case against Mr. Walters addressed the issue head-on instead of skirting it. The 40-page indictment of Mr. Walters details how his longtime friendship with Mr. Walters overlapped with numerous business deals and personal loans.
Over the years, Mr. Walters has been a philanthropist and well-known businessman in Las Vegas. He bought golf courses and auto dealerships. He also donated to political campaigns. They formed a limited liability corporation to invest in a software company. Mr. Walters arranged for another friend to provide Mr. Davis with a $625,000 personal loan in 2010. A year later, as Mr. Davis fell deeper into financial trouble, Mr. Walters helped bail him out with a $350,000 loan that was never repaid.
This is not the first time Mr. Walters has been the subject of a criminal investigation. In 1992, he was acquitted of illegal gambling charges. The Nevada attorney general later charged Mr. Walters with money laundering. The case resulted in three indictments, none of which resulted in a conviction. Mr. Davis’s debts were increasing at the time. He owed money to a charity that raised money for a shelter for battered women and children. Mr. Davis, the government said, “misappropriated” $100,000 from the charity to help pay off a gambling debt to a Las Vegas casino.
And he may still beat the latest charges. Unlike many of Mr. Bharara’s past targets, Mr. Walters is not a Wall Street trader. Instead, Mr. Walters has been a philanthropist and well-known businessman in Las Vegas. He bought golf courses and auto dealerships. He also donated to political campaigns.
This is not the first time Mr. Walters, who is 69, has been the subject of a criminal investigation. In 1992, he was acquitted of illegal gambling charges. The Nevada attorney general later charged Mr. Walters with money laundering. The case resulted in three indictments, none of which resulted in a conviction.
And Mr. Walters he invoked his Fifth Amendment right during the S.E.C. investigation, he may still beat the latest charges.
In a 2011 “60 Minutes” segment, the anchor, Lara Logan, remarked that “it’s hard to find anyone better at winning than Billy Walters.”In a 2011 “60 Minutes” segment, the anchor, Lara Logan, remarked that “it’s hard to find anyone better at winning than Billy Walters.”