Billy Walters claims instinct not insider trading

William “Billy” Walters’ stomach for taking risky bets and reading “tells” of opponents made him one of the most successful sports gamblers of all time. It is the same strategy he used to invest in the stock market, his lawyer told a jury as opening statements began in his $40m insider trading trial.

Prosecutors have accused Mr Walters of making over $30m in profits and avoiding $10m in losses trading shares of Dean Foods, a milk distribution company, after receiving confidential information about earnings and divestiture plans from Tom Davis, his friend, golf buddy and the chairman of Dean Foods.

Assistant US attorney Michael Ferrara told the jury of seven women and five men that Mr Walters was “cheating” the system through a pattern of receiving inside information from Mr Davis and then calling his stock broker to make trades. In exchange, prosecutors allege, Mr Davis received $1m in personal loans from Mr Walters.

“Walters broke the law again and again and again by placing his own greed over the law to make the stock market fair,” Mr Ferrara said. “He was the kid who aces the test because someone gave him the answers beforehand.”

Mr Walters has pleaded not guilty. If convicted on the 10 counts of securities fraud, wire fraud and conspiracy the 70 year old could face years in prison.

The prosecution’s case will rely heavily on Mr Davis, who has pleaded guilty to insider trading and obstruction of justice, and will testify for the government that Mr Walters gave him a pre-paid cell phone to obscure his identity and coached him to use code words, such as Dallas Cowboys, when referring to Dean Foods. Mr Davis will be used to knit together the story backed with trading and phone records.

Mr Walter’s attorney, Barry Berke, attacked Mr Davis’ credibility, saying he “reverse engineered a story like a bad scientific experiment” over 10 meetings to get a deal with the government.

Mr Davis, a friend of Mr Walters for decades, had tax problems and stole from a battered women’s charity and was desperate to avoid prosecution, he claimed.

“We are going to unravel every single lie that Davis says here,” Mr Berke told the jury.

Calling Mr Davis a “smooth talking” former investment banker, Mr Berke said Mr Davis stole from Mr Walters and his company by never repaying the market-rate loan given to him and taking $400,000 for his personal use when it was intended to invest in a business.

When Mr Davis pleaded guilty he said after agents from the Federal Bureau of Investigation showed up at his home he threw the pre-paid cell phone, which prosecutors say was called the ‘bat phone’, into a creek near his house. 

Mr Berke rebutted the claims: “It’s a lie. He didn’t have a bat phone.”

If you’re Bill Walters and you believe something he gave you is illegal insider trading, the last thing you would do it is give it to Phil Mickelson

He said Mr Walters used his shrewd analytical skills to make trading decisions, arguing he could see “subtle clues” that were not obvious to lay investors and that his client had a “different appetite for risk than us.”

Mr Walters immersed himself in the dairy industry, Mr Berke said, learning everything about the components of the business, such as the price of milk, grain, resin and diesel fuel.

Prosecutors allege Mr Walters told Phil Mickelson, the professional Hall of Fame golfer, about the Dean Foods planned spin-off of WhiteWave Food that he learnt about from Mr Davis. Mr Mickelson owed Mr Walters money and made nearly $1m from the trade, authorities allege.

Mr Berke suggested if his client believed he had inside information it was implausible he would have been so blatant. Mr Walters knew securities regulators would be looking into any big or unusual trades around a market moving event like a spin-off, he argued, adding: “If you’re Bill Walters and you believe something he gave you is illegal insider trading, the last thing you would do it is give it to Phil Mickelson.”