FBI Leaker May Face Charges as U.S. Fights for Insider Case

Updated on
  • Las Vegas gambler’s lawyers say press leak led to indictment
  • Allegations also ensnarled golfer Phil Mickelson, Dean Foods

Federal prosecutors warned that an FBI agent may be prosecuted for leaking secrets about a U.S. probe into stock trading by Las Vegas gambler Billy Walters, as they urged a judge not to throw out insider-trading charges against him.

Walters is accused of orchestrating an insider scheme that also entangled golfer Phil Mickelson and Dean Foods Co.’s former chairman Tom C. Davis. Earlier this month, Walters asked a judge to dismiss the case saying FBI Agent David Chaves violated his rights by leaking to the press details of a confidential probe of his stock trading between 2013 and 2014, in an effort to breathe life into a flagging government investigation.

Prosecutors countered that Walters failed to show he was harmed by the leaks, noting that none of the articles resulting from them mentioned Davis by name. Agents approached Davis and a second target of the probe the day before the articles were published, they said, and instead of spurring an investigation as Walters claims, the media reports hindered it for another six months. 

“Agent Chaves (and anyone else who is found to have engaged in misconduct) will be fully investigated and prosecuted, as appropriate,” federal prosecutors in New York said in a court filing Monday, portions of which are redacted. “While the leaks merit serious consequences, those consequences should not include the dismissal of the indictment.”

$43 Million

Walters allegedly made $43 million by trading on tips from Davis, who has pleaded guilty and is cooperating with prosecutors. Defense attorneys Barry Berke and Paul Schoeman argued that agents with the Federal Bureau of Investigation leaked secrets about the probe to prod targets to incriminate themselves after a wiretap on Walters’s phone failed to turn up evidence.

“The articles did not ‘revive’ the investigation, as Walters suggests,” prosecutors said in the filing. “Instead they brought it to a halt.”

Walters can’t point to any proof that a grand jury indicted him because of the leaks, prosecutors said. They argued the government already had "a strong circumstantial case of securities fraud" in 2013 and 2014 to pursue a wiretap. When FBI agents scrambled to approach Davis and a second suspect a day before the May 2014 news reports, Davis lied to them and then hurled a mobile phone, which Walters gave him, into a creek to derail the investigation, according to a transcript of his May 2016 guilty plea. 

Gaining Steam

It took another six months for the investigation to "gain steam" prosecutors said, after Davis later perjured himself under oath when questioned by the SEC in May 2015. The testimony, almost a year after the articles were published, gave investigators fodder to focus on Davis’s trading and personal finances, according to the U.S. Davis’s regulatory testimony "forced Davis to confront his own criminal liability and the decision whether to cooperate," according to the government. He would later plead guilty and agree to secretly cooperate with the U.S.

Berke declined to comment on the government’s memo. Sean Casey, a lawyer for Chaves, didn’t immediately return a message seeking comment about the case.

The FBI is under increased scrutiny, including having come under fire over a probe into Hillary Clinton’s e-mails. The Justice Department’s internal watchdog has begun to scrutinize whether FBI Director James Comey properly handled the agency’s investigation of the Democratic presidential candidate’s use of a private server. Prosecutors said in December that the agent is also the subject of a criminal review.

Walters was charged last year, two years after newspapers first reported details of the government’s confidential investigation.

The articles said the FBI, the U.S. Securities and Exchange Commission and U.S. Attorney Preet Bharara were investigating suspiciously timed trades by billionaire investor Carl Icahn as well as trades in Dean Foods by Walters and Mickelson. Neither Icahn nor Mickelson were charged. Mickelson agreed to pay back almost $1 million he earned trading on information he got from Walters.

Agents Interviewed

After the judge ordered an inquiry in Walters’s case late last year, the government interviewed agents and prosecutors. The investigation revealed that Chaves, a supervisory special agent with the FBI in New York, first met Times reporters for dinner in April 2013 and told them about the investigation, which he believed was “dormant.”

Several months later, the agent told a Wall Street Journal reporter about the probe, prosecutors wrote. The agent spoke several more times to reporters without the knowledge of his superiors, according to the memo.

The case is U.S. v. Davis, 16-cr-00338, U.S. District Court, Southern District of New York (Manhattan).

(Adds details of Davis’s SEC testimony in the eighth paragraph.)
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