FBI Leaks Give Gambler Billy Walters Better Odds in Insider Case

  • U.S. says agent admitted leaking probe secrets to reporters
  • Prosecutors say Justice Department started criminal inquiry

Billy Walters

Photographer: Louis Lanzano/Bloomberg

In an extraordinary twist, Las Vegas gambler Billy Walters may escape insider-trading charges because of actions by an FBI agent who is now under criminal investigation.

On Wednesday, a federal judge said defense lawyers may seek a dismissal after an FBI agent admitted to prosecutors that he leaked confidential information about the U.S. probe to two newspapers. The leaks were so pervasive that the investigation was thrown into turmoil in 2014 as the newspapers prepared to publish confidential details that only investigators could know, according to newly unsealed court documents.

“I was shocked” after reading a 12-page government memo about the leaks, U.S. District Judge P. Kevin Castel in New York said Wednesday. "I was somewhat skeptical that the allegations could possibly be true.”

Walters, who has pleaded not guilty, was charged in May with trading shares of Dean Foods Co. based on inside tips from Thomas Davis, the company’s former chairman. Davis has pleaded guilty and is cooperating with investigators. Golfer Phil Mickelson, who was also investigated by the FBI, reached an agreement with the U.S. Securities and Exchange Commission to return proceeds of almost $1 million. He wasn’t accused of wrongdoing.

Secret Details

After Walters’s lawyer accused the government of improper leaks, prosecutors acknowledged last week that an agent had revealed secret details of the investigation. The agent, who wasn’t named, is under scrutiny by the Justice Department’s Office of Inspector General, prosecutors said. Castel said the defense may ask for a dismissal, although he didn’t say how he would rule.

A spokeswoman for the Federal Bureau of Investigation declined to comment on the investigation, as did representatives of the New York Times and Wall Street Journal.

The stunning turnabout comes as a result of leaks detailed in a Dec. 16 memorandum written by prosecutors that lays out the intricate dance between the FBI and reporters as they prepared their stories. Castel unsealed the memo before Wednesday’s hearing.

In April 2013, the agent first met reporters from the Times for dinner and told them about the investigation, which he believed was “dormant,” according to the memo. Several months later, the agent also told a Journal reporter about the probe, prosecutors wrote.

Other Sources

The agent spoke several more times to reporters without the knowledge of his superiors, according to the memo. The newspapers had other sources as well, prosecutors said.

Around May 13, 2014, the Journal told the FBI it was prepared to publish. That day, the newspaper agreed to an agency request to delay publication for nine days, and the paper was “open to listening about the need to hold off longer,” prosecutors wrote. The FBI agreed to meet with the newspaper, even after the office of Manhattan U.S. Attorney Preet Bharara counseled against the session, prosecutors wrote.

The agent who admitted leaking told prosecutors that he was in the meeting with the Journal, and that FBI personnel confirmed enough details of the investigation to convince the newspaper to hold the story. Other agents questioned this month by the government disputed aspects of his account.

The leaks alarmed the lead agent on the case, according to the memo.

“Whomever is leaking, apparently has a specific and aggressive agenda in that they are now going to other media outlets in an effort to derail this investigation,” agent Matthew Thoresen wrote in an e-mail on May 28, 2014, attached to the memo.

Insider Trading Is Bad, Benign and Bone of Contention: QuickTake

Because of the imminent stories, prosecutors and the FBI changed their plans and decided to approach Mickelson and Davis the next day and start questioning them, according to the memo.

The agent’s leaks continued even after an FBI supervisor told investigators not to speak to the reporters, according to the memo. To cover his tracks, the agent used his personal cell phone and deleted his personal e-mail account, prosecutors said.

The newspapers published stories on May 30, 2014, revealing secret information about the subjects of the investigation, their stock trades, and various investigative techniques that prosecutors considered, according to the memo. In the following weeks, the papers reported on other aspects of the probe.

Prosecutors and agents are barred from leaking information about grand jury proceedings before a case is made public. Under Rule 6(e) of the Federal Rules of Criminal Procedure, such disclosures may be punished by contempt of court.

Seeks Hearing

Defense attorney Barry Berke first accused the government of misconduct on Sept. 23, asking the judge for a hearing to address whether information was leaked.

An inquiry by Bharara’s office cleared prosecutors and others at the FBI, according to the memo. E-mails attached to the memo show Bharara and George Venizelos, then assistant director in charge of the FBI’s New York office, were upset when the articles began.

“Hey, George, I know you agree these leaks are outrageous and harmful,” Bharara wrote to Venizelos. “Let me know what action you want to take together.”

Venizelos wrote back: “This new article takes a ‘not good’ situation to a ‘bad’ one. This is now an embarrassment to this office.”

At Wednesday’s hearing, Berke said the government’s letter “raises many more questions than it answers” and that further hearings are needed to determine the scope of the leaks.

The agent was trying to use the media to further the investigation, and there is evidence suggesting that other agents were involved while the FBI turned a “blind eye,” Berke said. He said it’s a conflict for prosecutors to be “investigating their own colleagues.”

“We now know the FBI itself was responsible for the leaks,” Berke said. “Do they have rogue agents?”

‘Truly Ironic’

Castel said it was “truly ironic” that Walters was charged with passing secret information while one of the agents was apparently doing something similar. The judge said Berke’s complaints about leaks in other criminal cases, involving the same FBI personnel and newspaper reporters, persuaded him to address the issue.

"I read you loud and clear with the prior cases,” Castel said. “The similarity was such that it aided your cause."

Assistant U.S. Attorney Joan Loughnane said prosecutors were harmed by the disclosures.

“These leaks really hurt our cases,” she said. “It is in our interest as well not to have them happen.”

— With assistance by Patricia Hurtado

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