On Thursday, the United States Attorney for the Southern District of New York accused Walters of using privileged information to execute trades between 2008 and 2014 involving Fortune 500 company Dean Foods. The trades allegedly netted Walters realized and unrealized gains of $32m while avoiding losses worth $11m.
The SDNY alleges that Walters (pictured, behind bars) was provided this insider info by Dean’s former chairman Thomas Davis, who pled guilty earlier this week to securities fraud and perjury charges and is cooperating with prosecutors. Walters allegedly provided Davis with capital for joint business ventures and nearly $1m in loans that Davis “largely did not repay.”
At the time of the loans, Davis was deeply in debt to credit card companies, the Internal Revenue Service, a $550k obligation to an investment fund he managed and a $100k ‘loan’ from a charitable organization he managed to cover a Las Vegas casino marker.
Walters, who was arrested Wednesday at a resort in his hometown of Las Vegas and will be arraigned Thursday afternoon, is facing charges of conspiracy, securities fraud and wire fraud. The charges carry a maximum penalty of 20 years in prison and a fine of $5m, or twice the gross gain or loss from the illegality. The Securities Exchange Commission (SEC) has filed a civil claim against both Walters and Davis.
US Attorney Preet Bharara (of Black Friday infamy) said Walters had “traded in advance of good news and bad news alike” based on the nonpublic Dean info provided by Davis. Bharara said Walters provided Davis with a prepaid cell phone with which to communicate the inside info on Dean, which Walters told Davis to refer to as the “Dallas Cowboys” when speaking via this phone.
On one occasion in 2008, Walters met with Davis, after which Walters bought nearly 4m shares of Dean. A few days later, the company revised upwards its quarterly earnings, prompting Dean shares to soar and netting Walters a $6m profit.
On another occasion in 2010, Davis informed Walters that Dean would fail to meet analysts’ earnings forecasts, leading Walters to sell 1.5m Dean shares, avoiding $7.3m in losses when Dean stock tumbled following the public release of its quarterly report.
Walters was identified as the subject of a securities investigation in May 2014, along with Mickelson, with whom Walters shares both a love of golf and wagering. Mickelson (pictured, not behind bars) was not charged by the SDNY but was named as a relief defendant in the SEC’s civil claim.
Mickelson has reached a deal with the SEC that requires him to return the $931k profit he made (plus $105k interest) on Dean trades in the days following a July 2012 phone conversation with Walters. The SEC filing notes that Mickelson owed Walters a wagering debt at the time of their conversation. The debt was repaid in September 2012 using proceeds from Mickelson’s Dean trades.