WEBVTT - Walters Asks for Insider Trading Case to be Thrown Out (Audio) 0:00:00.080 --> 0:00:03.360 You're listening to Bloomberg Law. I'm June Grasso with Michael Best. 0:00:03.760 --> 0:00:07.200 Las Vegas gambler Billy Walters is betting that a judge 0:00:07.200 --> 0:00:11.520 will dismiss insider trading charges against him. Walters, who's accused 0:00:11.520 --> 0:00:14.680 of making forty three million dollars by trading on leaks 0:00:14.720 --> 0:00:17.720 from an insider, now wants his case toss because of 0:00:17.800 --> 0:00:21.640 leaks from an FBI agent. In announcing Walter's indictment in May, 0:00:21.720 --> 0:00:25.680 Manhattan U S Attorney Pret Berrara described a brazen scheme 0:00:25.760 --> 0:00:30.040 involving corporate intrigue, gambling debts, and secret codes where the 0:00:30.080 --> 0:00:34.080 former chairman of Dean Foods gave illegal stock tips to Walters. 0:00:34.920 --> 0:00:38.599 When the board member of a fortune company feeds inside 0:00:38.640 --> 0:00:42.120 information to a professional gambler who makes a killing on 0:00:42.159 --> 0:00:45.320 well time trades in that very company stock, that is 0:00:45.320 --> 0:00:49.199 a form of corruption, corruption of our markets. The government's 0:00:49.240 --> 0:00:52.160 case is now in jeopardy because an FBI agent leaked 0:00:52.240 --> 0:00:56.680 details to the press about the confidential investigation of Walters 0:00:56.720 --> 0:01:00.040 and golf star Phil Mickelson, who paid back almost a 0:01:00.160 --> 0:01:04.319 million dollars from stock trades. Walter says the FBI violated 0:01:04.400 --> 0:01:07.920 his rights with leaks designed to revive an investigation that 0:01:08.040 --> 0:01:12.039 had stalled. My guests are former federal prosecutor Robert Mints, 0:01:12.080 --> 0:01:15.360 a partner McCarter in English, and Peter Henning, professor at 0:01:15.400 --> 0:01:20.720 Wayne State University. Bob the FBI agent David Chavez has 0:01:20.800 --> 0:01:24.920 hired his own attorney as the case against him is investigated. 0:01:25.400 --> 0:01:31.520 Tell us what he admitted he did and why. Short June, 0:01:31.800 --> 0:01:35.959 according to the United States Attorney's Office that was ordered 0:01:36.040 --> 0:01:41.160 by the judge to conduct an investigation into these leaking allegations, 0:01:41.200 --> 0:01:47.640 this veteran FBI supervisor admitted to leaking information about this 0:01:47.720 --> 0:01:51.760 insider trading investigation to reporters at both the Wall Street 0:01:51.840 --> 0:01:55.880 Journal and The New York Times, and the defense has alleged, 0:01:56.160 --> 0:01:59.080 as the basis for their motion to dispiss this indictment, 0:01:59.360 --> 0:02:04.840 that these leaks were strategically timed and strategically released in 0:02:04.960 --> 0:02:08.880 order to try to influence the investigation and ultimately generate 0:02:09.000 --> 0:02:12.280 evidence that, but for the leaks, would never have been 0:02:12.320 --> 0:02:16.960 available to the government. Well, so Billy Walters is now 0:02:17.040 --> 0:02:21.560 Peter trying to get the case dismissed because of these leaks. 0:02:22.360 --> 0:02:25.679 Is there a legal basis for doing that? Well, he's 0:02:25.720 --> 0:02:29.160 got two grounds to do with. The first ground is 0:02:29.240 --> 0:02:34.560 that the conduct by the agent, which the defense is 0:02:34.600 --> 0:02:37.919 claiming as a violation of the Gran Jury secrecy rule 0:02:38.320 --> 0:02:41.480 and perhaps even a couple of other statutes, that that 0:02:41.680 --> 0:02:49.000 generated evidence that the government got impermissibly and therefore that 0:02:49.160 --> 0:02:53.560 violated Walter's rights, that it violated the Green jury clause 0:02:53.639 --> 0:02:59.120 because the violations by the agent um ended up influencing 0:02:59.160 --> 0:03:02.400 the grand jury's decision. The other is a broader claim 0:03:03.120 --> 0:03:08.440 of outrageous government conduct that, in effect, the Justice Department, 0:03:08.639 --> 0:03:12.399 both the prosecutors, and the FBI ought to be punished, 0:03:12.440 --> 0:03:16.520 if you will, for this type of improper action. That 0:03:16.960 --> 0:03:19.840 a defendant shouldn't be put on trial when the government 0:03:20.520 --> 0:03:24.320 violates the law itself. And so those are the two grounds. 0:03:24.480 --> 0:03:27.560 It's not an easy argument to make, but that's the 0:03:27.600 --> 0:03:31.080 basis on which he's trying to get these charges dismissed. Bob. 0:03:31.120 --> 0:03:35.320 The defense motion papers say the misconduct here is significantly 0:03:35.400 --> 0:03:40.560 more flagrant, far ranging, and insidious than it expected. Is 0:03:40.600 --> 0:03:46.560 this level of conduct unprecedented? How would you describe it? Well, 0:03:46.600 --> 0:03:49.320 I wouldn't say it's unprecedented, but I would agree that 0:03:49.400 --> 0:03:53.320 it is highly unusual. In this case, the FBI agent 0:03:53.360 --> 0:03:58.480 has admitted to leaking information to these reporters on numerous occasions. 0:03:59.000 --> 0:04:02.360 He claims that the investigation was dormant at the time 0:04:02.800 --> 0:04:04.920 and that's why he gave them the information. But the 0:04:04.960 --> 0:04:08.240 defense has argued that that is precisely the problem, that 0:04:08.320 --> 0:04:12.560 the investigation was going nowhere, and so the agent strategically 0:04:12.640 --> 0:04:16.960 leaked this information in order to try to generate new evidence. 0:04:17.240 --> 0:04:19.400 And they argue that there was a couple of things 0:04:19.440 --> 0:04:24.159 going on, Uh, We're behind this inappropriate leaking of information. 0:04:24.560 --> 0:04:26.440 One was that they had a wire tap going and 0:04:26.480 --> 0:04:29.440 they were hoping that by leaking this information to the 0:04:29.440 --> 0:04:33.360 public that people who were under investigation might discuss their 0:04:33.360 --> 0:04:36.679 criminal conduct on this wire tap. But probably their better 0:04:36.839 --> 0:04:41.360 argument is that one of the individuals he was under investigation, um, 0:04:41.440 --> 0:04:46.279 the former president of Dean Foods UM, as a result 0:04:46.360 --> 0:04:50.120 of this information coming out, took a cell phone that 0:04:50.200 --> 0:04:54.080 allegedly had information that would have implicated him UH and 0:04:54.680 --> 0:04:58.080 Billy Walters and threw that into a stream behind his 0:04:58.160 --> 0:05:02.440 house and destroyed evidence. Once he destroyed that evidence, according 0:05:02.480 --> 0:05:05.799 to the defense, he had obstructed justice, and prosecutors used 0:05:05.920 --> 0:05:09.680 that as leverage to ultimately get him to recant his 0:05:09.760 --> 0:05:12.599 statements that he was innocent, to come back and agree 0:05:12.600 --> 0:05:15.120 to cooperate with the government and now become the key 0:05:15.120 --> 0:05:19.680 witness against the defense is client in this case. Well, Peter, 0:05:19.760 --> 0:05:23.640 there's also some indication, isn't there that the higher ups 0:05:23.880 --> 0:05:28.080 in the Justice Department we're trying to prevent the league 0:05:28.120 --> 0:05:31.000 from happening or take some disciplinary action about the league, 0:05:31.000 --> 0:05:33.200 and might that be some mitigating factor here in the 0:05:33.279 --> 0:05:37.120 judges mind. Well, certainly that's what the Justice Department is 0:05:37.120 --> 0:05:40.960 going to argue that there's no reason to dismiss the charges. 0:05:41.000 --> 0:05:45.120 In other words, give Walters a free pass for conduct 0:05:45.160 --> 0:05:48.920 that may well have constituted insider trading. He shouldn't get 0:05:48.920 --> 0:05:52.800 the charges dismissed. Instead, the Justice Department should be allowed 0:05:52.839 --> 0:05:57.640 to pursue the proper remedy, which is to discipline shab 0:05:57.720 --> 0:06:00.760 As and perhaps even pursue a criminal case against him. 0:06:00.800 --> 0:06:04.160 He could be charged with contemptive court, perhaps even obstruction 0:06:04.240 --> 0:06:08.800 of justice. What the Justice Department wants is essentially to say, 0:06:08.839 --> 0:06:13.040 these are two separate cases and um as bad as 0:06:13.160 --> 0:06:18.120 what Chavez did, that doesn't impact the government's case and 0:06:18.120 --> 0:06:22.200 the evidence of insider trading against Walters. So I expect 0:06:22.240 --> 0:06:24.880 that will be the road the Justice Department goes down 0:06:25.160 --> 0:06:28.559 when it files its brief in the next week or two, Bob. 0:06:28.640 --> 0:06:32.440 Does the defendant have to show that the government's misconduct 0:06:32.560 --> 0:06:35.920 affected the case against him in some way or is 0:06:36.000 --> 0:06:41.360 the misconduct itself considered enough? Well? The defense here makes 0:06:41.480 --> 0:06:45.919 essentially three different arguments. Under the leading Supreme Court case 0:06:46.480 --> 0:06:49.560 of Bank of Nova Scotia, the government the defense would 0:06:49.600 --> 0:06:54.719 have to show either that the misconduct substantially influenced the 0:06:54.760 --> 0:06:57.480 grand jury's decision to return an indictment, which is one 0:06:57.480 --> 0:07:00.800 of their better arguments here. They also to argue that 0:07:00.800 --> 0:07:04.080 they're the history of prosecutorial misconduct here, in that they 0:07:04.120 --> 0:07:08.200 alleged that this particular FBI agent likely leaked information in 0:07:08.240 --> 0:07:11.240 a series of other cases, although their evidence on that 0:07:11.440 --> 0:07:15.040 is more speculative. And finally, they make the argument um 0:07:15.120 --> 0:07:18.160 that the government's conduct here was just so outrageous that 0:07:18.280 --> 0:07:22.720 it shocks the conscience and should be dismissed on those grounds. 0:07:22.760 --> 0:07:26.360 But that's an exceedingly hard argument to make, and the 0:07:26.720 --> 0:07:31.160 one case where the government um failed to prevail on that, 0:07:31.200 --> 0:07:34.360 where the indictment was in fact dismissed, is one where 0:07:34.360 --> 0:07:37.920 an agent, for example, UH engage in sexual relations with 0:07:38.000 --> 0:07:40.840 the defendant in order to gather evidence. And that's the 0:07:40.880 --> 0:07:43.520 case where the court just said that the government just 0:07:43.600 --> 0:07:47.600 went too far to gather evidence and dismiss the indictment here. 0:07:47.640 --> 0:07:52.280 I think their best argument is that they somehow allowed 0:07:52.320 --> 0:07:57.800 the government by leaking information to gather this information about 0:07:58.200 --> 0:08:01.360 this key cooperating witness who, as a result of the 0:08:01.400 --> 0:08:05.360 leaked information, allegedly destroyed that cell phone, and the government 0:08:05.360 --> 0:08:08.760 then used that as leverage to try to gain his cooperation. 0:08:09.080 --> 0:08:11.880 The government's could argue that this defendant had plenty of 0:08:11.920 --> 0:08:14.200 other reasons to try to cooperate, that the weight of 0:08:14.240 --> 0:08:17.800 the evidence that was overwhelming, his cooperation was based on 0:08:17.840 --> 0:08:20.240 a series of factors, and that the fact that he 0:08:20.280 --> 0:08:23.440 destroyed his cell phone may have been only one of them. Peter, 0:08:23.520 --> 0:08:25.880 we only have about thirty seconds. But what do you 0:08:25.880 --> 0:08:28.960 think the judge is going to do? Well? This is 0:08:29.000 --> 0:08:32.280 one tough call. Judge Castle is not happy and in 0:08:32.360 --> 0:08:36.800 fact invited the defense to file emotion to dismiss and 0:08:36.960 --> 0:08:40.599 so um I mean I I think the judge is 0:08:40.640 --> 0:08:44.880 going to give this very serious consideration. Um, if he 0:08:44.960 --> 0:08:47.920 does dismiss, I could certainly see the Justice Department appealing 0:08:47.920 --> 0:08:50.640 it to the Second Circuit, and so this is going 0:08:50.679 --> 0:08:54.360 to be a very close call. Bob, do you in 0:08:54.440 --> 0:08:56.800 fifteen seconds do you want to agree with Peter or 0:08:56.840 --> 0:09:01.280 contradict him? No, I agree. These are usually the arguments 0:09:01.320 --> 0:09:04.520 that the defense makes. I wouldn't say routinely, but it's 0:09:04.559 --> 0:09:07.679 not unusual. This is one of the closer calls, and 0:09:07.720 --> 0:09:10.439 the judge could really go either way here. It's going 0:09:10.440 --> 0:09:12.839 to be fascinating to see. Thank you both for being 0:09:12.880 --> 0:09:16.640 on Bloomberg Law. That's Robert Mint's a partner mcarter in English, 0:09:16.679 --> 0:09:19.800 and Peter Henning, a professor at Wayne State University.