Thomas Davis, the former chairman of Dean Foods (DF), has pleaded guilty to taking part in an insider trading scheme which allegedly netted sports gambler William "Billy" Walters more than $40 million.
Walters, 69, was arrested by the FBI in Las Vegas late Wednesday, and will appear before a federal judge in Nevada later Thursday to face conspiracy, securities and wire fraud charges, U.S. Attorney Preet Bharara told a news conference in New York.
"Brazen insider trading continues to be blot on our securities markets," Bharara said. "So integrity of markets continues to be a priority for my office."
Davis, 67, who resigned from Dean Foods last year, received two loans of nearly $1 million from Walters, which largely went unpaid, Bharara said in a statement.
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, the government said. Walters then allegedly used this information to generate huge profits ahead of good news and to avoid losses before bad news reached the market. Over a five-year period, Walters reaped at least $40 million in illicit profits and losses avoided, prosecutors said.
Both men face possible prison sentences and multi-million dollar fines.
Beyond criminal charges filed by federal prosecutors in New York, the pair face a civil case by the Securities and Exchange Commission, with accuses both men of insider trading.
The SEC complaint also names professional golfer Phil Mickelson as a relief defendant, alleging the golfer traded Dean Foods's securities at Walters's urging and then used his almost $1 million of trading profits to help repay his own gambling debt to Walters.
Relief defendants are not accused of wrongdoing but are named in SEC complaints for the purposes of recovering alleged ill-gotten gains in their possession from schemes perpetrated by others.
"As we charge in our complaint, Walters illegally reaped tens of millions of dollars with the benefit of the ultimate ace in the hole -- confidential information leaked by a sitting board member of a public company," said Andrew Ceresney, Director of the SEC's Enforcement Division, in a press release. "Additionally, 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."
Mickelson's lawyers issued a statement saying the golfer will return all the money he made, saying "Phil has no desire to benefit from any transaction that the SEC sees as questionable."
"Phil has not been charged with insider trading. Phil was an innocent bystander to alleged wrongdoing by others that he was unaware of. Phil is innocent of any wrongdoing," said Gregory Craig of Skadden, Arps, Slate, Meagher & Flom and Pat Swan of Jones Day, in the statement.