Shearman & Sterling LLP | Government Regulatory Enforcement Blog | Second Circuit Affirms Insider Trading Conviction And Vacates Restitution Order Of Sports Gambler Billy Walters<br >  
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  • Second Circuit Affirms Insider Trading Conviction And Vacates Restitution Order Of Sports Gambler Billy Walters
     
    12/11/2018
    On December 4, 2018, the United States Court of Appeals for the Second Circuit affirmed the insider trading conviction, judgment, and order of forfeiture of professional sports gambler Billy Walters, while simultaneously vacating and remanding the $8.89 million restitution order that had been entered against him in light of the Supreme Court’s decision in Lagos v. United States, 138 S. Ct. 1684 (2018).  U.S. v. Walters, et al., No. 17-2373 (2d Cir. Dec. 4, 2018).

    Walters was sentenced in July 2017 to a five-year prison term and a $10 million fine after being convicted of wire fraud and securities fraud for trading on insider information concerning multiple public companies.  The District Court later ordered him to forfeit over $25 million and to pay restitution of $8.89 million.  On appeal, Walters argued primarily that the indictment in the case should be dismissed and his conviction was prejudiced because 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 and the New York Times, which increased pressure on both the investigators and targets of the investigation.  See also Shearman & Sterling LLP Southern District of New York Finds That Government Leaks Do Not Warrant Dismissal of Insider Trading Charges Against Billy Walters, Need To Know Weekly, (March 30, 2017). Walters also argued that the Government suborned perjury because of inconsistencies in testimony offered by the cooperating insider, that the evidence was insufficient to support certain counts of conviction, and that certain fees included in the restitution order were unrecoverable under the Mandatory Victim Restitution Act (“MVRA”).

    With regard to the FBI leaking information to the press, the Court wrote that “the leaking of confidential grand jury information to members of the press, whether to satisfy public interest in high profile criminal prosecutions or to generate evidentiary leads, is serious misconduct and, indeed, likely criminal.”  Thus, the panel agreed that the FBI agent’s multiyear leaking was “deeply troubling” and the lack of a hearing by the District Court prevented a fuller understanding of any other cases where leaks occurred, or if anyone else in the FBI or U.S. attorney’s office was complicit.  Nevertheless, the Second Circuit found that Walters did not demonstrate he was prejudiced by the leaks, emphasizing that the investigation was active and ongoing before the articles that resulted from the leaks were published and that it was speculative to attribute any later investigative developments to the leaks.  The Court noted that “[w]hile there may be circumstances where strategic leaks of grand jury evidence by law enforcement rises to the level of outrageous conduct sufficient to warrant dismissal, those circumstances are not present here.”

    The Court separately rejected Walters’ sufficiency and other evidentiary arguments, expressly agreeing with the District Court that any inconsistencies in the cooperating witness’s testimony were likely the result of misremembering, and that even if there had been perjury, it was immaterial in light of other evidence supporting Walters’s conviction.

    But the Second Circuit wrote that a remand was appropriate for the District Court to determine whether the fees encompassed in the restitution award are recoverable under the MVRA, consistent with the Supreme Court’s guidance in Lagos, which addressed the categories recoverable under the MVRA.  Notably, the Government had consented to such a remand.

    In a separate concurring opinion, Judge Jacobs agreed with the decision to uphold Walters’s indictment and conviction, but said that the decision by the District Court not to hold a hearing meant the full scope of what occurred goes unknown.  Jacobs wrote that “the leak of grand jury testimony is in some respects more egregious than anything Walters did … The FBI depends on the confidence of the public, jurors and judges.  The confidence is critical to its mission; so this kind of thing is very bad for business.”

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