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Vegas Gambler in Insider Case Echoes Trump Attacks on FBI Leaks

May 29, 2018, 10:39 AM

• Gambler Billy Walters presses appeal claiming unfair probe • Justice Department probes agent accused of improper media tips

It’s not just President Donald Trump complaining about FBI leaks.

So are defense lawyers in three white-collar crime cases in New York, as they try to scuttle prosecutions by claiming that FBI leaks of grand jury material were so damaging the charges can’t stand. Las Vegas gambler Billy Walters, who was convicted of insider trading last year, has made the issue the centerpiece of an appeal that’s set to be heard Tuesday.

The argument may be a long shot because judges have rejected such claims so far, but the sudden focus on FBI leaking is in some ways remarkable. Long before the president began railing against the FBI -- and prior to the current wave of leak complaints -- defense lawyers were assailing what they said were improper government disclosures to the media.

“The prejudicial publicity orchestrated by the USA was palpable in the courtroom and very difficult to contend with,” said John Dowd, reflecting on leaks that plagued his defense of hedge-fund billionaire Raj Rajaratnam on insider-trading charges seven years ago. “It was the most toxic atmosphere of any case I ever tried.”

At least one of the current cases centers on former agent David Chaves, a 20-year veteran of the Federal Bureau of Investigation. As a supervisor in New York, he participated in or oversaw some of the most important investigations of Wall Street. Federal law bars prosecutors and agents like him from disclosing secrets presented to the grand juries that decide whether to file criminal charges.

Gambler’s Arrest

The Walters leaks came two years before the legendary sports gambler’s 2016 arrest, when newspapers including the Wall Street Journal reported on details of the FBI probe. After Walters was charged, his lawyers complained that leaks of grand jury secrets tainted the case. Prosecutors said in court papers that while Chaves acknowledged passing information to the media, they couldn’t determine whether his disclosures included material from a grand jury.

Walters is serving a five-year prison term for trading on tips from a golfing buddy, the former chairman of Dean Foods Co., in a plot that netted him $43 million. He’s now arguing on appeal that the government’s “systematic and outrageous” leaks of grand jury material aimed to put pressure on a witness, who then agreed to plead guilty and help the FBI. His lawyers say the leaks revived a dormant investigation that would have otherwise failed.

While calling Chaves a “rogue” agent, prosecutors say Walters wasn’t harmed by leaks because the investigation was active at the time and because the media reports had no impact on the witness’s decision to cooperate. The trial judge agreed, saying the proper remedy is to “investigate, and, if appropriate, prosecute” Chaves.

A Justice Department probe is now underway.

Chaves’s lawyer, Sean Casey, didn’t return calls seeking comment. Walters’s attorney, an FBI spokeswoman and a Justice Department spokesman all declined to comment on the appeal and the probe of Chaves.

Others facing fraud charges have pursued the same line of attack.

Mark Nordlicht, the founder of hedge fund Platinum Partners who allegedly cheated investors out of millions of dollars, was among several defendants who sought to have their case tossed because of grand jury leaks. Defense lawyers noted that Chaves, as a supervisor, likely oversaw the FBI probe. Prosecutors defeated the dismissal bid, noting that the news articles at issue didn’t refer to “matters occurring before the grand jury” -- such as witnesses’ identity or testimony -- or suggest that a law enforcement official was the source.

Former hedge fund consultant David Blaszczak and three others, who were convicted this month of an insider-trading plot involving government secrets, also cited alleged grand jury leaks in a failed bid for a dismissal. The judge questioned whether the leaks even came from prosecutors or the FBI while finding no evidence the defendants were harmed.

Walters’s argument may be a long shot, one legal expert said. To dismiss an indictment, a defendant must show that the prosecutor’s misconduct was so “systemic and pervasive” that it raises a “substantial and serious” question about the fairness of the grand jury that returned an indictment.

“You have to show the grand jury would not have indicted at all, but for this conduct,” said Peter Henning, a former federal prosecutor who teaches at Wayne State University’s law school in Detroit. “That’s going to be very hard to show based on just a leak of information to the media.”

Selective leaking is as old as the bureau itself. J. Edgar Hoover leaked to help Tom Dewey’s 1948 presidential bid, according to The Nation magazine, and Hoover’s deputy, Mark Felt, was Watergate’s “Deep Throat.” Last month, former FBI deputy director Andrew McCabe was accused by the Justice Department’s inspector general of lacking candor about his role in providing information to a reporter about an investigation into the Clinton Foundation.

Dowd’s most recent client, President Trump, has gone after bureau leaks full-throttle. Assailing an FBI investigation into his campaign’s ties to Russia, he wrote on Twitter last year: “find the leakers within the FBI itself. Classified information is being given to media that could have a devastating effect on U.S. FIND NOW”

To contact the reporter on this story: Patricia Hurtado in Federal Court in Manhattan at To contact the editors responsible for this story: David Glovin at Joe Schneider