Wednesday, March 22, 2017 | 1:26 p.m.
NEW YORK — The former chairman of Dean Foods testified in U.S. District Court in Manhattan on Tuesday that he had provided “an enormous amount of inside information” about the company to a friend and golfing partner, Las Vegas sports gambler William T. Walters.
The former executive, Thomas C. Davis, who has pleaded guilty to securities fraud, wire fraud and obstruction of justice, was making his first appearance as a key prosecution witness in Walters’ fraud and conspiracy trial.
“I gave him extensive information about Dean Foods, nonpublic information about Dean Foods over a rather long period of time,” Davis, 68, testified, referring to Walters. “I thought it would accrue to my benefit.”
At one point, as prosecutors beamed sections of an ethics guide from Dean Foods onto a large screen in the courtroom, Davis acknowledged that he had violated a basic tenet of corporate governance.
“I knew the law very well,” he said.
Although the main points of his testimony were already known, Davis’ roughly four hours on the stand amounted to an extraordinary admission of malfeasance by the former chairman of a public company.
Davis said he passed along confidential information about Dean Foods to Walters, allowing him to make millions of dollars off trades. Golfer Phil Mickelson, although not charged with any wrongdoing, has been swept up in the case. Federal authorities said Mickelson received a related stock tip from Walters and made about $1 million in profit.
Mickelson is a possible witness in the trial, the most significant criminal insider trading case in New York since the trial of Rajat Gupta, the former Goldman Sachs board member who passed confidential information to billionaire hedge fund manager Raj Rajaratnam.
Davis’ testimony signified the beginning of what is expected to be a prolonged appearance on the stand. Prosecutors are depending on him to provide extensive details of how Walters solicited insider information.
The defense, on the other hand, has portrayed Davis as an untrustworthy witness who falsely implicated Walters to extricate himself from financial trouble, and it is likely to subject him to a cross-examination that will focus on his troubled past, which includes theft from a charity he ran.
Davis and Walters first met on a golf course in California in the mid-1990s, Davis said, and quickly became close because of their shared interest in sports, gambling and business. The relationship was “innocent” at first, Davis said.
But in time he became “a virtual conduit” of secrets, he added, giving Walters information about projected earnings for Dean Foods, the company’s expansion plans and transactions it was contemplating.
In an attempt to foil any surveillance, the men referred to Dean Foods, one of the country’s largest dairy processors, as “the Dallas Cowboys” and used a prepaid cellphone they called the Bat Phone. Walters would leave messages saying, “Let’s go get a cup of coffee,” when he wanted information, Davis testified. Sometimes, he added, Walters would use code to inquire about Dean Foods by asking, “How’s the milkman doing?”
Several times in 2008, Davis testified, he told Walters in advance about earnings reports. In 2009, Davis said, he told Walters that the company had a chance to lift its stock price with the purchase of the European food company Alpro. The intent behind the tips was always the same, Davis said: “I expected him to benefit.”
Around 2009 or 2010, Davis said, he found himself squeezed for money and turned to Walters for the first of two loans that totaled nearly $1 million.
“I didn’t think I could get a loan from a bank,” Davis testified. “Based on our historic relationship as friends and based on the amount of assistance I had given him on Dean Foods, I felt highly confident he would give me a loan.”
Prosecutors have said most of that loan was never repaid.
The authorities eventually began investigating. In 2014, agents from the FBI showed up at Davis’ home in Dallas, he testified. Soon after that, an FBI agent from New York asked him to wear a wire during a meeting with Walters.
Davis testified that he declined to wear a wire on the advice of a lawyer but also acknowledged that he had at first misled investigators and denied providing inside information to Walters, saying, “I lied to everybody at that time.”
In 2015, Davis testified, he had a “mini-stroke” that he said was probably brought on in part from the pressure he was facing. After emergency surgery, he said, he decided to tell the truth about the information he had given Walters. Davis said he then met with investigators and confessed to his role in the scheme.
“The intensity of the investigation I had been through for the last year and a half had taken its toll,” he testified. “I couldn’t continue to lie.”
