Former Dean Foods Co. Chairman Tom C. Davis, who came clean about a seven-year insider trading-plot and then helped prosecutors convict disgraced Las Vegas gambler Billy Walters, had hoped to walk free once the case was over.
Instead, he’s headed to prison for two years himself.
Davis was ordered jailed after pleading for a sentence with no prison time. Prosecutors backed his bid for leniency, saying Davis provided “extensive” cooperation against Walters, once the most successful sports bettor in the country. But U.S. District Judge P. Kevin Castel was having none of it. At Thursday’s sentencing in Manhattan federal court, he called Davis "a phony, a fraud and a crook" who "paraded” around his hometown of Dallas “as a peacock."
Davis, 68, was the government’s star witness against Walters at a trial this spring. Admitting he passed tips about Dean Foods to Walters from 2008 to 2014, Davis took the witness stand and told jurors how his leaks helped his golfing buddy make at least $43 million. Walters was convicted of fraud and is serving five years in a federal prison in Pensacola, Florida.
"I made a series of grave mistakes, your honor," Davis told Castel on Thursday. "I know there is no one to blame but myself."
Davis’s Downfall
The sentencing caps the downfall of Davis, once the chairman of a Fortune 500 company. A Harvard MBA and former U.S. Navy officer who worked for more than 20 years as an investment banker, he racked up debt while trying to maintain an executive lifestyle after his retirement. In dire financial straits, he repeatedly turned to Walters for help covering his gambling debts as well as a $78,000 tax bill, according to the government. Davis also owed $178,000 to a private jet business venture and $100,000 to a Dallas charity he managed. Regulators said he used charity money to cover a casino debt.
Davis agreed to cooperate with prosecutors in early 2016, after he suffered a series of health scares and as a U.S. probe into his and Walters’s trading intensified, prosecutors said. Once he decided to work with the government, Davis knew he had to tell all.
“Davis spent the equivalent of a month meeting with prosecutors and detailing every misstep in his life,” prosecutors wrote in a court filing. “He admitted his use of bookies and his financial hardships; he admitted that he had extra-marital affairs and paid for sex; and he admitted that he took money from a charity that he ran, which was a humiliating admission for him.”
As defense lawyer Benjamin Naftalis said at sentencing, Davis became the government’s “key” witness. Even under harsh cross-examination at the trial, he revealed the gritty details of a plot that he said started innocently but grew until he’d become a "virtual conduit of nonpublic information" for a man he’d known for years.
Burner Phone
As the scheme grew, Davis said Walters gave him a burner cell phone for communicating and instructions for how to pass along tips. Davis said he was told to call Walters on the phone -- which Walters called the Bat Phone -- and ask “to get a cup of coffee” when he had a tip. Davis was also told to refer to Dean Foods as the Dallas Cowboys, he testified.
Yet even as Walters grew richer from tips on Dean Foods, Davis’s finances crumbled, adding a new twist to their relationship, he said. In exchange for more tips, Davis said Walters arranged a $1 million loan to help cover Davis’s gambling debts and costs stemming from a bitter divorce.
“I became indebted to him,” Davis testified. “He became more demanding of me for information.”
The former executive said a visit from the FBI in May 2014 prompted him to hurl the burner phone into a Dallas creek in an attempt to cover up the plot. It was one of several attempts by Davis to derail the insider-trading probe as the government closed in on the men.
Wear a Wire
But Davis refused a request from FBI agents that he wear a wire while meeting with Walters to record the conversation.
“I decided it wasn’t something I should be doing," he testified.
The details of the brazen scheme were made public when the men were charged in May 2016.
A lawyer for Walters depicted Davis at trial as willing to do anything to save himself from prison, including lying to get his former friend convicted. The jury didn’t buy it. Walters was convicted April 7, telling reporters that day that he’d lost "the biggest bet of my life."
Seven Homes
Walters, whose prolific wagers over four decades helped him buy seven homes and a $20 million jet, was sentenced in July. At the time, Castel described Walters as a rich Las Vegas celebrity who sought to exploit his relationship with Davis out of greed.
The case -- among the most colorful and high-profile insider-trading prosecutions in recent years -- entangled pro golfer Phil Mickelson, who wasn’t accused of wrongdoing but agreed to pay back almost $1 million he earned trading on information he got from Walters.
On Thursday, Castel agreed that Davis had helped prosecutors convict Walters, but he also pointed to Davis’s decisions to tell "a pack of lies" to the Securities and Exchange Commission, to destroy evidence and to involve his lawyers and his secretary in his crimes.
In addition to the two-year sentence, Castel ordered Davis to forfeit $845,000 and pay $8.9 million in restitution to Dean Foods, a debt he shares with Walters. He’s scheduled to report to prison Jan. 9.
The case is U.S. v. Walters, 16-cr-00338, U.S. District Court, Southern District of New York (Manhattan).
--With assistance from Patricia Hurtado
To contact the reporters on this story: Erik Larson in New York at elarson4@bloomberg.net, Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net.
To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Erik Larson
©2017 Bloomberg L.P.
