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Lawsuits & Litigation

Billy Walters Sues Former DOJ, FBI Officials for Illegal Leaks and Cover-Up in Insider-Trading Case

— November 23, 2020

Complaint says former U.S. Attorney Preet Bharara, two top FBI agents complicit in misconduct. Lawsuit alleges businessman, famed bettor denied due process.

A lawsuit filed earlier by Greenberg Glusker Fields Claman & Machtinger LLP on behalf of Billy Walters in U.S. District Court accuses five senior federal law enforcement officials–including Preet Bharara, the former U.S. Attorney for the Southern District of New York–of covering up and lying to the federal court about illegal leaks of false information to the media, a practice that has increasingly plagued the Justice Department and FBI in recent years.

The lawsuit alleges that Bharara and other Justice Department officials “made no effort to investigate, root out the sources, or otherwise put an end to the leaks,” which were intended to reinvigorate a stalled criminal investigation of prominent businessman and philanthropist William “Billy” Walters. The lawsuit can be found here.

After falsely denying in court filings that any government official was behind the leaks the Justice Department in 2016 did an about-face on the eve of an evidentiary hearing requested by Walters, the complaint alleges. Bharara then admitted for the first time in a letter to the court that it “is now an incontrovertible fact” that the FBI leaked information about the case to the media.

“The failure by Bharara and the Department of Justice to intercede for more than two years after learning of the leaks is reprehensible,” said Pierce O’Donnell, a partner with the Greenberg Glusker Fields Claman & Machtinger LLP law firm in Los Angeles. “Even worse, the prosecutors pretended they did not know about this egregious and unethical conduct until Mr. Walters and his attorneys convinced a judge to make them tell the truth.”

The complaint highlights the epidemic of illegal leaking by the DOJ and FBI—particularly in the Southern District of New York—that has been increasingly used against business leaders, celebrities and public officials. It states: “During [James] Comey’s tenure as FBI Director, leaks became a favorite (and illegitimate) weapon of federal law enforcement in its self-proclaimed ‘War on White Collar Crime.’ In this Culture of Leaks, no citizen was safe.”

The FBI attempted to “tickle the wire” by illegally leaking information to journalists with the hope that news stories would cause Walters to incriminate himself on bugged electronic devices, according to the complaint. Bharara and the other defendants then “engaged in a pervasive campaign and cover-up to deprive [Walters] of his constitutional right to a procedurally fair, just and impartial investigation, grand jury proceeding, and criminal trial,” according to the lawsuit.

Senior federal law enforcement officials—including admitted leakers Comey and his deputy Andrew McCabe—turned a blind eye to this cancer in their midst. The complaint further notes: “[A] large majority of DOJ employees who face allegations of professional misconduct—including federal prosecutors—continue to retire, resign or move on to another position before any discipline… The fox is guarding the henhouse.”

The complaint seeks compensatory and punitive damages to be determined at trial and a judicial declaration that federal authorities violated Walters’ constitutional rights to due process.

The named defendants in the lawsuit are:

  • Preetinder Bharara, the former U.S. Attorney for the Southern District of New York who was fired by President Trump in 2017. The lawsuit states that, under Bharara, the Southern District “has long been a hotbed of official corruption with widespread use of leaks and negative publicity to secure convictions and promote the careers of DOJ prosecutors.” In connection with the Walters case, The Wall Street Journal reported “a pattern of troubling behavior and a problematic culture inside Mr. Bharara’s old shop.”
  • David Chaves, the former Supervisory Special Agent who oversaw all white-collar crime investigations in the FBI’s New York Field Office. According to the complaint, “This travesty is compounded by the fact that Chaves—the supervising FBI agent and admitted leaker—was never prosecuted or disciplined. To the contrary, Chaves was promoted and allowed to retire with full benefits.” Chaves now markets himself as a paid speaker on securities fraud.
  • Daniel Goldman, former Assistant U.S. Attorney. According to the complaint, Goldman submitted pleadings containing knowingly false and misleading statements in furtherance of the USAO’s cover-up as one of the lead prosecutors at Walters’ trial. Goldman later served as counsel to the House Judiciary Committee in the impeachment inquiry of President Donald Trump.
  • Richard Zabel, Deputy U.S. Attorney for the Southern District of New York, who reported directly to Bharara.
  • Telemachus Kasulis, Assistant U.S. Attorney for the Southern District of New York, who ran the day-to-day operations of the Walters investigation.
  • George Venizelos, Assistant Director, in charge of the FBI’s New York field office, who supervised Chaves.

Two federal courts previously agreed that the Justice Department likely broke the law and lied about its investigation of Walters.

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“The arresting feature of this case is that the supervisor of the FBI investigation [Chaves] was likewise involved in the illegal leaking of confidential information; and the leak of grand jury testimony is in some respects more egregious than anything Walters did…” wrote Senior U.S. Circuit Judge Dennis Jacobs in a 2018 opinion. “The FBI depends on the confidence of the public, jurors and judges. That confidence is critical to its mission; so this kind of thing is very bad for business.”

Bharara himself admitted during a paid speaking appearance in 2017 at the University of Nevada Las Vegas law school that Chaves had engaged in illegal conduct. “Now, a particular agent who did a terrible thing and will suffer the consequences and he should. He absolutely should,” Bharara said. At the event, Bharara also claimed that his office brought the leaks to the attention of the court, but failed to note that it publicly denied any misconduct for two years.

To date, Walters knows of only one person—himself—who has been punished in his case. With this lawsuit, Walters is asking for one thing: long overdue justice.

The lawsuit also highlights the unusual circumstances under which Walters was arrested in 2016. After FBI agents took Walters into custody at his Las Vegas office, they drove him 15 miles to the JW Marriott Las Vegas Resort & Spa. He was put up overnight in a one-bedroom suite with five federal agents who ordered him room service, all at taxpayer expense. Agents explained to Walters that Bharara did not want local media to learn about the arrest because he had scheduled a New York press conference the next morning to trumpet the charges, according to the complaint.

On May 31, 2014, The New York Times published a front-page story headlined “Authorities Find Insider Trading Case Tied to Phil Mickelson Is Slow to Take Shape.” It reported that the FBI, SEC and federal prosecutors in Manhattan were investigating Wall Street investor Carl Icahn, professional golfer Mickelson and Walters for possible insider trading related to Clorox stock. The article was based entirely on anonymous sources and noted that the Clorox investigation had dragged on for more than two years “without yielding definitive evidence of insider trading.”

Similar articles, loaded with confidential information from a secret grand jury investigation, appeared in The Times and The Wall Street Journal during the next week. Chaves later admitted that he was the primary source of the information, notwithstanding the many legal and ethical prohibitions against such leaks. But for all of the fanfare and front-page coverage, the stories contained false information. The Times later published corrections to four articles conceding that it had “overstated the scope” of the investigation. A Justice Department official later said the FBI agent was angry about the corrections, threatening that the New York Times was “on the radar.’’

Despite knowing that an FBI agent was the leaker before a single news story was published, Bharara and his subordinates made no effort to investigate or plug the leaks, the lawsuit states. When Walters raised the issue of leaks, Bharara’s office called it a “fishing expedition’’ even though the evidence shows they were fully aware of the misconduct, according to the complaint.

Hiding in plain sight, Chaves planted secret investigative information in 13 newspaper articles between May 2014 and August 2015. When Chaves was finally questioned more than two years after the first article, he immediately confessed, hired a defense attorney, exercised his 5th Amendment right not to incriminate himself and took early retirement.

Walters was convicted in 2017 of insider trading, fined $10 million and sentenced to five years in federal prison. He was released earlier this year due to Covid-19 after completing more than half of his sentence. Mickelson returned more than $1 million in stock-trading profits to settle a lawsuit and was not criminally charged. Icahn also was not charged.

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