Billy Walters Files Lawsuit Against FBI Leaker And US Attorney Team Who Covered It Up

We are nearing the 50^th anniversary of the Watergate break-in – the infamous scandal rooted in the 1972 Presidential campaign. As any student of politics knows, the burglary of Democratic National Committee headquarters led to one of most bungled cover-ups in American history and the resignation of President Richard Nixon. 

In reading news stories last week about the lawsuit filed by former professional sports bettor Billy Walters against lawless lawmen in the U.S. Justice Department’s Southern District of New York, the parallels to Watergate are striking. According to the complaint, there was pernicious wrongdoing at the highest levels of government followed by lies and a cover-up. Unlike Watergate, however, the wrongdoers have not been held accountable and remain unpunished.

This begs the question: Have our leaders not learned anything in the nearly half-century since Watergate?

Walters, who was convicted of insider trading charges in 2017, has filed suit against five federal law enforcement officials – including Preet Bharara, the former U.S. Attorney for the Southern District of New York.  Walters wants a court to officially rule that his right to due process was denied, even though he is not challenging his conviction. He has served more than half of his five-year sentence and has been on home confinement since May due to the surge of Covid-19 in the federal prison system. 

Walters is not one to go quietly. With the lawsuit, he is shining a spotlight on government wrongdoing and what appears to be a willingness by the Department of Justice to look the other way when people in white hats break the law. The complaint helps expose, and seeks to rein in, what many believe is the Southern District’s credo that the ends justify the means – the law be damned. 

Walters is not alone. Hedge fund co-founder David Ganek also sued Bharara in 2017 for allegedly violating his constitutional rights. In that case, an FBI agent submitted information in a search warrant that the government specifically had been told was untrue. Ganek was never even indicted but ended up losing his firm as a result of the government’s prosecution. An appeals court ruled against Ganek, saying that prosecutors and FBI agents enjoy “qualified immunity’’ in carrying out their work.

The Walters case dates back to 2011 when the SEC and FBI began investigating suspicious trading of Clorox CLX shares. A grand jury was convened, subpoenas were issued and wiretaps were activated. But the case was going nowhere. 

Starting in April 2013, stories about the investigation began appearing in The Wall Street Journal and The New York Times NYT , with confidential grand jury information attributed to “people briefed on the probe.’’ According to the lawsuit, the illegal leaks were intended to “tickle the wire” by enticing targets of their investigation to implicate themselves on wiretaps. The leaks continued for more than a year, with 13 different stories about the investigation into Clorox and, later, Dean Foods DF . 

Some two years later, in May 2016, Bharara staged a press conference to announce charges against Walters for securities fraud. The lawsuit notes that FBI agents arrested Walters in Las Vegas the day before and held him overnight in a JW Marriott resort before booking him so as not to overshadow Bharara’s “exclusive” news conference.

Five months later, attorneys for Walters requested a court hearing to address the government’s misconduct. They argued that the government had illegally leaked secret grand jury information “in an effort to breathe life into a flagging investigation.’’  

This is when “All the Attorney General’s Men” shifted into Watergate mode. In legal filings, Bharara and his prosecutors called Walters’ claims of wrongdoing “false’’ and  “baseless accusations that are undermined by the facts.’’  The U.S. Attorney then issued it biggest lie by asserting that Walters “cannot show that the source of the information in the articles was an agent or attorney for the government.’’ 

The cover-up was on. 

U.S. District Judge Kevin Castel who presided over the case sided with Walters and ordered an evidentiary hearing. The government suddenly changed its story. Just weeks after calling Walters’ concerns “a fishing expedition,’’ Bharara admitted that “it is now an incontrovertible fact that there were FBI leaks of confidential information to the press regarding this investigation.’’ Prosecutors also vowed that the FBI agent, Supervisory Special Agent David Chaves, would be investigated. 

Evidence provided to the court showed that Bharara himself, along with a team of five other top prosecutors under him, were aware for two years that the FBI was leaking false information about Walters to the press. While expressing outrage in selected emails shared with the court, Bharara and his team appeared to do nothing to actually halt the activity. 

U.S. District Judge Kevin Castel was not amused. He wrote in a ruling:

I wasn’t cynical enough to think that I was going to learn of deliberate disclosures by a special agent of the FBI and after the factof leaks became known within the bureau and the U.S. Attorney’s Office and a warning, a strongly-worded warning, was issued by a person within the bureau in a supervisory capacity. Human nature being what it is, I could certainly understand if an agent found themselves in communication with a member of the press and somehow a conversation got out of hand and went beyond where it should have, and the agent, without any real thought ahead of time, misspoke. That is not what happened here. This included dinner meetings and the like.

I am a wiser person today for having been exposed to this. To say I was shocked would be an accurate statement.”

Yet, when Walters’ team asked the judge to order the government to produce thousands of emails and texts relevant to the case, the wagons were circled. The judge declined. FBI agent Chaves, who admitted to the leak, asserted his Fifth Amendment right to not testify in the Walter’s case and quietly retired from the Bureau and to lecture on the speaker’s circuit. 

Bharara vowed Chaves should be punished and his office referred the misconduct to the Office of Professional Responsibility and the DOJ’s Office of Inspector General. Regular reports were supposed to have been filed with the court, but a review of the few available records on Walters’ docket show little more than black-marker redactions. 

Sadly, bad behavior by the DOJ is no surprise. In June 2018, the Office of Inspector General published a report assessing the FBI’s handling of the 2016 presidential election. It noted a “culture of unauthorized media contacts’’ in the FBI’s New York office as well as a level of interaction with the media that was, at the very minimum, inconsistent with FBI policy and ethics rules.

The Second Circuit Court of Appeals later reviewed the Walters case and found the leaking of confidential grand jury testimony to the press “serious misconduct and, indeed, likely criminal’’ and “in some respects more egregious than anything Walters did.’’

Bharara wasn’t about to go out of his way to call attention to the blatant illegal activity that won convictions for his office. It’s noteworthy that, while relishing his role as the so-called “Sheriff of Wall Street,” Bharara failed to convict anyone responsible for the financial meltdown of 2008. He was fired by President Trump in 2017 after failing to submit his resignation. 

Bharara now appears regularly on CNN as a paid senior legal analyst.  His Twitter feed is followed closely by the media as he often takes political potshots at President Trump. Most of his senior lawyers from the US Attorney Office have moved onto jobs white-collar defense firms. (If you’re charged with a federal white-collar crime in New York, look them up – they probably can get you a deal.)

Lacking the podium of the the office he once held in lower Manhattan, Bharara has yet to provide a public statement regarding the Walters lawsuit ... but when he does, expect to hear the same words we’ve heard before,“I am not a crook.’’