United States v. Walters, 120418 FED2, 17-2373

Docket Nº:17-2373, 17-3169, 17-3425
Opinion Judge:CHIN, CIRCUIT JUDGE
Party Name:United States of America, Appellee, v. William T. Walters, Defendant-Appellant, Thomas C. Davis, Defendant.
Attorney:Brooke E. Cucinella, Assistant United States Attorney (Robert Allen, Michael Ferrara, Sarah K. Eddy, Assistant United States Attorneys, on the brief), for Geoffrey S. Berman, United States Attorney for the Southern District of New York, New York, New York, for Appellee. Alexandra A.E. Shapiro (Er...
Judge Panel:Before: Jacobs and Chin, Circuit Judges, and Kuntz, Judge. Jacobs, Circuit Judge, concurring:
Case Date:December 04, 2018
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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United States of America, Appellee,

v.

William T. Walters, Defendant-Appellant,

Thomas C. Davis, Defendant.

Nos. 17-2373, 17-3169, 17-3425

United States Court of Appeals, Second Circuit

December 4, 2018

Argued: May 29, 2018

On Appeal from the United States District Court for the Southern District of New York

Appeal from a judgment of conviction and orders of forfeiture and restitution entered in the United States District Court for the Southern District of New York (Castel, J.). Defendant-appellant was convicted, after a three-week jury trial, of securities fraud and related crimes. On appeal, he contends that his indictment should be dismissed because a special agent of the Federal Bureau of Investigation leaked confidential grand jury information to reporters in violation of the grand jury secrecy provision of Federal Rule of Criminal Procedure 6(e) and the Due Process Clause of the Fifth Amendment. Defendant-appellant also raises several other challenges to his conviction, as well as to the district court's forfeiture and restitution orders.

Brooke E. Cucinella, Assistant United States Attorney (Robert Allen, Michael Ferrara, Sarah K. Eddy, Assistant United States Attorneys, on the brief), for Geoffrey S. Berman, United States Attorney for the Southern District of New York, New York, New York, for Appellee.

Alexandra A.E. Shapiro (Eric S. Olney, Jacob S. Wolf, on the brief), Shapiro Arato LLP, New York, New York, and Barry H. Berke, Paul H. Shoeman, Kramer Levin Naftalis & Frankel LLP, New York, New York, for Defendant-Appellant.

Before: Jacobs and Chin, Circuit Judges, and Kuntz, Judge. [*]

CHIN, CIRCUIT JUDGE

In this case, defendant-appellant William T. Walters, a professional sports gambler, was convicted, after a three-week jury trial, of securities fraud and related crimes based on his insider trading in shares of Dean Foods, Inc. ("Dean Foods") and Darden Restaurants, Inc. ("Darden"). Walters was sentenced principally to 60 months' imprisonment and a $10 million fine, and ordered to forfeit $25, 352, 490 and pay restitution of $8, 890, 969.33.

On appeal, Walters argues that the indictment in this case should be dismissed because of what he terms "extraordinary government misconduct"


a special agent of the Federal Bureau of Investigation (the "FBI") leaked confidential grand jury information about the investigation to reporters from The Wall Street Journal (the "Journal") and The New York Times (the "Times"), in violation of the grand jury secrecy provision of Federal Rule of Criminal Procedure 6(e) and the Due Process Clause of the Fifth Amendment. Walters also challenges his conviction on the grounds that (1) the prosecution suborned perjury at trial and (2) there was insufficient evidence to support the counts of conviction related to Darden. Finally, Walters contends that the district court erred in ordering restitution and forfeiture.

For the reasons set forth below, the judgment and order of forfeiture are AFFIRMED; the order of restitution is VACATED; and the case is REMANDED for the district court to reconsider restitution in light of the Supreme Court's decision in Lagos v. United States, 138 S.Ct. 1684 (2018).

BACKGROUND

A. The Initial Investigation

In July 2011, the FBI and the U.S. Attorney's Office (the "USAO" or the "Government") began an investigation into Walters for suspicious trading in shares of the Clorox Company ("Clorox").[1] In connection with the investigation, the Government issued approximately 30 grand jury subpoenas for phone records, bank records, trading records, and credit reports. Special Agent Matthew Thoreson was the FBI's primary case agent for the investigation. His supervisor was FBI Special Agent David Chaves.

On April 26, 2013, the Financial Industry Regulatory Authority ("FINRA") made a referral to the SEC of suspicious trading by Walters and others in Dean Foods stock shortly ahead of an August 2012 announcement that Dean Foods, a Dallas-based dairy and food company, intended to spin off its branded dairy business, WhiteWave. The SEC shared FINRA's referral with the USAO, and the revelation of Walters's close relationship with Thomas Davis, a member of Dean Foods's board of directors, caused the Government to broaden its investigation to include trading in Dean Foods and other companies. The Government issued grand jury subpoenas for Davis's phone records and accounts, and subpoenas for phone and account records for Walters and others in communication with him around the time of the Dean Foods trades.

Approximately one year into the investigation, on April 22, 2014, the Government received authorization to conduct a 30-day wiretap on Walters's cellphone. It received a second authorization for a 30-day wiretap on May 23, 2014. Shortly after the second authorization, however, the USAO learned that reporters planned to publish a story about the investigation.[2]

B. The News Articles

On May 30, 2014, the Journal published an article revealing the existence of an insider trading investigation into Walters, Carl Icahn, and Phil Mickelson. The Times followed with a story the same day. Additional articles appeared in the Times on May 31 and in the Journal on June 1. The articles contained detailed confidential information about the investigation and attributed the information to "people briefed on the matter" who "spoke anonymously because they were not authorized to discuss the investigation." App. 78-83, 318-20. The articles disclosed details about when the investigation began, who the targets were, which stocks were traded, what specific trades were being investigated, when those trades took place, what evidence was being examined, which investigative techniques were being employed by investigators, and which "theor[ies]" the Government was "exploring," including, e.g., that an inside source gave Walters a heads-up about Dean Foods's plan to spin off WhiteWave. App. 78-99, 321-24.

Throughout June 2014, several follow-up articles appeared in the Journal and the Times. The articles discussed ongoing details of the investigation into Walters, including information about subpoenas issued to Dean Foods. The articles reported that, for example, federal prosecutors had requested documents from Dean Foods, and certain targets of the broader investigation "ha[d] not received any subpoenas from the authorities." App. 92, 94. The June articles also attributed information about the investigation to "people briefed on the probe." App. 91. The last article at issue, which was published by the Journal on August 12, 2015, identified Davis as a target of the investigation.

C. The News Leaks

As discussed further below, it was eventually revealed that from April 2013 through June 2014, FBI Special Agent Chaves had provided information about the investigation to as many as four reporters from the Times and the Journal.

Specifically, in later interviews, Chaves admitted that in April 2013 he had met with two reporters from the Times for dinner and discussed the investigation into Clorox, mentioning Walters by name. Moreover, Chaves stated that he had met with a reporter from the Journal in late 2013 and asked her “to let him know if she came across any information regarding Walters." App. 221. Chaves also acknowledged having dinner with three reporters from the Times in April 2014 in which the investigation was discussed, including the expansion of the investigation to trading in stocks other than Clorox.

The USAO and FBI learned about the media's intention to publish an article in early May 2014. Specifically, on May 6, 2014, a Times reporter invited J. Peter Donald, then an FBI New York Field Office media representative, to meet for coffee and stated that she planned to publish a piece on the investigation. On May 8, 2014, the FBI informed the USAO that the Journal also planned to publish an article.

On May 13, 2014, Donald spoke with other persons at the Journal who agreed to hold the story about the investigation until at least May 22, 2014. Sometime after that conversation on May 13, it appears that the FBI and USAO discussed available options for getting the newspapers to continue to hold their stories, and that ultimately, on May 27, 2014, Chaves, Donald, and several other FBI agents participated in a meeting with the Journal. Two agents, including Chaves, insist that others besides him disclosed "various aspects of the investigation" in exchange for the Journal agreeing to hold publication. The remaining three agents deny this, although one Times reporter told the USAO that he had multiple "sources" about the investigation. App. 220.

In a May 28, 2014 email to Chaves, Special Agent Thoresen wrote, in reference to learning that reporters had detailed information about the Walters investigation: "Whomever is leaking[] apparently has a specific and aggressive agenda in that they are now going to other media outlets in an effort to derail this investigation." App. 229.

On May 30, 2014, the day the first Journal and Times articles were published, George Venizelos, the Assistant Director in Charge of the New York Field Office, emailed Donald, Chaves, and others, asking how the reporter had learned certain information and instructing FBI personnel to cease any contact with the reporter, stating that if he found out anyone continued to speak to the reporter, "there will be reassignments immediately." App. 231.

After the May 31, 2014 Journal article was published, Thoresen forwarded the article to the Assistant United States Attorney ("AUSA") responsible for the investigation, describing the article as "[d]eplorable and reprehensible." App. 235.

On June 1, 2014, the U.S. Attorney at the time, Preet Bharara, also forwarded a link...

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