Insider Trading & Gambling Debts Taint Phil Mickelson

On May 19, 2016, U.S. Attorney Preet Bharara announced insider trading charges against Billy Walters, a well known Las Vegas sports gambler, as well as insider trading charges against Tom Davis.  Davis is the former chairman of the board of Dean Foods, the largest provider of fresh milk in the United States.  Andrew Ceresney also announced Phil Mickelson as a relief defendant to repay the benefits he received from the stock deal as well as interest.

The long time insider trading scheme started in 2010 when Davis tipped off Walters that Dean Foods was planning to spinoff a subsidiary and Walters purchased one million shares in Dean Foods.  The deal was delayed until July of 2012 and right before the deal happened Walters purchased additional shares of Dean Foods.  After purchasing additional shares Walters called Mickelson and urged Mickelson to purchase shares of Dean Foods.  Mickelson then purchased $2.4 million worth of stock in Dean Foods.

A few weeks after Mickelson purchased the shares Dean Foods announced the subsidiary spinoff, netting Mickelson $931, 738.12 as the stock increased by 40%.  As a relief defendant Mickelson will have to give back the $931,738.12 as well as $105, 291.69 in interest because he wrongfully benefited from the information Davis provided to Walters.  The reason Mickelson is not being charged for insider trading comes from the recent overturning of Newman and Chiasson.  It is argued that when Newman and Chiasson’s convictions were overturned it made it increasingly difficult to prosecute insider trading.  Newman and Chiasson acted on information that was given to them through intermediaries.  Newman and Chiasson did not have direct interaction with corporate insiders.  They are considered remote tippees and their case arguably opened the door for brazen insider trading.

Similarly, Mickelson is considered a remote tippee and therefore is only named as a relief defendant because he did not have direct contact with a corporate insider, Davis.  Mickelson has taken responsibility for his associations and decisions that led to him becoming involved in this investigation and has expressed his relief that he has been recognized as an innocent bystander.

Although Bharara and others have recognized the chilling effect Newman and Chiasson has had on prosecuting some people partaking in insider trading, Bharara has continued to work hard to prosecute insider trading.  Bharara continues to be feared on Wall Street and have a reputation of relentlessly pursuing those involved in insider trading despite the increasing difficulty of securing a conviction.

* Dominic Interlicchia is a second year law student at Wake Forest University School of Law. He holds a Bachelor of Science in Business Administration from John Carroll University. Upon graduation, he intends to practice corporate law.