NEW YORK (Reuters) - 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 more than $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 Foods’ 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 in a civil lawsuit by the U.S. Securities and Exchange Commission, he was named as a relief defendant, not accused of wrongdoing but of receiving ill-gotten gains as a result of others’ illegal acts.
Mickelson agreed to pay back $1.03 million, including profit and interest, to resolve claims from his role in the scheme.
The SEC said Mickelson, 45, owed Walters money after placing bets with him. It said that at that time, Walters, aware of a Dean Foods corporate spin-off, urged Mickelson to trade in the company’s stock, enabling the golfer to earn $931,000 of profit.
“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 Wednesday night on charges of securities fraud, wire fraud and conspiracy. He was released on Thursday on a $1 million bond following a court appearance there.
Barry Berke, Walters’ lawyer, said the allegations were “based on erroneous assumptions, speculative theories and false finger-pointing.”
Davis, 67, who resigned from Dean Foods’ board in August, pleaded guilty on Monday.
Thomas Melsheimer, Davis’ lawyer, said his client was cooperating in the probe.
The charges marked the most significant insider trading case that Bharara’s office has pursued since a 2014 appellate ruling limited the scope of the applicable laws, a major setback for a high-profile crackdown that began in 2009.
That ruling limited authorities’ ability to pursue charges against a defendant who heard a stock tip second- or third-hand that originated with a corporate insider. It made prosecuting someone like Mickelson more difficult.
At a news conference, Bharara declined to say if that ruling was the reason Mickelson was not charged.
But he said the decision “has had an impact on our investigations,” allowing some “nefarious conduct” to go unprosecuted.
He called the ruling “wrongly decided,” and noted that 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.
Walters has long faced various state and federal probes in his career as one of the most successful sports bettors in the United States. In 1992, a federal jury acquitted him 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.
According to the indictment, Davis disclosed information to Walters about Dean Foods’ financial outlook, earnings and its spin-off of WhiteWaves Food Co. The company’s shares soared after the deal was announced on Aug. 8, 2012.
Walters gave Davis a prepaid cellular phone for passing along inside information secretly, 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 SEC, became public in 2014 amid news reports also linking the investigation to billionaire 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 maintained that he has never provided inside information to anyone.
“Mr. Icahn has never been accused of any wrongdoing, and as he has said before any suggestion he engaged in improper trading is inflammatory,” a lawyer for Icahn said on Thursday.
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.
(This story corrects paragraph 9 to say Walters was arrested on Wednesday, not Tuesday, and to say he was released on Thursday, not Wednesday)
Reporting by Jonathan Stempel and Nate Raymond in New York; Additional reporting by Jennifer Ablan; Editing by David Gregorio and Cynthia Osterman