NEW YORK A multi-million dollar insider-trading scheme stretched from the boardroom of the nation's largest dairy processor to the world of professional gambling and even enmeshed famed golfer Phil Mickelson, federal prosecutors and regulators alleged Thursday.
Announcing charges in a five-year conspiracy, authorities said former Dean Foods (DF) chairman Thomas Davis systematically fed secret corporate information about his Dallas-based dairy giant and another company to Las Vegas gambler William "Billy" Walters.
Walters used the information to rack up $43 million in illegal profits and avoided losses, said Manhattan U.S. Attorney Preet Bharara and Andrew Ceresney, head of enforcement for the Securities and Exchange Commission. The authorities filed parallel criminal and civil insider trading cases in Manhattan federal court.
Walters allegedly fed some of the information to Mickelson, who made $931,000 in profits on winning trades of Dean Foods shares, said Ceresney.
Charged with criminal conspiracy, securities fraud and wire fraud, Walters was arrested Wednesday in Las Vegas. Davis has pleaded guilty, and is cooperating with investigators. Mickelson was charged in the SEC's civil case as a relief defendant — a person who is not accused of wrongdoing but who has received property or benefits linked to illegal activity.
Without admitting or denying the allegations, Mickelson agreed to pay more than $1 million from the combined Dean Foods trading profits and pre-judgement interest, Ceresney said.
"Phil was an innocent bystander to alleged wrongdoing by others that he was unaware of. Phil is innocent of any wrongdoing," the golfer's attorneys, Gregory Craig and Pat Swan, said in a statement.
Walters was the alleged linchpin of the plot, arranging lucrative loans for Davis when the Dean Foods board member was desperate for cash, and giving Mickelson a way to reap profits at a time when the golfer owed money to the gambler, according to court filings and investigators.
"With a direct channel into Dean Foods' boardroom, Walters allegedly traded in advance of good news and bad news alike," Bharara said at a Manhattan news conference. "As alleged, it was all good news for Walters, because he had the information before everyone else — he had tomorrow's headlines today."
Defense attorney Barry Berke issued a statement that described Walters as "a true American success story, whose extraordinary accomplishments as a lawful sports gambler have been widely recognized and lauded." The statement said Walters and his legal team "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."
From at least 2008 to 2014, Davis allegedly tipped Walters to upcoming earnings reports and other information about not only Dean Foods but also Darden Restaurants (DRI), the parent of Olive Garden and other popular dining chains, the criminal charging documents alleged. Davis got the information from a law firm that had tried to recruit him to invest in Darden, court filings show.
The information included improper advance word of Dean's 2012 spin-off of WhiteWave Foods, the filings charged.
Walters, who allegedly knew Davis had violated his corporate responsibilities, used the information to execute trades of Dean Food shares that generated approximately $32 million in realized and unrealized profits and roughly $11 million in avoided losses, the 39-page criminal indictment alleged.
Using the secret information from Davis, Walters also allegedly executed trades in shares of Darden stock that produced approximately $1 million in profits.
Walters allegedly gave Davis a prepaid cell phone to use when the two discussed confidential corporate information. Trying to avoid detection, they used the code words "Dallas Cowboys" when discussing pending Dean Foods corporate plans, Bharara said.
Walters also phoned Mickelson in 2012 and urged him to trade in Dean Foods stock, the SEC complaint alleged. Mickelson, who owed money to Walters at the time of the call, followed the gambler's advice. The bet paid off, as Dean Foods shares soared 40% about a week later with the announcement of the WhiteWave spin-off, the SEC complaint charged.
"Simply put, Mickelson made money that wasn't his to make," said Andrew Ceresney. He rejected any speculation that the absence of stronger direct charges against the golfer might signal preferential legal treatment.
In return for the secret information, Walters gave Davis financial benefits, including approximately $1 million in loans that largely were not repaid, the indictment charged.
The SEC complaint that alleged Davis gave Walters "sneak previews" of at least six of Dean Foods' quarterly earnings announcements in addition to the leak about the WhiteWave spinoff.
Davis used the Walters-arranged financial benefits and loans to repay debts, including $100,000 the Dean chairman had wrongfully taken from a Dallas-based charity he managed, the SEC complaint alleged.
The charity raised funds for an emergency shelter that housed battered women and their children. Davis misappropriated funds from the charity in August 2011 to finance repayment of a gambling debt he owed to a Las Vegas casino, the SEC complaint charged.
Davis, who had been Dean Foods' non-executive chairman since May 2013, abruptly resigned last August without public explanation from the company. "Mr. Davis is pleased to assist the government in its investigation," his attorney, Thomas Melsheimer, said Thursday.
Dean Foods said it cooperated with investigators. Citing "the substantial investigation and action taken by the federal authorities, the company said it appreciated "their efforts to ensure a fair market for trading securities."
The case represents the latest of dozens of insider trading prosecutions in which Bharara's office has targeted suspected Wall Street financial wrongdoing.
Contributing: Matt Krantz
Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc
