Davis, 68, took the stand Tuesday and testified in Walters’s insider-trading trial that he passed Dean Foods boardroom secrets for at least six years in exchange for almost $1 million in loans, using the money for gambling debts and a bitter divorce.
Walters, 70, made about $43 million trading Dean Foods securities as a result and faces eight to 10 years in prison if he’s convicted, according to prosecutors.
“It started out pretty innocently,” Davis told the jury. He said he provided Walters with public and nonpublic information and “it grew until I became a virtual conduit of nonpublic information to him.”
Davis, a Dallas-based investment banker for more than 20 years with a Harvard University master’s degree in business administration, said he earned millions of dollars before his 2001 retirement, when he joined the boards of several public companies, including Dean Foods. He was named the company’s chairman in May 2013.
Davis said he enjoyed golfing jaunts with Walters, sometimes joining him at charity events.
Then Davis’s finances deteriorated and he became a central figure in the insider-trading scheme.
He told jurors he faced “significant changes” to his life by 2009. A hedge fund he’d launched was failing. He was about to lose a $1 million ownership stake he’d made with Thomas Hicks in the Dallas Stars hockey and Texas Rangers baseball teams as they tottered toward bankruptcy. Davis also owed $178,000 to a private jet business venture and $100,000 to a Dallas charity he managed, he said.
“I was not making as much money as I once had been,” he said. “I was basically illiquid. It meant I did not have a lot of cash I could monetize.”
Davis reached out to Walters, who he said he’d been regularly providing with inside information about Dean Foods.
“I was confident Billy would help me with a loan, based on our historical relationship as friends and, based on the assistance I’d given him on Dean Foods,” Davis said.
Walters arranged for a friend to lend Davis $625,000 after the two met in Las Vegas, Davis said.
But even before the loan, Davis said Walters sought out inside tips. In April 2008, Walters asked him for nonpublic information about Dean Foods after the two played a round of golf in Palm Springs, Davis said.
“Billy Walters put his arm around me and asked me, ‘How’s the milkman doing?’ I told him things looked pretty good for the first quarter earnings,” Davis said. “He said, ‘Thanks, pal.”
Davis pleaded guilty last year and agreed to cooperate with the government in the gambler’s prosecution.
On Tuesday, in response to questions from Assistant U.S. Attorney Brooke Cucinella, Davis told his story, from his initial meeting with Walters in the mid-1990s at the Del Mar Country Club, near San Diego, through years of feeding Walters inside information, to his decision to confess his crimes following a 2015 stroke.
Barry Berke, Walters’s lawyer, last week called Davis a liar who implicated his former friend to avoid prison after embezzling money from him.
Davis told jurors he lied to FBI agents when they first visited his Dallas home on May 28, 2014. Throughout the federal probe, he said he lied repeatedly from 2014 to 2015, including perjuring himself before the Securities and Exchange Commission, he said.
“I was scared to death,” Davis explained. “I’d made some horrible mistakes and was just trying to cover it up.”
U.S. District Judge P. Kevin Castel interrupted and pressed Davis for an explanation.
“I hoped this would all go away, frankly,” Davis responded. “I lied to everybody at the time.”
Davis said he 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 said.
Davis also admitted to destroying a burner phone — which Walters called the Bat Phone — by throwing it into a creek near his home, following the FBI visit.
“He was very specific the day he gave me the Bat Phone and said that he would prefer that I use the Bat Phone when we talked about Dean Foods,” Davis said. Walters also told him that whenever he had information to pass on to call him on his home phone and ask “to get a cup of coffee,” Davis testified.
“He then asked me to refer to Dean Foods as the Dallas Cowboys,” Davis said.
Davis said Walters’s attitude changed after he arranged the loan.
“I became indebted to him,” Davis said. “He became more demanding of me for information.”
Davis said his day of reckoning came after he had a minor stroke in November 2015 that required surgery. He said he did some soul-searching before the meeting he had with federal prosecutors and investigators in early 2016 when he confessed to everything.
“I sat down and had a lot of time to think about who I was, what I’d done,” Davis told the jury. “I really thought I couldn’t do this any more. I couldn’t continue to lie.”