SEC v. Walters and Davis gives two lessons on securities cases

On Behalf of | May 31, 2016 | Securities, White Collar Crimes |

The Securities and Exchange Commission (SEC) is accusing professional sports bettor, William “Billy” Walters, and the former director of Dean Foods Company, Thomas Davis of securities fraud.

The complaint states that Walters received confidential information from Davis about the profitability of Dean Foods. Such information included figures from earnings announcements and spin-off projects. This confidential information was allegedly given to Walters, who then made securities trades based on these tips. In exchange, it is claimed that Walters helped Davis pay off various gambling debts.

This case brings attention to two big lessons for those facing similar allegations: the impact of the Newman case and the potential for secondary charges.

Impact of United States v. Newman

United States v. Newman was an earlier case that will likely impact most future insider trading disputes. It was decided in 2014, and involved a federal appeals court that overturned an insider trading conviction.

The ruling makes it difficult to prove that confidential information was “tipped”. The case established that the government must show that the person getting the information, the tippee, knew that the tipper was getting some sort of a benefit from giving the tippee the information.

Essentially, the holding requires that more than just a friendship be present for a tip to reach the level of insider trading.

If insider trading charges fail, other charges may still exist

The SEC v. Walters and Davis case also provides an example of how the government will likely have a back-up plan when pursing insider trading charges. If the insider trading charges in this case fail, the government has also filed secondary charges for wire fraud. This crime is generally easier to establish. Such back-up charges are not uncommon.

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