Ex-Dean Foods Board Member, Pro Golfer Phil Mickelson, and Professional Sports Gambler Are Named in Insider Trading Case

The Securities and Exchange Commission has filed civil charges against professional sports gambler William Walters. He is accused of making $40M from an illegal stock tip given to him by former Dean Foods Company board member Thomas C. Davis. The regulator said that Davis, who owed Walters money, gave him insider information about the company prior to market-moving events.

Professional golfer Phil Mickelson, who is a relief defendant in the case, allegedly traded in Dean Foods securities based on Walter’s recommendation. Mickelson then purportedly took the nearly $1M he made from the trading to help repay the gambling debt he owed to Walters. As a relief defendant, Mickelson is not being charged with insider trading or accused of wrongdoing. He will, however, have to pay back the money he made from trading in Dean Foods securities.

As to why Mickelson won’t be prosecuted, The New York Times reports in the article “How to Get Away with Insider Trading,” this is because of U.S. insider trading laws, which bars trading on nonpublic information only if the information has been used or obtained wrongly. This allows parties involved later on in the “chain of information” to benefit from such rules.

Walters and Davis, however, are charged in this case. The SEC’s complaint said that the illegal trading took place over five years.

The two men purportedly took pains to avoid detection, including using a prepaid cell phone to communicate. Aside from the insider information related to Dean Foods, including pending public announcements about quarterly earnings information and key changes to the business, the Commission also noted suspect-related trades in Darden Restaurants stock. In 2013, shareholders purchasing stock for the restaurant that had recruited Davis.

The SEC said that when Davis didn’t have information to give Walters about Dean Foods, he offer him share nonpublic information about Darden even though he had signed a non-disclosure agreement. Walters purchased nearly $30M of Darden stock because of the illegal tips and made money when the stock price rose 7% at one point.

The U.S. Attorney’s Office for the Southern District of New York has brought criminal charges against Davis and Walters.

In other insider trading news, the SEC has filed charges against an investment banker and his friend who is the plumber that helped remodel his bathroom and allegedly placed funds in a gym bag in exchange for illicit information about pending acquisitions and mergers. It was the SEC Enforcement Division’s Market Abuse Unit that identified that the plumber, Gary Pusey, was engaging in what appeared to be a pattern of illicit trading.

The regulator believes that investment banker Steven McClatchey, who was his close friend, allegedly gave him nonpublic tips at least ten times. As a result of the insider trips, said the Commission, Pusey made $76,000 in illicit trading profits. McClatchey was formerly a Barclays Plc (BARC) trader.

The U.S. Attorney’s Office for the Southern District of New York has filed criminal charges against both men. McClatchey is charged with wire fraud, conspiracy, and securities fraud. Pusey has already pleaded guilty to the criminal charges against him.

The SSEK Partners Group is an institutional investor fraud law firm.

The SEC Complaint in the McClatchey case (PDF)

The SEC Complaint in the Dean Foods case (PDF)