Professional golfer, Phil Mickelson is listed on the defendant’s supporting witnesses in an upcoming insider trading case. As one of the most recognizable golfers, he has obviously drawn significant attention to the insider trading trial of William “Billy” Walters. Walters is a well-known sports gambler from Las Vegas, Nevada. While Walters has faced illegal gambling charges in the past, the insider trading allegations against Walters represents an entirely different arena for the rich and famous to be meddling in. Walters is rumored to have made millions on Super Bowl bets and is also known for his relentless work ethic towards gaining information that increases his odds of winning. However, it appears that Walters may have taken too much of a gamble by trading securities with inside information that was not known to the general public.
The crime, insider trading, was promulgated by the Securities and Exchange Commission and is codified at 15 U.S.C. § 78(j)(b). “The ban on insider trading derives from Section 10(b) of the Securities Exchange Act, which prohibits ‘any manipulative or deceptive device or contrivance’ used ‘in connection with the purchase or sale of any security.’” “Rule 10b5-1,10 promulgated thereunder, prohibits ‘the purchase or sale of a security of any issuer, on the basis of material nonpublic information about that security or issuer, in breach of a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information.’” Walters was charged with violating 15 U.S.C. § 78(j)(b) by using inside information regarding the publicly traded company, Dean Foods, for his financial benefit. He did this by purchasing and selling securities based on the information that not known to the general public.
The trial began on Monday, March thirteenth with jury selection. The trial has been entertaining from the beginning as finding a suitable jury was difficult. When it became known to the jury that Phil Mickelson might be of the witnesses to take the stand, one juror was immediately dismissed due to his demeanor alone. Despite the entertaining aspects of the trial, the criminal charges levied against Walters are serious, and if convicted, could mean up to twenty years in federal prison.
After talking with prosecutors, Mickelson disgorged all profits and interest from the transaction totaling $1.03 million.
Prosecutors charged Billy Walters with conspiracy and securities fraud after Walters allegedly conducted lucrative trades involving the dairy company, Dean Foods. The prosecution contends that the former CEO of Dean Foods, Tom Davis, gave inside information regarding early earnings reports as well as pivotal transactions to several individuals including Walters for the purpose of executing trades for their financial benefit. Walters is alleged to have profited over $40 million over the course of their dealings. An investigation revealed that Mickelson had also conducted transactions using the inside information. However, the golfer was never charged with a crime. After talking with prosecutors, Mickelson disgorged all profits and interest from the transaction totaling $1.03 million.
During opening statements, the prosecution’s theme was simple, “greed.” The prosecution painted a picture where Walters, an already wealthy businessman, chose to break the law and use trade secrets in order to make millions in profits. In addition, he lured people who had intimate knowledge of company trade secrets into his gambling circle in order to gain information for his future benefit. Walters has denied the charges and his counsel rebutted the prosecution’s charges by suggesting that Walters did not receive inside information but instead made the trades based on legal analysis. Specifically, the defense asserted that Walters used the analytical skills he gained from sports betting, running car dealerships, and being an investor to help him to make the trades. While both parties have plausible arguments, the prosecution seems to have a stronger case given their key witness.
The prosecution’s key witness is the CEO of Dean Foods alleged to have given the inside information to Walters, Tom Davis. Davis, a former Harvard MBA graduate, has excelled in the financial sector—as well as other business ventures—has agreed to testify against Walters after he pleaded guilty to securities and wire fraud last year. Davis described the relationship between Walters and himself as innocent, at first, but then became more complex when Davis became indebted to Walters. Davis had made several bets with Walters and became indebted to him. The debt complicated their relationship and Davis to felt obligated to give inside information regarding the dairy company in order to alleviate his debt. The defense has refuted these claims asserting that Davis is lying in order to minimize his own sentence.
The defense tested the inconsistency of Davis’s statements as well as the credibility of his testimony. Walters’ attorney, Barry H. Berke, cross-examined Davis and inquired into Davis’s motives. Counsel tried to highlight the fact that Davis had initially lied to federal investigators, he had embezzled money from a charity to cover up losses, and told his wife that he thought turning on Walters was the way for him to avoid liability. Davis explained that he had been dishonest during the investigation, but maintained that he had told the truth about giving inside information to Walters for the purpose of conducting trades. He also corroborated that he had met Mickelson on the golf course with Walters and that it was his belief that Walters had channeled information regarding the dairy company to Mickelson.
It would not make sense for a man like Walters to divulge sensitive information to a celebrity who would bring attention to such dealing.
The defense submitted a twenty-person witness list that included Mickelson’s name, but it remains unclear whether he will in fact testify. At a recent PGA tournament, Mickelson addressed questions about the trial and stated that he will not be taking part in the trial and that the trial was “not even a thought.” Even though Mickelson is adamant that his involvement in the case is over, Walters’ defense team has brought up Mickelson’s name numerous times and has incorporated his involvement into their defense theory. According to the defense, Mickelson never received inside information from Walters and it would not make sense for a man like Walters to divulge sensitive information to a celebrity who would bring attention to such dealing. However, this argument seems weak—given that Mickelson disgorged his profits from his trades of Deans Foods.
Insider trading cases have become more common in recent years due to the agenda set by former U.S. Attorney for the Southern District of New York, Preet Bharara. Although he was criticized for not pursuing more financial crimes after the financial crisis of 2008, Bharara prosecuted over 60 cases since coming into office. Bharara’s most notable convictions include Raj Rajaratnam who was sentenced to eleven years for earning over $60 million using inside information and Mathew Martoma who received nine years for the same conduct. Preet Bharara would be the prosecutor if not for the dismissals that took place earlier this year after Attorney General Sessions was confirmed. Despite his dismissal, Bharara has stated his confidence in the remaining staff to finish the cases that he started and continue his agenda in cracking down on white-collar crime. Walters’s trial is likely a part of the growing goal of prosecuting more white-collar crime. Bharara has since accepted a teaching position at the New York University School of Law.
Walters’s trial is scheduled to finish this week. It seems unlikely that Mickelson will testify but his name will be brought up and discussed by both parties as well as with the public.