Golf great to repay nearly $1 million in SEC case
Phil Mickelson has five major golf championships and countless endorsement deals. Thomas Davis, a former investment banker, has a Harvard pedigree and a country club lifestyle.
They also had a secret.
Both owed money to William Walters, a highrolling Las Vegas kingmaker, often considered the most successful sports bettor in the country.
Now, federal authorities say those debts were at the center of a long-running insider trading scheme.
Federal prosecutors in Manhattan on Thursday unveiled criminal charges against Walters, saying that illegal stock tips from Davis helped him generate some $40 million in profits and avoided losses. They also charged Davis, 67, who has agreed to plead guilty and who is cooperating against Walters, 69.
Mickelson, 45, was not accused of wrongdoing. But the Securities and Exchange Commission listed him in a civil complaint as a “relief defendant,” arguing that he was “unjustly enriched” and must disgorge “ill-gotten gains” he made from trades Walters recommended. Mickelson, known as “Lefty,” agreed to repay nearly $1 million, and his lawyer said he “takes full responsibility for the decisions
and associations that led him to becoming part of this investigation.”
The investigation hinged on Davis’ mounting debts, which were far larger than Mickelson’s and which may have provided a motive to share inside information.
Davis retired from investment banking at Credit Suisse First Boston in 2001, the government said, but not from the freespending lifestyle it enabled. His finances were so troubled, the authorities said, he even misused money from a charity.
Walters also lent him money. Davis, then the chairman of Dean Foods, the nation’s largest milk processor, returned the favor by feeding Walters boardroom secrets as far back as 2008, the authorities say.
To disguise the scheme, they said, the two used disposable cellphones and created “a secret code” for discussing Dean, a Dallas company, referring to it as “the Dallas Cowboys.”
“Davis breached his duty and broke the law as the result of being in dire financial straits,” Andrew Ceresney, the head of the SEC’s enforcement division, said at a news conference Thursday. And Walters, who was arrested at a resort in Las Vegas late Wednesday, was “gambling on a sure thing.”
The case, however, is much broader than a story about gambling debts. The charges represent
one of the most notable insider trading prosecutions since a federal appellate court overturned two prominent convictions — a ruling that led to the dismissal of about a dozen other convictions.
After the 2nd U.S. Circuit Court of Appeals overturned the convictions of two hedge fund managers, Todd Newman and Anthony Chiasson, in December 2014 — and in the process imposed the greatest limits on prosecutors in a generation — the government predicted a chilling effect on future insider trading investigations. Preet Bharara, the U.S. attorney in Manhattan, who led a sweeping crackdown on insider trading, warned that the ruling would allow “a potential bonanza for friends and family of rich people.”
But in charging Walters and Davis, his office and the SEC are sending a message that these cases
can still be made.
“Brazen insider trading continues to be a blot in our securities markets, and so the integrity of our markets continues to be a priority for this office,” Bharara said.
Walters’ lawyer said his client had done nothing wrong.
Ceresney declined to spell out the rationale for not making Mickelson part of the criminal case, other than, “We bring charges based on the evidence and the law.”
Mickelson has had a reputation for being a gambler, though he has said he’s scaled back.
Thursday’s complaint has the attention of the PGA Tour. One part of its handbook says that PGA players shall not “associate with or have dealings with persons whose activities, including gambling, might reflect adversely upon the integrity of the game of golf.”