Phil Mickelson has long been known as one of golf’s great escape artists on the course. But off the course, the legendary golfer found himself entangled in a high-stakes insider trading investigation and managed to walk away without criminal charges, even as others went to prison.
We’ll break down the full timeline of Phil Mickelson’s insider trading saga, from the first suspicious stock tip to the legal fallout.
TL;DR
- Phil Mickelson owed gambling debts to Las Vegas bettor Billy Walters in July 2012
- Walters tipped Mickelson to buy Dean Foods stock before major announcement
- Mickelson bought $2.4M worth of shares, made $931,000 profit when stock jumped 40%
- Used trading profits to pay down gambling debt to Walters in September 2012
- FBI investigation became public in May 2014
- Mickelson settled with SEC in May 2016
- No criminal charges due to lack of direct insider contact for Mickelson
The Unusual Stock Tip That Began the Insider Trading Allegations
In July 2012, Phil Mickelson received an unexpected phone call. On the other end was William “Billy” Walters, who is a famed Las Vegas sports gambler with whom Mickelson often placed bets.
Mickelson owed Walters a substantial sum from gambling losses at the time. During this call, Walters urged Mickelson to buy shares of a company called Dean Foods, hinting that something big was about to happen.
Mickelson, who had never traded Dean Foods stock before, acted on the tip. Just days later, Mickelson’s hunch (or rather, Walters’ tip) paid off spectacularly.
Dean Foods announced an upcoming spinoff of its profitable organic foods subsidiary, WhiteWave, alongside unexpectedly strong quarterly earnings.
The news sent Dean Foods stock soaring 40% in about a week. Mickelson sold his shares in the rally, reaping approximately $931,000 in profit.
It was, by any measure, an incredibly well-timed trade. In fact, it was so well-timed that it would soon draw the attention of regulators.
The Gambler and the Board Member
But to understand why that 2012 stock tip was suspicious, we need to introduce the other characters in this saga: Billy Walters and Tom Davis.
Billy Walters
Billy Walters was a famous sports bettor often described as America’s most successful gambler.
He was also an avid golfer who befriended Phil Mickelson in the 1990s over their shared love of the game (and gambling on it).
By 2012, Mickelson had run up sizable betting debts to Walters on more than one occasion.
Tom Davis
Tom Davis, on the other hand, was a prominent businessman who sat on the board of Dean Foods, a large Texas-based dairy company.
As a board member, Davis had a fiduciary duty to keep the company’s nonpublic information confidential. But Davis had personal financial problems and debts of his own.
Walters saw an opportunity: he began leveraging their friendship for insider information.
In exchange, Walters gave Davis financial perks: nearly $1 million in loans and other benefits, effectively paying for these illegal tips.
How Phil Mickelson’s Insider Trading Saga Went Down
To avoid detection, Walters and Davis used prepaid “burner” cell phones and even spoke in code. For example, “Dallas Cowboys” was their code name for Dean Foods when discussing insider info, to disguise the subject of their conversations.
Between 2008 and 2014, Walters traded Dean Foods stock ahead of at least 10 different major announcements, including quarterly earnings surprises and the 2012 WhiteWave Foods spinoff, using the confidential info Davis supplied.
According to prosecutors, Walters earned over $40 million in illegal profits from Dean Foods trades.
Where Does Phil Mickelson Fit Into This?
Phil Mickelson was not involved in the initial plotting between Walters and Davis. However, Mickelson’s personal ties to Walters as a gambling associate put him in the orbit of the scheme.
By mid-2012, Walters knew big news was coming for Dean Foods (the WhiteWave spinoff and earnings beat). Walters also knew Mickelson owed him a gambling debt. So Walters essentially passed a hot tip to Mickelson, urging him to buy Dean Foods stock.
This situation was a win-win for Walters because Mickelson could now clear his debt, and Walters wouldn’t have to front Mickelson any cash. Plus, spreading the trades across another person’s accounts would make Walters’ own massive trades look a little less conspicuous to regulators.
Mickelson, for his part, later maintained he did not know this was insider information. He thought he was just getting a stock tip from a friend. In legal terms, Mickelson was what’s called a “secondary tippee” or “relief defendant”.
Mickelson had no direct contact with Tom Davis, the insider at Dean Foods, and this distinction became crucial to his fate, as we’ll see.
The Unfolding of Phil Mickelson’s Insider Trading Charges
The following sequence of events led to the eventual public nature of the saga.
Suspicious Trades and an FBI Visit
Regulators like the SEC and FINRA employ sophisticated surveillance programs that monitor stock trading for unusual activity.
A 40% one-week surge in a mid-sized company’s stock, coinciding with well-timed trades by people connected to each other, was the kind of thing that draws attention.
It likely didn’t take long for authorities to notice that Billy Walters had a knack for buying Dean Foods right before big news hit, and that he often reaped huge profits as a result.
By May 2014, the investigation began to surface publicly. That month, FBI agents paid an early-morning visit to Tom Davis’s home in Dallas.
The Investigation
Throughout 2014 and into 2015, investigators subpoenaed phone records, trading logs, and bank records, methodically connecting the dots: Walters’ phone contacts with Davis, Walters’ timely trades, Mickelson’s parallel trades and debt payment, and so on.
Faced with mounting evidence, and reportedly suffering declining health, Tom Davis finally cracked. In October 2015, Tom Davis agreed to plead guilty to a dozen charges including securities fraud and perjury (for lying to the FBI and SEC).
Davis struck a deal to cooperate with federal prosecutors in exchange for leniency.
The Turning Point in the Case
With the insider (Davis) now cooperating, agents had a direct line of evidence implicating Walters, and by extension, exposing Mickelson’s profitable 2012 trade as one piece of the puzzle.
However, prosecutors faced a tricky legal question: Walters and Mickelson had both profited from Tom Davis’s inside information – so should both men be charged with insider trading?
It might seem intuitive that trading on a tip is illegal for anyone down the line, but U.S. insider trading law is nuanced.
In late 2014, a court ruling (the Newman case in the Second Circuit) had raised the bar for prosecuting “remote tippees” – basically saying that if Person C (like Mickelson) gets information through Person B (like Walters) from an insider A (Davis), it’s not a crime for C unless they knew the tipper breached his duty and got a benefit.
The SEC and FBI Announce Insider Trading Charges
On May 19, 2016, the U.S. Attorney’s Office in Manhattan unsealed criminal charges against Billy Walters and Tom Davis, alleging a multi-year insider trading scheme centered on Dean Foods.
Walters was actually arrested the day before and Davis had already pleaded guilty and was now essentially a witness for the prosecution.
At the same time, the SEC filed a civil lawsuit based on:
- Davis leaking secrets to Walters using burner phones and code words
- Walters trading on those tips to net over $40 million
- Walters funneling money to Davis in return
In that complaint, Phil Mickelson was named as a “relief defendant,” a legal term used for someone who received ill-gotten gains from a scheme but is not alleged to have actively participated in the illegal scheme
Phil Mickelson’s Fate
Mickelson was not charged criminally at all. Instead, the matter of Mickelson’s trade was handled on the civil side.
The SEC’s enforcement director at the time, Andrew Ceresney, put it this way: “Mickelson will repay the money he made from his trading in Dean Foods because he should not be allowed to profit from Walters’s illegal conduct.”
Without admitting or denying the SEC’s allegations, Mickelson consented to pay back all $931,738 of his trading profits, plus $105,291 in interest.
Mickelson’s lawyer at the time (a high-profile attorney named Gregory Craig) emphasized that Phil was an “innocent bystander” who “unwittingly” benefited from others’ wrongdoing
Billy Walters And Tom Davis Face Justice
While Mickelson put the issue behind him with a settlement, Billy Walters headed toward a criminal trial.
In April 2017, Walters went on trial in federal court in New York, charged with multiple counts of securities fraud, conspiracy, and wire fraud.
Tom Davis took the stand as the star witness for the prosecution, confessing to the entire insider trading scheme and detailing how he and Walters orchestrated it.
After a three-week trial, the jury found Billy Walters guilty on all 10 counts of conspiracy and fraud on April 7, 2017.
District Judge Kevin Castel presided over the case and later that summer handed down the sentence: 5 years in federal prison for Walters, plus a $10 million fine.
Walters was also ordered to forfeit and pay back tens of millions of dollars (in combination of fines, forfeiture of profits, and restitution). Reports say he ended up on the hook for over $40+ million in monetary penalties.
Thanks to his plea deal and cooperation, Tom received a much lighter sentence than he otherwise could have (he had faced up to 190 years on paper for all the counts he pleaded to).
In October 2017, Judge Castel sentenced Davis to 2 years in prison for his role in the scheme. Davis was also ordered to pay about $8 million in restitution to Dean Foods shareholders.
Phil Mickelson Insider Trading Verdict: ‘Technically Innocent’
The key players in this case faced serious consequences.
Billy Walters went from Las Vegas high-roller to convicted felon serving time, and Tom Davis went from respected corporate director to imprisoned informant.
Mickelson, however, was fortunate that the law (and perhaps some savvy lawyering) allowed him an exit route since prosecutors could not clearly prove he knew the info was illicit.
Legally, Mickelson’s outcome was justified by the nuances of insider trading law.
Ethically, however, some questioned whether Mickelson should have been more rigorously held to account for trading on a friend’s tip.
In the years following, Mickelson expressed regret in public statements for getting mixed up in something “unfortunate” and emphasized that he cooperated fully with investigators.
By 2018, the saga had faded and Mickelson’s golf career continued, though he privately endured criticism.
Mickelson’s experience stands as a cautionary tale about the importance of knowing the source of information in stock trading.