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Banking Phil Mickelson to return nearly $1 million in federal insider trading probe

Phil Mickelson to return nearly $1 million in federal insider trading probe

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Federal authorities on Thursday charged the former chairman of Dallas-based Dean Foods and a well-known sports bettor, alleging the long-time friends were involved in an insider trading scheme that spanned at least seven years and enriched golfer Phil Mickelson.

William “Billy” Walters made about $32 million from the schemes and was able to avoid losses of about $11 million through his relationship with Thomas Davis, a former member of Dean Foods’ board, according to the indictments filed in the U.S. District Court of Manhattan.

Walters, 69, also used that information to help Mickelson, another long-time friend, according to charges filed by the Securities and Exchange Commission. In 2012, Walters told Mickelson to buy shares of Dean Foods right before it announced plans to spin-off one of its subsidiaries. Mickelson bought shares the next day and about a week later Dean Food’s stock price had jumped 40 percent, according to the complaint. Mickelson made a profit of $931,000, which he has now agreed to return.

“Mickelson had placed bets with Walters prior to the tip, and Mickelson owed Walters money at the time of the Dean Foods trading. Mickelson repaid Walters in September 2012, in part with the proceeds of his trading,” the complaint says.

Walters, who has denied wrongdoing, was arrested in Las Vegas on Wednesday. Davis has pleaded guilty and, his attorney said in a statement, is “happy to be assisting in Department of Justice’s investigation.” He stepped down from Dean Foods’ board last year.

Mickelson was not charged with wrongdoing, but was named as a “relief defendant,” meaning that the SEC wants him to return his profits.

“Phil has not been charged with insider trading. Phil was an innocent bystander to alleged wrongdoing by others that he was unaware of,” Gregory B. Craig, Mickelson’s attorney, said in a statement.

Mickelson, nicknamed “Lefty” for his distinctive southpaw swing, has been one of the most popular players in golf for the past quarter-century, winning his first PGA Tour event as an amateur in 1991 and earning a total of 51 professional victories worldwide, including five major championships.

Mickelson has earned a reputation as one of the most prodigious gamblers on the PGA Tour, where casual betting on practice rounds is considered standard operating procedure. In one legendary story, he took several hundred dollars off Tiger Woods during a 1998 practice round, then photocopied the $100 bills and taped them up in Woods’s locker, along with a note saying, “Just wanted you to know Benji and his friends are happy in their new home.”

He has also bragged of winning large sums on Super Bowls and World Series through legal bets placed in Las Vegas.

It was through his relationship with Walters, a famed sports bettor, that Mickelson became entangled in an insider trading case. Walters became a Las Vegas fixture in the 1980s, gaining a reputation for big bets that netted him millions. In 2010, he made $3.5 million from his bets on the Super Bowl, according to a profile published by the San Diego Union Tribune.

“If you’re committed to being a professional gambler, and you want to be the best you can be, you spend every waking moment trying to figure out a way to beat the game,” Walters once told a writer.

The insider trading case centers on the relationship between Walters and Davis, the Dean Foods board member, which started more than 20 years ago at a Southern California golf course, according to the SEC complaint. In 2001, Davis retired from a job at a national investment bank and joined the board of Dean Foods.

“Following his retirement from investment banking, Davis’s financial condition declined, as his spending and gambling habits did not change despite his lower income,” the SEC complaints says. He began passing along inside information to Walters, who he owed money to at various times.

In order to avoid detection, Walters and Davis used prepaid cellular phones and code words, according to the indictment. Walters told Davis to use the phrase “Dallas Cowboys” when referring to Dean Foods, for example. On some days, Walters’ trades accounted for 36 percent of the trading volume in Dean Foods, a staggering amount.

In return for passing along the information, Davis received “business opportunities, investment capital, and approximately $1 million in loans that were, in large measure, never repaid,” the indictment says.

The case is just the latest amid a crackdown on insider trading led by U.S. Attorney Preet Bharara. Bharara has secured dozens of convictions and guilty pleas over the past few years, though this case differs because it does not involve a well-known Wall Street figure.

Those efforts had been hobbled recently by a ruling from the U.S. Court of Appeals for the Second Circuit that placed greater limits on insider trading prosecutions, prompting government officials to warn that it could have a chilling effect on such cases.

“Brazen insider trading continues to be a blot on our securities markets,” Bharara said in a statement. “When the board member of a Fortune 500 company feeds inside information to a professional gambler who makes a fortune on well-timed trades in that company’s stock, that is a form of corruption – the corruption of our markets. And we don’t let corruption stand.”

In a statement, Walters attorney said the “prosecutors’ accusations are based on erroneous assumptions, speculative theories and false finger-pointing.”

“Bill Walters is a true American success story, whose extraordinary accomplishments as a lawful sports gambler have been widely recognized and lauded,” Barry Berke, the attorney, said in a statement.

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