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Ex-Dean Foods Executive Pleads to Securities Case

MANHATTAN (CN) — The former head of the nation's largest dairy producer fed a steady stream of inside tips to one of Sin City's highest-rollers, federal prosecutors charged on Thursday.

Professional sports gambler William "Billy" Walters faces a federal indictment charging him with trading on confidential information sent to him by former Dean Foods chairman Thomas Davis.

A resident of Dallas, Texas, 67-year-old Davis pleaded guilty to criminal information against him this morning.

Both men also face a civil case from the Securities and Exchange Commission, which names celebrity golfer Phil Mickelson as an uncharged beneficiary of the scheme.

Mickelson will return more than $1 million plus interest in restitution, the SEC said.

The government filed all three proceedings this morning in Manhattan.

According to court papers, Walters and Davis kindled a longstanding friendship based on their shared interest in sports, golf, business and gambling.

U.S. Attorney Preet Bharara milked their high-rolling reputations at the press conference dominated by double-entendres.

"These bets were no gamble at all," Bharara told reporters. "They were a sure thing because, armed with inside information from Davis, Walters traded in advance of good news and bad news alike. It was all good news for Walters because he had the information before everyone else. He had tomorrow's headlines today."

Walters, for his part, appears ready to roll the dice by contesting the allegations in court.

"Bill Walters is a true American success story, whose extraordinary accomplishments as a lawful sports gambler have been widely recognized and lauded," his attorney Barry Berke, with Kramer Levin Naftalis & Frankel, said.

"Mr. Walters' renowned work ethic and many other talents also have helped him achieve great success in business, investing and philanthropy," Berke continued. "Mr. Walters and his counsel 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."

Prosecutors point to what they describe as a wide range of criminal trading on Dean Foods, the company behind Land O'Lakes and other major supermarket brands.

Between 2008 and 2014, Davis allegedly sent Walters information about earnings, financial performance, internal forecasts, and proposed mergers and acquisitions, including news of Dean's plans to spin off The WhiteWave Foods Company, its organic products subsidiary behind the brand Horizon, according to court papers.

"In 2013, Davis also provided Walters with inside information that Davis obtained from a group of investors who confidentially shared their plans to buy the stock of Darden Restaurants Inc. with the goal of pushing the company to make corporate changes," the SEC's summary states. "Based on these tips, Walters traded Dean Foods and Darden securities and reaped illicit trading profits and avoided losses totaling at least $40 million."

Walters and Davis used coded language to disguise their illicit trading, referring to Dean Foods as the Dallas Cowboys in conversations on a prepaid phone, prosecutors say.

The men had been in business together before and during the scheme, through investments in golf courses, a software company and bank recapitalization, according to court papers.

But Davis allegedly shared the information for more than friendship.


"In exchange for insider trading tips, Walters helped Davis with his financial problems by, among other things, providing Davis with almost $1,000,000," the SEC says. "In April 2010, Walters arranged for a friend to provide Davis with $625,000."

Walters gave Davis an additional $350,000 a little more than a year later, partly to help Davis pay off a $100,000 debt that he had taken from a Dallas-based charity that raised funds for a battered women and children's shelter, the SEC says.

Federal authorities arrested Walters, a 69-year-old resident of Henderson, Nevada, in nearby Las Vegas.

Thomas Melsheimer, who represents Davis for the Dallas office of Fish & Richardson, said in an email that his client is "pleased to be assisting the government in its investigation."

The prosecution comes on the heels of Bharara's recent successes, securing the convictions of two of New York's most powerful politicians of bribery.

"Brazen insider trading continues to be a blot on our securities markets, and so the integrity of our markets continues to be a priority for this office," Bharara told reporters.

"When the board member of a Fortune 500 company feeds inside information to a professional gambler, who makes a killing on well-timed trades in that very company's stocks, that is a form of corruption: Corruption of our markets, and we don't let that corruption stand," he added.

SEC director Andrew Ceresney meanwhile declined to explain why Mickelson, the PGA champion, was named as a "relief defendant," a designation that clears him of any civil or criminal penalties beyond his restitution.

Mickelson's attorneys — Gregory Craig of Skadden, Arps, Slate, Meagher & Flom and Pat Swan of Jones Day — emphasized that their client is not accused of any securities fraud.

"Phil was an innocent bystander to alleged wrongdoing by others that he was unaware of," they said in a statement. "Phil is innocent of any wrongdoing."

Court watchers have noted that prosecuting insider trading became harder since the Supreme Court refused to let Bharara's office appeal a precedent that narrowed the definition of insider trading.

The Second Circuit's ruling that prosecutors must prove a personal benefit to convict a defendant of insider trading toppled the securities fraud convictions of Level Global Investors co-founder Anthony Chiasson and one-time Diamondback Capital Management portfolio manager Todd Newman.

At the time, Bharara warned that the precedent would lead to "a potential bonanza for friends and family of rich people," the New York Times reported.

Bharara reiterated his disappointment with that decision at today's press conference.

"It has had an impact on our investigations, on our offices, including mine, that have come to the view that there is conduct that is nefarious — that undermines our faith in the markets, undermines the fairness of the markets — that will not be able to be prosecuted because of the Newman decision," he said.

Finding a reason for hope, Bharara noted that the Supreme Court agreed to hear an appeal of a case out of the Ninth Circuit — United States v. Salman — that could address the same question.

FBI director Diego Rodriguez also emphasized the toll inside trading has on the public.

"This kind of criminal behavior keeps wealth concentrated amongst the powerful, prevents everyday investors in turning a profit, and undermines public confidence in the integrity of our marketplace," Rodriguez told reporters.

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