Criminal and civil authorities are investigating whether the former chairman of Dean Foods Co. leaked inside information about a corporate spinoff to a professional gambler who in turn is suspected of tipping off golfer Phil Mickelson, according to people familiar with the probe.
The scrutiny of Dean Foods ex-Chairman Thomas Davis brings a high-profile investigation first reported by The Wall Street Journal last year into the boardroom of a major company. The showcase probe could test the limits of the government’s ability to pursue high-profile insider-trading cases, as its efforts have been significantly set back by a 2014 appellate-court ruling.
The Securities and Exchange Commission and the Manhattan U.S. attorney’s office are examining whether Davis leaked information on his company’s 2012 announcement of a spinoff of its Broomfield-based WhiteWave Foods division to Las Vegas bettor William “Billy” Walters, the people familiar with the investigation said.
Davis unexpectedly resigned Friday from the Dallas-based dairy company, ahead of the company’s Monday earnings announcement. Davis’s resignation was voluntary, his lawyer said. Dean Foods owns the Meadow Gold brand and operates dairy production facilities in Delta, Englewood and Greeley.
The lawyer representing him, Thomas Melsheimer, said in a statement that Davis has “fully and without reservation cooperated with the SEC in their investigation of alleged insider trading in Dean Foods Company stock from day one. He has no knowledge of any material non-public information about Dean Foods Company being conveyed to Walters by him or anyone else.”
Walters said last year that it would be “preposterous to think that I would involve myself in insider trading.” Efforts to reach him Wednesday were unsuccessful. Mickelson couldn’t be reached Wednesday. A lawyer representing him previously said: “Phil has done absolutely nothing wrong. He has been cooperating with the investigation.”
Dean Foods in a statement said it has “cooperated with the government’s requests for information and will continue to do so. Because there is an ongoing government investigation, it would be inappropriate to comment further at this time.”
Representatives of the SEC and the Justice Department declined to comment.
The scrutiny of Dean Foods’ former chairman reflects a shift in focus for the government in its sweeping insider-trading probe. The Journal last year reported that federal prosecutors, the Federal Bureau of Investigation and the SEC were investigating whether activist investor Carl Icahn had passed tips to Walters, with whom he had a casual relationship, about cleaning-products maker Clorox Co., and whether Walters passed tips to Mickelson. The investigation drew world-wide attention for its spotlight on the intersection of Wall Street, Las Vegas and professional sports.
The portion of the investigation related to Icahn—which involved potential trading in Clorox, in which Icahn once held a stake—is now largely dormant, the people familiar with the matter said.
Icahn said last year, “We are always very careful to observe all legal requirements in all of our activities.” The suggestion that he was involved in improper trading, he said, was “inflammatory and speculative.”
The SEC now is homing in on the Dean Foods element of the probe, the people familiar with it said. SEC investigators from the SEC’s New York and San Francisco offices are scrutinizing potential links between Davis and Walters, a prominent sports bettor, these people said, and agency officials are conducting interviews with potential witnesses.
FBI agents have inquired about any trading by Mickelson in Dean Foods, the Journal reported last year, citing people familiar with the matter. The stock was suggested to him by Walters, although Mickelson had owned it previously, the Journal reported.
Dean Foods received a subpoena from criminal authorities requesting information in 2014, and the company has turned over to the government copies of e-mails from Davis, a person familiar with the matter said. Investigators requested e-mails that relate to Walters or Mickelson, although it is unclear what was found, this person said.
The New York Times earlier reported that the SEC was scrutinizing a Dean Foods director as a suspected source of information for Walters.
Davis, who had been a Dean Foods board member since 2001, has also served as chief executive of the Concorde Group, a financial-advisory firm that invests in small companies, according to a biography on the website of the Dallas Stars, a hockey team for which he has served as an adviser. He worked for 17 years for investment bank Donaldson, Lufkin & Jenrette, and he has served on the boards of several companies besides Dean Foods. He served in the Navy and graduated from Harvard Business School, his biography says. He has led a nonprofit group, Shelter Golf Inc., which raises money for homeless shelters through golf tournaments, nonprofit records show.
Davis and Walters were acquaintances, and Walters had a social relationship with Mickelson, according to people familiar with the probe.
The gambler has been the subject of various government probes since the 1980s, resulting in four indictments but no convictions, the Journal previously reported. In one case, prosecutors accused him of being part of an illegal gambling operation. He was acquitted by a federal jury in 1992. Walters denied wrongdoing in all of the cases, calling the government’s pursuit “a shakedown” in a 2011 interview with the Journal.
Walters and Mickelson have belonged to the same San Diego-area golf club. The golfer, a three-time Masters tournament champion, is one of the sport’s most popular and recognizable athletes.
He was approached by FBI agents in September 2013, at an airport in Bedford, Mass., after playing in the Deutsche Bank Championship golf tournament, the Journal previously reported. The FBI, aware that the investigation was about to be reported on by the Journal, approached him again on May 29, 2014, after he finished a round at an Ohio golf tournament. Mickelson referred the two agents to his lawyer, a person familiar with the matter told the Journal, which reported on the investigation the following day.
While all three men’s activities are being investigated, the SEC could face a heightened legal hurdle in bringing any case against Mickelson, after an appeals court last year overturned the convictions of former hedge-fund traders Todd Newman and Anthony Chiasson . The court cited judicial error and prosecutors’ failures to meet their burden of proof in a decision the government has criticized as weakening insider-trading law.
If that ruling were applied in full to any action potentially brought against Mickelson, the golfer would be liable only if the U.S. could “show that the tipper…expected to receive a personal benefit from disclosing the information and that . Mickelson knew that the insider expected to receive that benefit,” said Adam Pritchard, a law professor at the University of Michigan. The U.S. solicitor general has asked the Supreme Court to review the 2014 ruling.
