A lengthy investigation by the Securities and Exchange Commission (SEC) has led to criminal insider trading charges being brought against former Dean Foods Co (NYSE:DF) Chairman Thomas Davis and professional sports bettor and Chairman and CEO of The Walters Group, William “Billy” Walters. The SEC’s 25-page case document which was released this morning alleges that Mr. Davis repeatedly fed Mr. Walters material information related to his company’s earnings reports and other activities between 2008 and 2012.
Furthermore, the filing claims that in 2013, Mr. Davis also shared confidential information with Mr. Walters that he had obtained from a group of investors regarding their plans to take an activist stake and push for corporate change at Darden Restaurants, Inc. (NYSE:DRI). While the group of investors was not named in the document, it appears to be referencing Barington Capital Group, which revealed a 2.8% stake in the company on October 9, 2013, as well as its plans to push Darden Restaurants, Inc. (NYSE:DRI) to split its Red Lobster and Olive Garden franchises off into a separate company.
Mr. Walters is alleged to have made in profit or avoided in losses as much as $43 million through the information provided to him by Mr. Davis, who resigned from his position on Dean Foods Co (NYSE:DF)’s Board on August 7, 2015. In return for the lucrative information, Mr. Davis reportedly received a $625,000 loan from an associate of Mr. Walters’ in April 2010, as well as a $350,000 sum from Mr. Walters himself in November 2011. After taking over the debt owed to his associate by Mr. Davis, Mr. Walters had extended over $1,000,000 to Mr. Davis, which he made no attempt to collect.
3-Time Masters Champion Phil Mickelson to Pay Back Over $1 Million
Mr. Walters was also owed gambling debts by golfer Phil Mickelson in July 2012 when he passed along to the golfer information that he had received from Mr. Davis concerning the impending announcement that Dean Foods Co (NYSE:DF) would spin-off WhiteWave Foods Co (NYSE:WWAV), though the exact details were apparently not related to Mr. Mickelson, who was simply urged by Mr. Walters to buy the stock of Dean Foods.
Mr. Mickelson, the second-highest grossing golfer of all-time with $79.5 million in career prize money, purchased $2.4 million worth of Dean Food shares between July 30 and July 31. On August 7, those shares soared by 40% after the company did indeed announce the spin-off of WhiteWave Foods Co (NYSE:WWAV), prompting Mr. Mickelson to sell out of the stock the next day for a profit of over $931,000.
The SEC is not bringing charges against Mr. Mickelson, naming him only as a relief defendant in the document, which means he will be required to pay back the trading profits he earned, plus interest, which amounts to about $1.036 million in total. Mr. Mickelson has already entered into an agreement with the SEC to repay those funds.
Double Whammy of Charges
Mr. Walters and Mr. Davis will not be nearly so lucky, with the former being arrested in Las Vegas last night, while the latter has reportedly pled guilty to the charges and has been cooperating with authorities. The two men will face criminal charges in Manhattan as well as civil charges being brought against them by the SEC. Mr. Walters’ lawyer Barry Berke has claimed that his client is innocent and that the charges against him are based on theories and speculation.
For a time, investigators were also examining a possible connection between Carl Icahn and Mr. Walters, involving large options trades made in Clorox Co (NYSE:CLX) just days before Mr. Icahn revealed a $12.6 billion takeover bid for the company in July 2011, with the profit on those trades amounting to about 600%. Mr. Mickelson was reportedly also being investigated regarding those Clorox Co (NYSE:CLX) trades, but the SEC did not find any evidence to pursue it further.
The current case comes a year-and-a-half after insider trading charges against former hedge fund managers Todd Newman and Anthony Chiasson were overturned by the United States Court of Appeals for the Second Circuit, which led to several other cases being dropped by prosecutors. In light of that, it appears that Manhattan U.S Attorney Preet Bharara, who also pursued the aforementioned overturned cases, is confident that the exchanges of information and loans between the two defendants will present a strong case when brought before a jury.