Statement at News Conference Announcing Insider Trading Case Involving Sports Gambler and Board Member

Andrew Ceresney
Director, Division of Enforcement 

May 19, 2016

Let me start by saying that as you undoubtedly know, insider trading is a high priority for the SEC.  Over the last six years, we have charged more than 650 defendants in civil insider trading cases. 

Today’s action is significant because, among other things, we are charging a corporate director with insider trading.  We allege that from 2008 to 2013, prominent sports gambler Billy Walters engaged in a brazen multi-year insider trading scheme based on tips of confidential market-moving information provided by his friend Thomas Davis, a Dean Foods board member.  Davis provided Walters with previews of six of Dean Foods’s earnings announcements and advance notice of the spin-off of Dean Foods’s profitable subsidiary, WhiteWave.  Walters used this information to generate huge profits ahead of good news and to avoid losses before bad news reached the market.  As alleged in the complaint, over a five-year period, Walters reaped at least $40 million in illicit profits and losses avoided. 

Board members owe their shareholders a fiduciary duty and we will pursue vigorously those who breach that trust and seek to profit from those breaches.  The management and shareholders of Dean Foods placed their trust and confidence in Davis, and he repeatedly breached that trust and confidence, year after year, providing Walters with the company’s most closely held information. 

This case is particularly egregious in that Davis betrayed the Dean Foods shareholders in exchange for financial benefits that Walters provided him.  As alleged in the complaint, the quid pro quo nature of Davis’s and Walters’s relationship was especially vivid in April 2010, when Davis was desperate for money and turned to Walters for help.  Davis asked for financial assistance and provided Walters with confidential information regarding Dean Foods in the same meeting.  Walters then bought Dean Foods based on Davis’s tip and arranged for a friend to wire Davis $625,000.  Walters rescued Davis from dire financial straits again in November 2011, this time providing Davis with $350,000, and again a couple months later in January 2012, when Walters took over the $625,000 loan he had earlier arranged for his friend to provide Davis. 

We also have named professional golfer Phil Mickelson as a relief defendant in the case and he has agreed to settle and pay over $1 million in profits and prejudgment interest from his trading to the government.  Subject to court approval, Mickelson will repay the money he made from his trading in Dean Foods because he should not be allowed to profit from Walters’s illegal conduct.  

Walters had been trading in Dean Foods, based on tips from Davis, in the months of May and July.  Then, at the end of July 2012, about one week before Dean Foods publicly announced the spin-off of its profitable subsidiary WhiteWave, Walters contacted Mickelson.  Mickelson had placed bets with Walters prior to that and owed him money.  They spoke and traded texts on Friday, July 27 and Saturday, July 28.  The complaint alleges that Walters urged in these discussions that Mickelson trade in Dean Foods’s stock.  Based on these discussions, Mickelson bought $2.4 million of a stock he had never before purchased.  Mickelson partially funded his purchase with a margin loan from his broker.  Walters himself purchased another 100,000 shares, increasing his Dean Foods position to 4 million shares worth nearly $53 million.

After market close on Aug. 7, 2012, Dean Foods announced strong quarterly results and the spin-off.  Its share price increased 40 percent.  The next day, Mickelson sold all of his Dean Foods shares for a profit of approximately $931,000.  Using part of the proceeds from this trading windfall, Mickelson repaid Walters in September 2012. 

Simply put, Mickelson made money that wasn’t his to make.

This action against Mickelson makes clear we will pursue both those who engage in insider trading and those who profit from it. 

The bottom line is that today’s action has brought to light an egregious and large scale scheme that reached into the highest levels of the corporate boardroom.  Davis breached his duty and broke the law as a result of being in dire financial straits, and Walters made at least $40 million based on Davis’s breach of duty, gambling on a sure thing. 

Today’s actions would not have been possible without the efforts and dedication of our important law enforcement partners.  First, the U.S. Attorney’s Office for the Southern District of New York, which is an important partner in our fight against insider trading and against securities law violations generally.  I also want to thank the Federal Bureau of Investigation and the U.S. Postal Inspection Service for their assistance.  Let me also recognize and thank FINRA for their tireless work and assistance in surveilling today’s vast and complex markets.

Finally, let me recognize the SEC staff who investigated the matter.  They include dedicated and talented individuals from our San Francisco Office, the Market Abuse Unit and the New York Regional Office:  Karen Kreuzkamp, Victor Hong, William Martin, Alexander Vasilescu, Steven Buchholz, Joseph Sansone, and Jina Choi.  In spite of the concerted effort at concealment, the staff analyzed years of trading data and other information and meticulously followed the leads back to Walters and Davis, uncovering Walters’s financial dealings with both Davis and Mickelson.