A December appeals court decision highlighted the seriousness and severity of how insider trading cases impact overall markets. The Second U.S. Circuit Court of Appeals, based in Manhattan, released a decision on December 4th upholding the conviction of William Walters on his charges of making trading decisions based on information he would not have been allowed to use in doing so.
Mr. Walters, a prolific Las Vegas sports gambler, was able to diversify from his earnings on athletics betting to also earn more than $43 million dollars between 2008 and 2014 based on insider trading information. Prosecutors in the case alleged that he used information gained from the chairman of Dean Foods, Thomas Davis, as well as from Darden Restaurants. Darden is the parent organization for Italian restaurant giant Olive Garden. Based on the information he received, he made market decisions that resulted in his enormous gain while also avoiding losses.
Walters’ conviction in April 2017 included a five-year prison sentence. In his grounds for appeal, Walters alleged that his constitutional rights had been infringed upon because an FBI agent illegally released or leaked information from his grand jury proceedings. The Court of Appeals reprimanded the FBI for those unauthorized releases but deemed that they did not rise to the level of infringing upon the rights of Walters nor upon his ability to receive a fair trial based upon the evidence at hand.
Insider trading is considered especially serious when information that should not be publicly available is used to inform how and when stocks are bought and sold or how leverage strategies are employed. Insider trading decisions have the ability to impact the flow of the entire market, at times disrupting the trade patterns and earnings of others.
In addition to being sentenced to five years in prison, Walters was also fined $10 million dollars and ordered to forfeit $25.35 million in his illicit earnings. His trial judge also ordered that he pay Dean Foods $8.88 in restitution for improperly using the information gained. Upon appeal, the trial judge was ordered to reevaluate that figure based on prevailing precedence determined by Supreme Court decisions.
As a leader in the sports betting field, Walters had earned more than $200 million during his time within that field. Always a bettor, Walters shared after his conviction that “I just did lose the biggest bet of my life.” It is uncertain how long he will serve due to allowances for time served and good behavior.