The U.S. Court of Appeals for the Second Circuit upheld the insider trading conviction of former professional gambler William Walters on Tuesday, dismissing arguments his indictment should be dismissed because an FBI agent provided detailed leaks of the government’s investigation to news outlets.

While the panel—composed of Circuit Judges Denny Chin and Dennis Jacobs, and U.S. District Judge William Kuntz of the Eastern District of New York, sitting by designation—made clear it found the leaks by Special Agent David Chaves to be reprehensible and likely illegal, it held that the indictment and conviction of Walters were secured without the kind of overwhelming misconduct required for such drastic moves.

“The court certainly does not condone the conduct, but we are hard-pressed to conclude that the leaking by a government official of confidential information to the press ‘shocks the conscience,’” the panel stated. “While 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.”

Ahead of being indicted, news stories appeared in both The Wall Street Journal and The New York Times in 2014 detailing elements of an insider trading investigation into Walters, Thomas Davis, a member of Dallas-based Dean Foods board, and other targets. These leaks, it would be revealed, were being provided by Chaves.

In February 2016, Davis began cooperating with the government and soon pleaded guilty. Walters was indicted in May. At trial, Davis testified that he conspired to commit insider trading with Walters between 2008 and 2014, and that Walters traded on that information to purchase or sell Dean Foods and other stocks.

Walters was convicted on all counts by a jury in April 2017. On appeal, he largely reiterated the line of argument made to U.S. District Judge Kevin Castel of the Southern District of New York ahead of trial.

Walters argued the indictment against him should be dismissed because of grand jury leaks, while adding that government suborned perjury over parts of Davis’ testimony, which should lead to the verdict being set aside. Likewise, the evidence against him was insufficient to support a conviction, he claimed.

Specifically, Walters argued the leaks essentially resuscitated a “dormant” investigation and that it precipitated Davis’ cooperation. Reviewing the record, the panel found that the investigation was going on before, at the time of and after the leaks appeared in print. Davis himself testified that it was the near certainty of prosecution that brought him in to cooperate, not the pressure of news stories.

Walters went on to argue on due process grounds that the leaks were part of a history of prosecutorial misconduct, that were so systemic and pervasive as to call the fundamental fairness of the process into question. The panel noted that scenarios like racial discrimination in the selection of grand jurors or the exclusion of women jurors were the kind of systemic problems that would raise legitimate questions of due process.

The panel agreed Chaves’ 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. Still, the panel said the violations did not “raise a substantial and serious question about the fundamental fairness of the process” that led to the indictment.

In a separate concurring opinion, Jacobs agreed with the decision to uphold Walters’ indictment and conviction, but said that the decision by Castel not to hold a hearing meant the full scope of what occurred goes unknown, even as the FBI continues to investigate Chaves’ actions.

“The leak of grand jury testimony is in some respects more egregious than anything Walters did,” Jacobs wrote. “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.”

While the panel affirmed the vast majority of Walters’ conviction and sentence, it did agree to vacate millions of dollars in restitution awarded under the Mandatory Victim Restitution Act in light of the U.S. Supreme Court’s decision this year in Largos v. United States. The decision dealt with limiting elements of the act to only government investigations and criminal proceedings. The panel remanded to the district court a review of what is now recoverable under the MVRA.

A spokesman for the U.S. Attorney’s Office for the Southern District of New York declined to comment on the decision.

Shapiro Arato name attorney Alexandra Shapiro led Walters’ appeal team. She did not respond to a request for comment.


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