At age 67, Thomas C. Davis should be enjoying all the perks of a long and distinguished career at the pinnacle of Wall Street and the Texas business elite. These include golfing at the prestigious Dallas Country Club and Preston Trail Golf Club, where he was a member; trips to Las Vegas and golf tournaments on the private jet he co-owned; and fractional ownership of two professional sports teams, the Texas Rangers and the Dallas Stars.
What he faces instead is the prospect of 20 years or more in federal prison and millions of dollars in fines.
Last month, Mr. Davis pleaded guilty to 12 felonies for a brazen insider trading scheme in which he leaked a stream of confidential information about the Dallas-based Dean Foods while he served as the company’s chairman.
When questioned by agents from the Federal Bureau of Investigation in 2014 and lawyers from the Securities and Exchange Commission last year, he lied, compounding his securities fraud by committing perjury. And after the F.B.I. agents left, he took a prepaid cellular phone he had used to leak the information and threw it into a creek near his Dallas home, destroying evidence and obstructing justice.
Mr. Davis’s crimes have received relatively little attention, in part because of the blaze of publicity that accompanied the flamboyant professional sports gambler William T. Walters, who was accused of being his co-conspirator, and the three-time Masters golf champion Phil Mickelson. (Mr. Mickelson wasn’t charged but netted nearly $1 million from the Dean Foods tips and agreed to forfeit the proceeds plus interest.)
Mr. Walters pleaded not guilty last week to 10 felony counts.
What led to Mr. Davis’s actions? His plea hearing, coupled with the S.E.C. and criminal complaints, and interviews with people who know him, offer some clues.
For one thing, Mr. Davis was so desperate for money he even took from a charity. According to the S.E.C., Mr. Davis ran a charity that raised money for a Dallas shelter for battered women and children. The charity, tax records show, was Shelter Golf Inc., which held an annual one-day pro-am golf tournament at Preston Trail to benefit Genesis Women’s Shelter & Support. The event typically raised over $400,000 and, after expenses, contributed about $300,000 a year to Genesis.
Mr. Davis was a co-president and trustee of Shelter Golf; the golf legend Lanny Wadkins was one of five other trustees. According to the S.E.C., in August 2011, Mr. Davis told his assistant to write him a check for $100,000 on the charity’s account, which he then used to cover an overdraft in his personal checking account of $80,000.
“This $100,000 check resulted in a significant shortfall in the amount available for donation to the battered women’s shelter,” the S.E.C. said in its complaint. “Davis first delayed the charity’s donation to the shelter and later wrote a check for a partial amount only after prompting by the shelter leader and promising another $100,000 by the end of the shelter’s fiscal year.”
Mr. Davis eventually repaid the $100,000 using money he had obtained as part of the insider trading scheme.
Many of his former colleagues on Wall Street were stunned by the charges against the distinguished white-haired Mr. Davis, a Harvard Business School graduate and a Navy veteran, who, in contrast to Mr. Walters and Mr. Mickelson, both known gamblers, was seen as a pillar of the business establishment.
In addition to his long tenure on the Dean Foods board, culminating in being named chairman in 2013, Mr. Davis served on at least nine other corporate boards, including Triton Energy, Suiza Foods, and the Dallas-based Colonial Bank (now owned by BB&T Financial). He was chief executive of the Concorde Group and a founder of Bluffview Capital, both investment firms.
Before that, he was a managing partner at Donaldson, Lufkin & Jenrette, where he was head of banking and corporate finance for the southwestern United States and handled many mergers and acquisitions. He left after Credit Suisse acquired the firm in 2001.
As someone actively involved throughout his career in confidential deals, Mr. Davis would have been acutely aware of insider trading law. “This was a shock,” said John C. Coffee Jr., a professor and expert on insider trading at Columbia Law School who has written about the failure to charge Mr. Mickelson.
“He, of all people, should have known better.”
But the annals of insider trading are filled with people who knew better, from Ivan Boesky to Rajat Gupta. What’s perplexing is their motives. Like Mr. Davis, they were already rich and successful beyond most people’s dreams.
At his plea hearing last month, Mr. Davis said he knew that his actions were “wrong and unlawful” but otherwise shed little light on why he turned to insider trading. But clearly, he needed money, despite his years of bonuses as a highly paid investment banker and his lucrative directors’ fees.
According to the S.E.C.’s complaint, by April 2010 Mr. Davis was in “desperate” financial straits. He owed the I.R.S. $78,000. His brokerage account was heavily margined, and he had run up tens of thousands in credit card debt. He owed $550,000 to one of his investment funds.
Mr. Davis sought salvation in gambling and in Mr. Walters, whom he met decades earlier on a golf course. The two often played together, especially when they were both living in Southern California. The insider trading scheme began around June 2008, when Mr. Davis tipped Mr. Walters to Dean Foods’ coming earnings.
It isn’t clear who came up with the idea, but Mr. Walters, an active investor, often expressed an interest in how Dean Foods was doing. There was no explicit agreement for Mr. Davis to share in any proceeds from Mr. Walters’s trading. Rather, as Mr. Davis put it at his plea hearing, “I expected that I would receive personal benefits in the form of business opportunities and a potential source of capital.”
As Professor Coffee put it, “This is a perfect example of a favor bank, which is exactly how Wall Street works.”
However vague the terms of their deal, they clearly knew that what they were doing was wrong. Mr. Walters gave Mr. Davis a prepaid cellular phone for use when conveying inside information and told him to use the code “Dallas Cowboys” when referring to Dean Foods, the government asserted.
Mr. Davis finally came knocking in April 2010, when he met with Mr. Walters in Las Vegas and asked for money. Mr. Walters arranged a loan of $625,000, which solved the immediate demands of the I.R.S. and his investment firm.
But his spending continued. In just one month, March 2011, Mr. Davis ran up gambling losses of $200,000 at one Las Vegas casino. He owed $178,000 for the private jet. And he had to cover the $100,000 he had taken from the charity. (The overdraft had occurred when the casino cashed in his “markers” after Mr. Davis failed to make good on the gambling losses.)
This time Mr. Walters guaranteed a $400,000 line of credit for Mr. Davis, who promptly drew down $350,000 of it. And Mr. Davis repaid Mr. Walters’s $625,000 loan, with interest.
Mr. Davis ultimately received over $1 million in “loans” from Mr. Walters, most never repaid. As it turned out, that was a pittance compared to the $43 million in profit Mr. Walters reportedly reaped from Mr. Davis’s tips — a sum Mr. Davis learned of only in the course of the investigation. Despite Mr. Davis’s reputation as a skilled deal maker, that will surely rank as one of the worst insider trading deals in history, and it may help explain why Mr. Davis is now cooperating with the government against Mr. Walters.
A lawyer for Mr. Davis, Thomas M. Melsheimer at Fish & Richardson in Dallas, declined to comment.
The government has shed little light on Mr. Davis’s motive, other than that he needed money. The S.E.C. said he did little to adjust his expensive lifestyle after leaving Credit Suisse in 2001. He experienced a sharp drop in his income, went through an expensive divorce soon after and suffered big investment reversals during the 2008 financial crisis.
None of that is a crime. Mr. Davis is hardly alone in trying to maintain the illusion of wealth and prosperity even as his personal finances veered out of control.
But after a lifetime of success, Mr. Davis was too proud and too embarrassed to admit any of this and turn to his wealthy friends and fellow golf club members, though many would have been willing to help, according to a person close to him. (This person and others insisted on anonymity because the situation involved a pending criminal matter.)
“Some people would risk anything rather than suffer that kind of personal embarrassment,” Professor Coffee said. “And once you’ve decided you’re willing to risk anything, you can get into deep, deep trouble.”
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