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Speaker 1: One of the country's most successful sports gamblers, Billy Walters

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Speaker 1: lost the biggest bet of his life last Friday. A

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Speaker 1: jury convicted him in the highest profile insider trading case

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Speaker 1: in years, and this time his losing bet can only

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Speaker 1: be paid off in prison time. Walters was convicted of

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Speaker 1: making forty three million dollars by trading on inside tips

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Speaker 1: given to him by Tom Davis, the former chairman of

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Speaker 1: Fortune five hundred company Dean Foods. The trial had all

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Speaker 1: the elements of a movie script, a rarefied world of

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Speaker 1: private jets and exotic trips where corporate executives mixed with

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Speaker 1: professional athletes like Phil Mickelson, A semi world of massive

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Speaker 1: gambling debts and stock tips delivered on a burner phone

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Speaker 1: dubbed the bat Phone. But the odds were against Walters.

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Speaker 1: A four week trial, and the jury convicted him after

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Speaker 1: only about five hours of deliberations. Our guests are Peter Henning,

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Speaker 1: a professor at Wayne State University Law School, and Robert Hocket,

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Speaker 1: a professor at Cornell University Law School. Peter former Manhattan

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Speaker 1: u S attorney pre Barrara, made his name by sending

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Speaker 1: dozens of traders and corporate executives off to prison for

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Speaker 1: insider trading, but that effort went off the rails after

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Speaker 1: ruling by the Second Circuit. So how important was this

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Speaker 1: win for federal prosecutors. Well, it was important because it

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Speaker 1: was so high profile. Billy Walters is maybe the most

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Speaker 1: famous defendant since Raja Gupta, who was the former director

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Speaker 1: at Goldman Sachs. And it just almost had a tabloid

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Speaker 1: feel to it, with Phil Nicholson and Carl Icon's name

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Speaker 1: coming up, the government FBI agent leaking information back in

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Speaker 1: twenty uh fourteen about the case. In a sense, it

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Speaker 1: was high profile because it was tabloid um. The legal

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Speaker 1: issues really weren't all that difficult um. And even if

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Speaker 1: that Newman case from fourteen had remained, the government had

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Speaker 1: evidence that um, some of the inside information was to

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Speaker 1: help pay off loans, so it would not have raised

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Speaker 1: the issue of friendship, at least not as much. So

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Speaker 1: it's important because it's high profile Bob. The defense seemed

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Speaker 1: to argue that the only way the jury could convict

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Speaker 1: Walters here was if they believed Tom Davis, the former

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Speaker 1: chairman of Dean Foods, who was passing information to Walter's

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Speaker 1: And they argued that he was lying, he had debts,

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Speaker 1: he he had done all sorts of unsavory things. Um,

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Speaker 1: how much did the case really rely on Davis's testimony.

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Speaker 1: I don't actually think that the case was all that

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Speaker 1: reliant on Davis's testimony. There was a lot of circumstantial

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Speaker 1: evidence as well, in the form of, for example, phone records, right,

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Speaker 1: so Mr Davis of course would pass on the information

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Speaker 1: uh to Mr Walters, and Mr Walters would then oftentimes

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Speaker 1: phone to place his trades literally within the same minute

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Speaker 1: that he got off of the phone with Mr Davis.

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Speaker 1: So if you've got a pattern of that sort that's

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Speaker 1: sort of repeated over and over and over again, all

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Speaker 1: that Mr Davis's testimony actually ends up doing is sort

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Speaker 1: of providing a little bit of narrative context, a little

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Speaker 1: bit of extra color. But as far as these sort

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Speaker 1: of fundamental evidence that's needed to convict us concerns, it

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Speaker 1: seems that that was actually all available even without Mr Davis.

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Speaker 1: In fact, one jurors said after the verdict that the

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Speaker 1: collogu's helped convince the jury, and it all came down

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Speaker 1: to the trading and those phone records because they've been

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Speaker 1: in constant contact using those burner phones precisely now, Peter,

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Speaker 1: the hardest decision in any criminal trial is whether defend

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Speaker 1: and should testify. Walters did not testify at his trial.

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Speaker 1: He may be second guessing that decision now, Could it

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Speaker 1: have made a difference. That is the hardest decision, and

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Speaker 1: it's one I would never second guess, because we don't

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Speaker 1: know what Walter's would have been like on the witness

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Speaker 1: stand um he had, uh as Bob was saying all

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Speaker 1: those interactions with Davis, and if he testifies, the focus

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Speaker 1: shifts from Davis and his many peccadillos over to Walter's.

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Speaker 1: And if the jury thinks that Walter's isn't being honest,

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Speaker 1: it actually might have impelled them to convict him more quickly,

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Speaker 1: if that's possible. So, uh, you'll always second guests a

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Speaker 1: decision when the jury comes back with a conviction. I

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Speaker 1: don't think it would have made all that much difference,

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Speaker 1: because he would have been forced into a bad position

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Speaker 1: of trying to say, no, I'm just a great gambler

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Speaker 1: and ignore all that other objective, circumstantial evidence. We're going

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Speaker 1: to talk more coming up about Walter's defense, and part

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Speaker 1: of it was that he was a great gambler. One

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Speaker 1: of his brokers testified that he called him the Babe

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Speaker 1: Ruth of risk because he was a fearless investor and

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Speaker 1: predicting the stock market thanks to meticulous research. Walters will

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Speaker 1: appeal the verdict. What are his chances on appeal? The

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Speaker 1: second Circuit rock the Manhattanment Prosecutor's office by overturning some

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Speaker 1: insider trading convictions three years ago? And how much time

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Speaker 1: will Walter's likely face when he sentenced in July? And interesting, Michael,

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Speaker 1: this was a case that started just a few days

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Speaker 1: after pre Berarra was fired from his position. Well, the

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Speaker 1: Southern District is probably feeling like they're back, aren't they.

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Speaker 1: Las Vegas gambler Billy Walter has built a fortune playing

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Speaker 1: the odds betting on sports, but at his insider trading

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Speaker 1: trial he faced the longest of odds and taking on

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Speaker 1: the Justice Department, which wins almost of its cases, and

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Speaker 1: he lost. The seventy year old Walters faces a long

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Speaker 1: prison term. He told reporters after the verdict to say

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Speaker 1: I was surprised would be the biggest understatement of my life.

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Speaker 1: I just did lose the biggest out of my life. Frankly,

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Speaker 1: I'm in shock. We've been talking to Professor Peter Henning,

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Speaker 1: professor at Wayne State University Law School, and Professor Robert

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Speaker 1: Hockett of Cornell University Law School. Peter, the defense says

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Speaker 1: they're going to appeal the verdict. What are the odds

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Speaker 1: on appeal? Do you see any possibilities of issues to

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Speaker 1: come up? Well, certainly the odds are low or at

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Speaker 1: least against Walter's because most convictions are in fact upheld

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Speaker 1: by the appellate courts. Although he has very deep pockets

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Speaker 1: so he can hire the best lawyers that will help

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Speaker 1: his position a little bit. That the challenge he faces

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Speaker 1: is that this was a verdict that was based on

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Speaker 1: the jury's credibility assessments, and appellate court judges don't like

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Speaker 1: to second guess those decisions by a jury. They're not

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Speaker 1: going to step in and say Tom Davis wasn't a

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Speaker 1: credible witness. That's what the jury there for. As far

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Speaker 1: as legal issues, um, it's hard to see there being

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Speaker 1: too many of them. Um that the judge didn't admit

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Speaker 1: any of the evidence about carl Icon, so that took

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Speaker 1: an issue off the board. Maybe in the jury instructions.

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Speaker 1: There's some issue in there, but given that Walters and

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Speaker 1: Davis dealt with each other so much, it's hard to

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Speaker 1: see any kind of challenge about Walter's knowledge or the

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Speaker 1: relationship between the two men for the quid pro quo

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Speaker 1: for tipping. So I wouldn't give it a much of

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Speaker 1: a chance. Bob Walters didn't testify, but now he has

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Speaker 1: said that this you know, he lost the biggest bet

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Speaker 1: of his life and he's shocked at the verdict. He

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Speaker 1: put on a defense about how he was a you know,

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Speaker 1: a very thorough researcher, that he was willing to take

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Speaker 1: risks on things, and he was, but he was a

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Speaker 1: very serious investor who got a lot of information. And

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Speaker 1: that's I guess how he was saying. He made money.

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Speaker 1: Why did he think that this was such a good

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Speaker 1: bet to go to trial with? I I frankly can't

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Speaker 1: imagine on what basis he made the decision, right, I mean,

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Speaker 1: the case is just so overwhelmingly stacked against that. Miss

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Speaker 1: Peter noted earlier. It's a very straightforward case. There aren't

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Speaker 1: any peculiar quirks to it, there's no complication to it.

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Speaker 1: It's just a straight up insider trading case, just like

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Speaker 1: something out of the days of Joseph P. Kennedy. And

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Speaker 1: indeed it's even you know, got the same kind of

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Speaker 1: color that you've see in cases from back then. So

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Speaker 1: I frankly can't even see why he didn't simply plead

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Speaker 1: guilty and then try to bark in a lesser sentence

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Speaker 1: or a lesser penalty, um, you know, And as as

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Speaker 1: as Peter Olson suggested, it's it's hard to see what

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Speaker 1: good it would have done him, even testifying in the

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Speaker 1: trial itself, I can't imagine how it could have helped

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Speaker 1: in any way at all, no matter how good a

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Speaker 1: gambler he was, no matter how good a stock picker

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Speaker 1: he might have been. Just the sheer fact that you

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Speaker 1: have just hundreds of phone calls between him and Mr Davis,

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Speaker 1: with trades placed right act of those calls. There's just

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Speaker 1: no way you can defeat that kind of evidence that

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Speaker 1: stacked up against you simply by saying that you're a

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Speaker 1: good trader or a good gambler. There's just just no

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Speaker 1: way to do it. Peter, look forward and at the

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Speaker 1: second circuit, the federal prosecutors there, do you expect more

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Speaker 1: aggressive prosecutions on insider trading. Now, well, I don't know

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Speaker 1: if they can get that much more aggressive, but um, certainly, UM,

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Speaker 1: if there was the concern that they were hamstrung by

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Speaker 1: the Newman decision, the Supreme Court's decision and Salman that

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Speaker 1: reaffirmed the rules on tipping. Um, you know that they

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Speaker 1: can now bring the golfing friends case, the high school

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Speaker 1: UH friends who are later than involved in Wall Street.

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Speaker 1: The friendship cases are there. They're gonna want to make

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Speaker 1: sure that they're careful, um to have enough evidence to

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Speaker 1: show a real close relationship. But I think they're going

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Speaker 1: to continue to be aggressive simply because insider trading draws

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Speaker 1: so many headlines. Will you, will you explain what happened

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Speaker 1: with Newman just briefly in the Supreme Court? Sure, the

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Speaker 1: in Newman, the Second Circuit had overturned the convictions of

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Speaker 1: hedge fund managers, saying that there had to be some

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Speaker 1: benefit between a tipper and a tippy that was almost pecuniary.

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Speaker 1: In the Salmon case, the Supreme Court UH rejected Newman,

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Speaker 1: or at least that part of Newman, and said, no,

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Speaker 1: that friendship or family relationship can be enough for the benefits.

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Speaker 1: So it it lowered the bar that the Second Circuit

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Speaker 1: had tried to raise Bob. One of the things that

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Speaker 1: made this high profile was that in the whole scenario

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Speaker 1: involved the golfer Phil Nicholson at one point, and he

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Speaker 1: was going to be called to testify but didn't. But

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Speaker 1: he didn't because he was going to assert his Fifth

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Speaker 1: Amendment privilege. We have got a minute left. What why

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Speaker 1: do you think he wasn't charged? Well, I think that

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Speaker 1: probably my best guess is that the prosecution decided, well,

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Speaker 1: the easiest way to deal with Nicholson has just let

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Speaker 1: the sec take care of that. He pled uht. He

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Speaker 1: basically admitted to liability under a civil regulatory charge and

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Speaker 1: he just gorged all of the money that he made

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Speaker 1: on the trade in turn um. And I think that

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Speaker 1: probably my guess is as the prosecution decided, well, that's

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Speaker 1: would enough for Michelson, because if we actually bring him

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Speaker 1: into the prosecution, that's going to complicate things much further.

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Speaker 1: It's going to take the trial much longer to complete,

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Speaker 1: to be completed, it's going to make everything much more

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Speaker 1: sort of complicated and to consuming. So I think they

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Speaker 1: just thought, well, he's not essential to get Walters Walters

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Speaker 1: is just very easy to get on his own on

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Speaker 1: the basis of his own behavior. Uh. And we'll let

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Speaker 1: the regulators take care of Nicholson. And of course Michelson

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Speaker 1: said that he would be taking the fifth if they

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Speaker 1: did call him, which was a stop gap there. Thank

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Speaker 1: you both for being on Bloomberg Law. That's Robert Hockett,

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Speaker 1: Professor Cornell University Law School and Peter Henning, Professor at

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Speaker 1: Wayne State University Law School. Coming up on Bloomberg Law.

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Speaker 1: Barclay CEO Jesse Staley is being investigated for trying to

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Speaker 1: unmask an anonymous whistle blower last year. He faces a

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Speaker 1: significant pay cut, a fine, or even a band from

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Speaker 1: the industry. I'm June Grosso with Michael Best. You're listening

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Speaker 1: to Bloomberg Law. This is Bloomberg