Following the “Great Recession” in 2008, President Barack Obama’s Justice Department launched a concerted effort to go after “white collar” criminals. Leading the effort was Preet Bharara, U.S. Attorney for the Southern District of New York and the FBI’s New York Field Office.
Bharara’s high-profile investigations quickly earned him a reputation as “the scourge of Wall Street” and landed him the cover story in Time Magazine as the “top cop busting Wall Street.”
Bharara also aggressively prosecuted political corruption in Albany winning convictions against assembly speaker Sheldon Silver and Republican Senate majority leader Dean Skelos–both of which were overturned. Silver was retried and convicted.
The ‘crime-busting” Bharara was hailed as a future Governor or US Attorney General. When fired by President Donald Trump Bharara attacked the President and signed a lucrative contract with CNN as a legal analyst.
But Bahara is neither the “White Knight” nor the “Mr. Clean” depicted by the media.
A closer look reveals that as a prosecutor Preet Bharara regularly broke the law and abused his power in order to convict innocent targets. This pattern includes knowing about and approving FBI leaks of grand jury testimony to the media and lying to a federal Judge about it, pressuring compromised witnesses into changing their story and lying, pressuring an exculpatory witness into pleading the fifth amendment, suppressing exculpatory evidence and violating the rights of the accused in order to maximize publicity for himself.
In other words, Preet Bharara regularly broke the law in order to convict innocent men of breaking the law.
A 2016 conviction of Las Vegas businessman, celebrity gambler and philanthropist William “Billy” Walters is the best place to look because the entire record is public and none of it is redacted or withheld so the government’s admitted conduct is stunning.
A 2011 investigation centered on suspected insider trading in stocks of Clorox involving well-known investor Carl Icahn hit a dead end.
In 2013 the investigation shifted to suspected insider trading by Walters in stocks of Dean Foods. But that investigation stalled as well.
In April of 2013, and in an effort to revive the “dormant” investigation, FBI Agent David Chaves began leaking confidential information – including secret grand jury information from the investigation – to reporters for both the Wall Street Journal and the New York Times.
Published stories by both papers at the end of May 2014 resulted in the questioning of Tom Davis, then a board member of Dean Foods. Davis initially denied any involvement or knowledge or involvement any kind of insider trading.
A separate investigation by the Securities Exchange Commission (SEC) uncovered the fact that Davis had embezzled money from a charity for battered women and lied to cover it up. That resulted in Davis changing his story and agreeing to cooperate with the government in its investigation of Walters.
Relying primarily on Davis’ testimony, a grand jury indicted Walters for insider trading.
They trial documents made public reveal
- In 2011, the FBI and Office of the United States Attorney (USAO) began investigating “suspicious” trading in the Clorox Company in advance of an announcement that well-known investor Carl Icahn was possibly interested in acquiring the company.
- The Security and Exchange Commission (SEC) opened a civil investigation into the same matter. Billy Walters was a target in both investigations.
- Special Agent Matthew Thoresen was assigned to the investigation by the FBI under the supervision of Supervisory Special Agent David Chaves.
- In April 2013, the Financial Industry and Regulatory Authority (FINRA) brought to the SEC’s attention trades in Dean Foods by Walters just prior to the August 2012 announcement that Dean Foods was spinning off its dairy business, WhiteWave.
- In May 2013, the SEC shared the FINRA information with the FBI and USAO after it was discovered that Tom Davis, who was a board member of Dean Foods, was a longtime friend of Walters. The FBI then expanded its investigation to include Davis and others close to him.
- On June 23, 2014, both the WSJ and NYT publish articles noting that subpoenas had been issued to Dean Foods.
- In the fall of 2014, Agent Thoreson was removed from the case and transferred out of the FBI’s New York office and Agent Chaves was promoted to a position in which he “no longer directly supervised the (Walters) investigation.”
On March 6, 2015, Davis was approached by the FBI after the New York Times and Wall Street Journal stories. He denied insider trading and refused an FBI request to cooperate.
- On May 18, 2015, Davis testified before the SEC about the Dean Foods investigation.
- On August 12, 2015, the WSJ specifically names Davis as a target of the investigation, likely due to another Chaves leak.
- In February 2016 Davis, “through new counsel,” decides to cooperate with the government and changes his story from his earlier SEC testimony.
- The first lawyer for Tom Davis starting in the summer of 2014 was Thomas Melsheimer of Dallas, Texas. In early 2016, a new attorney for Tom Davis approached the U.S. Attorney’s Office to inquire about cooperation. The new attorney, a recent alumnus of the U.S. attorney’s office, was Benjamin Naftalis. Naftalis is an associate of then Atty. Gen. Loretta Lynch
Davis and his new attorney met with the government for debriefing and prepping about 29 times to concoct his testimony.
- On May 16, 2016, Davis pleads guilty to lying to the SEC, securities and wire fraud, obstruction of justice and other crimes.
- On May 17, 2016, the grand jury issued indictment charges for securities fraud, wire fraud, and conspiracy against Walters.
- On May 18, 2016, Walters was arrested.
Again the court documents prove:
- In an effort to resuscitate what he described as a “dormant” investigation into Walters, Agent Chaves began leaking confidential information about the investigation to newspaper reporters.
- A March 29, 2015, article in the Wall Street Journal described such actions as “Mr. Bharara’s M.O,” noting that the U.S. Attorney, in earlier cases, had “exploited tools once reserved for the mafia or terrorists to go after white-collar crimes.”
- As subsequent articles explained, the leaks were a government tactic used in an effort to “scare (targets) into cooperating” through public exposure of the mere fact they were under investigation.
- The unauthorized leaks – including some “over dinner” – occurred between April 2013 and at least June 2014, and probably several years thereafter, and included secret grand jury and wiretap information.
- The leaked information, including secret grand jury information, was provided to reporters Matthew Goldstein and Ben Protess of the New York Times and Susan Pulliam and Michael Rothfeld of the Wall Street Journal.
- On or about April 17, 2014, Chaves dined with three NYT reporters and leaked details about the Walters investigation. Phone logs indicate that “multiple phone calls” and texts between Chaves and Protess occurred over the next couple of weeks.
- Officials and supervisors at the FBI and USAO became aware of the leaks in early May.
- Aware that the newspapers were preparing to go public with their stories, the FBI sent agents to interview Tom Davis and Golf Pro Phil Mickelson on May 29, 2014. Subsequently, Davis supposedly destroyed evidence by allegedly throwing his cell phone into a pond which was never recovered.
- The WSJ published its first story on the investigation on May 30, 2014. It identified Walters, Icahn, and professional golfer Phil Mickelson as targets of the original Clorox investigation and mentioned the government’s expanded investigation into Dean Foods. The NYT published its similar story on the same day. Both papers did follow-up stories the next day.
Mickelson repeatedly told the FBI in multiple interviews that there was no insider-trading and that Walters was innocent of the charge. Bahara’s investigation into Mickelson exposed huge overseas gambling debts and the prosecutor threatened to indict the pro golfer for money laundering and tax evasion unless he agreed to plead the fifth amendment in the Walters matter thus denying Walters an exculpatory witness. Mickelson folded.
- On the evening of May 30, Assistant FBI Director George Venizelos sent an email to parties involved in the case, including Agent Chaves, to stop talking to the WSJ reporter. “I mean it when I say cease contact with this reporter for now,” Venizelos wrote. “(I)f I find out someone is still talking to this reporter after today than (sp) there will be reassignments immediately.”
- On June 1, Agent Thorensen, apparently unaware that his supervisor was the source of the leaks, described them as “deplorable and reprehensible.” That same day, United States Attorney Preet Bharara referred to the leaks as “outrageous and harmful” and Venizelos described them as “an embarrassment to this office.”
- Ignoring the order, Chaves stopped using his FBI cell phone and began communicating with reporters using his personal cell phone. He also deleted his personal email account at the time for an unexplained reason.
- In an April 19, 2017, editorial, the Wall Street Journal noted that “According to emails revealed in the Walters’ case, (U.S. Attorney Preet) Bharara knew about the leaks pouring out of the FBI’s white-collar unit…but as far as we know he did nothing to stanch the leaking. The paper concluded that “there’s a pattern of troubling behavior and a problematic culture inside Mr. Bharara’s old shop.”
The Trial record further reveals
- On September 23, 2016, Walters’ defense team asked the court for a pretrial hearing to address alleged government misconduct related to the leaks in the FBI investigation.
- On October 21, 2016, the government filed its opposition to the request for a pretrial investigation into the leaks, with Bharara characterizing the request as a “fishing expedition” and “nothing more than unfounded speculation.” He stated unequivocally that the allegations of misconduct by “an agent for the government” were “not true.”
- On November 17, 2016, the court granted Walters’ request for a pretrial hearing.
- On December 16, 2016, the government disclosed to the court that Agent Chaves had admitted to leaking confidential grand jury information to reporters in interviews conducted by the USAO on December 6 and 8 in advance of the pretrial hearing.
- After the December 8 interview, Agent Chaves invoked the Fifth Amendment and refused to appear for a third scheduled interview. However, based on the first two interviews, the government was forced to admit that information in the WSJ and NYT articles “contained a significant amount of confidential information relating to the investigation” and conceded that an illegal violation of grand jury secrecy had occurred.
- On December 20, 2016, the Office of Inspector General opened a criminal investigation into the press leaks, including Agent Chaves’ involvement in them.
- On December 21, 2016, the court heard arguments related to the now-admitted leaks by Agent Chaves. Walters’ defense team argued the indictments should be dismissed due to the government misconduct in the investigation. The court agreed to hear such a motion.
- On January 13, 2017 Walters’ defense team submitted a pre-trial motion to dismiss, noting that “We now know that the shield of grand jury secrecy was turned upside down, and misused instead as a sword in a systematic, deliberate, sustained, and illegal campaign by the government to leak and barter secret grand jury information as an investigative strategy to revive a moribund investigation” by Agent Chaves.
- On January 30, 2017, U.S. Attorney Preet Bharara submitted a memorandum to the court opposing Walters’ motion for dismissal despite the fact that the “improper and inexcusable leaking of information to the media” was “unquestionably wrong” and that there should be “serious consequences for that misconduct.” Nevertheless, Bharara denied that Chaves’ leaks and the USAO and FBI’s failure to stop them rose to the level of “outrageous government misconduct.”
- Two e-mails from U.S. Attorney Bharara to the FBI prove he knew about and approved the illegal leak of grand jury testimony- a strict violation of the law. Bharara would simply lie about it to federal Judge.
- On February 6, 2017, Walters’ defense team submitted a memorandum in support of its motion to dismiss the indictment due to the government’s misconduct.
Judge Castel said “I will say that I’ve learned a lesson here. I reviewed the defendant’s motion. I was somewhat skeptical that the allegations could possibly be true, but I felt the defendant had made a sufficient case to warrant an evidentiary hearing. I felt that an evidentiary hearing was, at a minimum, a wise prophylactic measure.
I wasn’t cynical enough to think that I was going to learn of deliberate disclosures by a special agent of the FBI and deliberate disclosures after the fact of 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’m a wiser person today for having been exposed to this. To say I was shocked would be an accurate statement.
The thing that I find — an overused word in the English language is “ironic.” It’s often misused. But I think it is truly ironic that Mr. Walters is charged with, among other things, tipping material nonpublic information to another. And to help support that case, the special agent apparently tipped material nonpublic information improperly to another. That’s what we have here. And it is a true irony.”
- On March 1, 2017, Judge Castel issued a memorandum and order declaring that “David Chaves, a Supervisory Agent of the Federal Bureau of Investigation (FBI), acting without authorization, leaked sensitive information regarding a criminal insider trading investigation to reporters at the Wall Street Journal and New York Times.” He nevertheless denied Walters’ motion to dismiss based on the government’s misconduct in the investigation.
Also from the trial record:
- Walters’ trial began on March 15, 2017
- Two 30-day wiretaps of Walters’ phone after the newspaper stories were published did not turn up any incriminating conversations; however, that fact was withheld, at Judge Castel’s order, from the jury. In addition, the defense was not allowed to inform the jury of the press leaks by Agent Chaves.
- The prosecution’s case relied primarily on the testimony of Tom Davis and the timing of phone calls between Davis and Walters – but not substance, as none of the calls were recorded – and trades Walters made after those calls.
- No texts, emails, letters, faxes, voicemails, wiretaps or other documented evidence was introduced during the trial which incriminated Walters.
- The jury was informed that when Davis was initially questioned about insider trading related to Dean Foods, for which Davis was a board member after the press leaks became public, he replied, “I never provided Billy Walters any confidential information. I’m certain of that.”
- The jury learned that Davis subsequently changed his story after getting caught embezzling $100,000 from a charity for battered women in order to pay off a gambling debt and lying about it. He then cut a deal with the government to be a cooperating witness against Walters.
- Under cross-examination, Davis admitted: “I’m not going to make any bones about it. I was hoping that…providing cooperation to the government would help me avoid going to jail.”
- Testimony during the trial also revealed that Davis, admittedly, lied repeatedly, cheated on his taxes, cheated on his wives, paid for prostitutes, committed insurance fraud, gambled extensively with an illegal bookie in Dallas and had a drinking problem.
- On April 7, 2017, the jury found Walters guilty of insider trading.
The sentence received by Walters also raised eye-brows:
- Sentencing guidelines call for the courts to take into account “the history and characteristics of the defendant” and impose a sentence “sufficient but not greater than” necessary to “promote respect for the law,” to “provide just punishment for the offense” and to “protect the public from further crimes of the defendant.”
- Courts may also consider a defendant’s “age, education, mental or emotional condition, [and] medical condition” in issuing a sentence substantially below what is outlined in advisory guidelines.
- The Probation Department – considering Walters age (71), lifetime of good deeds and generosity, absence of any past criminal history, and low likelihood of recidivism – recommended a prison sentence of no more than one year and one day.
- On July 27, 2017, Judge Castel ignored Probation Department recommendation and sentenced Walters to five years in prison and fined him $10 million. In addition, stating his personal opinion that “the chances of success” in appealing the decision were “especially low,” Judge Castel denied Walters’ request that he be allowed to remain free on bail pending appeal.
- On October 10, 2017, Walters entered federal prison to begin serving his sentence.
This past Christmas President Donald Trump commuted the sentence of a Brooklyn Rabbi who had been convicted of financial crimes. The President should commute the sentence of William Walters and order Attorney General Jeff Sessions to review the action of the Justice Department in what Judge Andrew Napolitano has called the “most stunning case of prosecutorial misconduct I have ever seen”.