Ex-Dean Foods chairman, gambler charged for insider trading; Mickelson settles

Andrew Ceresney, Director of SEC Enforcement division, speaks during a news conference regarding Las Vegas sports bettor William 'Billy' Walters and Dean Food's former chairman Thomas Davis, both charged with insider trading, in New York City, U.S. May 19, 2016

U.S. authorities on Thursday charged a former chairman of Dean Foods Co and a professional Las Vegas gambler with engaging in an insider trading scheme that netted over $40 million and included a tip that benefited professional golfer Phil Mickelson.

William "Billy" Walters, who has built a multimillion-dollar fortune as a famed Las Vegas sports bettor, was accused in an indictment filed in Manhattan federal court of trading on tips from Thomas Davis, Dean Food's former chairman.

"These bets were no gamble at all," Manhattan U.S. Attorney Preet Bharara said. "They were sure things."

Mickelson, who has won three Masters golf titles, was not criminally charged. But he was named as a relief defendant, meaning he is not accused of wrongdoing but received ill-gotten gains as a result of others' illegal acts, in a civil lawsuit by the U.S. Securities and Exchange Commission. It said he also traded in Dean Foods stock.

The lawsuit said that at a time when Mickelson owed Walters money after placing bets with him, Walters, aware of a Dean Foods corporate spin-off, urged him to trade in the company's stock, enabling the golfer to earn $931,000.

Mickelson agreed to pay back $1.03 million in profits and interest to resolve claims from his role in the scheme.

"Simply put, Mickelson made money that wasn't his to make," said Andrew Ceresney, the SEC's director of enforcement.

Walters, 69, was arrested in Las Vegas on Tuesday on charges of securities fraud, wire fraud and conspiracy. Davis, who resigned from Dean Foods' board in August, pleaded guilty on Monday.

Barry Berke, Walters' lawyer, said the allegations were "based on erroneous assumptions, speculative theories and false finger-pointing."

Thomas Melsheimer, Davis's lawyer, said his client was cooperating in the probe.

APPELLATE RULING

The charges marked the most significant case Bharara's office has pursued since a 2014 appellate ruling limited the scope of insider trading laws, marking a major setback for a high-profile crackdown underway since 2009.

The ruling in particular limited authorities' ability to pursue charges against a defendant who heard a stock tip second- or third-hand that originated with a corporate insider, making prosecuting someone like Mickelson more difficult.

At a news conference, Bharara declined to say if that ruling was the reason Mickelson was not accused of wrongdoing. But he said the decision "has had an impact on our investigations," allowing some "nefarious conduct" not to be prosecuted.

He called the ruling "wrongly decided," and noted the U.S. Supreme Court has agreed to review what constitutes insider trading.

Gregory Craig, Mickelson's lawyer, did not address the ruling in a statement but said the golfer felt "vindicated" the SEC concluded he did not engage in wrongdoing.

"At the same time, however, Phil has no desire to benefit from any transaction that the SEC sees as questionable," Craig said.

'DALLAS COWBOYS' TRADES

Walters has long faced various state and federal probes in his career as one of the most successful sports betters in the United States. In 1992, he was acquitted by a federal jury of charges related to illegal bookmaking.

According to Thursday's indictment, from 2008 to 2014 Walters obtained inside information about Dean Foods from Davis and used it to make $32 million in profits and avoid another $11 million in trading losses.

Davis disclosed information to Walters about Dean Foods' financial outlook, earnings and its spin-off of WhiteWaves Food Co. The deal sent the company's shares soaring after it was announced on Aug. 8, 2012, according to the indictment.

To avoid detection, Walters gave Davis a prepaid cellular phone to use when passing along inside information and instructed him to use code words, including referring to Dean Foods as the "Dallas Cowboys," prosecutors said.

Walters earned another $1 million trading on insider information about Darden Restaurants Inc from Davis, who was sought by an investment firm in New York as an investor or director, the indictment said.

The two men have been friends since the mid-1990s, based on shared interests in sports, golf, gambling and business, according to court papers.

In exchange for his tips, the indictment said Davis received significant benefits, including about $1 million in loans that largely were never repaid.

The probe conducted by the Federal Bureau of Investigation and U.S. Securities and Exchange Commission became public in 2014 amid news reports also linking the investigation to activist investor Carl Icahn.

Investigators had examined whether Icahn passed inside information about Clorox Co to Walters, sources have told Reuters. Bharara declined to say if that aspect of the probe remained open.

Icahn acknowledged last year he had a business relationship with Walters but said he never provided inside information to anyone.

The cases in the U.S. District Court, Southern District of New York, are U.S. v. Walters, No. 16-cr-338, U.S. v. Davis, No. 16-cr-338, and Securities and Exchange Commission v. Walters, No. 16-cv-03772.

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