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Billy Walters files motion to dismiss federal insider-trading case

Attorneys for Las Vegas businessman and renowned sports bettor Billy Walters filed a motion Friday asking a federal court in New York to dismiss a high-profile insider-trading case, alleging government misconduct related to information that was leaked to the media.

Walters, who has denied any wrongdoing, is charged with multiple counts of wire and securities fraud stemming from an investigation into a series of stock trades on dairy company Dean Foods made in 2012. Golfer Phil Mickelson and Thomas Davis, a former executive of Dean Foods, also were targeted in the investigation.

Mickelson was not criminally charged but did agree to pay back $1.03 million in "ill-gotten gains" he made from the stock trades.

Davis is a cooperating witness, according to court documents.

The case took a dramatic turn in December, when prosecutors acknowledged that an FBI agent had leaked confidential information to reporters at the New York Times and Wall Street Journal while the investigation was ongoing.

When the defense originally brought up the possibility of media leaks to judge Kevin Castel, prosecutors responded by saying it was a "fishing expedition" -- claiming, in other words, that Walters' side was fishing for clues without knowing if anything was there.

The Manhattan U.S. Attorney's Office declined to comment on Walters' motion to dismiss. Their response to the motion is due in in late January.

Barry Berke, lead attorney for Walters, offered no further comment.

While the motion to dismiss is evaluated, a jury trial is scheduled for March 13 in New York. The defense also has asked for an evidentiary hearing if the motion to dismiss is denied.

In Friday's filings, the defense alleges government misconduct during the investigation, dating back to as early as April 2013, and outlines meetings between FBI agents and reporters where the leaks are believed to have occurred. The defense also points to past cases with similar media leaks involving FBI agents out of New York offices, describing it as "systematic and pervasive government misconduct spanning several cases."

According to documents filed by the Department of Justice in January, FBI agent David Chaves admitted leaking information about the investigation to reporters for The New York Times and Wall Street Journal. The matter has been referred to the Office of Inspector General for the Department of Justice, and the FBI has reported Chaves to its Office of Professional Responsibility, according to the letter, submitted by U.S. Attorney Preet Bharara.

"The fact that a supervising FBI special agent is under criminal investigation for illegally leaking and trading secret grand jury information to resuscitate a stalled investigation is truly extraordinary, and to our knowledge unprecedented," Walters' attorneys stated in the motion to dismiss. "But the government misconduct here goes much deeper, and is even more troubling."

Walters was arrested May 18, 2016, in Las Vegas, after an investigation that lasted more than four years.

The investigation first became public after Mickelson was approached by FBI agents on May 29, 2014, as the five-time major champion was coming off the course after the first round of the Memorial in Dublin, Ohio.

The Wall Street Journal broke the story of the investigation around the same time and reported in its initial story that people briefed on the probe acknowledged that any publicity of the investigation "could jeopardize the government's ability to put together any potential case ... by limiting its ability to covertly gather evidence."

The leaks led to the motion to dismiss and have potentially put the government's case in jeopardy, legal experts said.

"For an FBI agent to leak grand jury information would be a gross violation of the federal rules of criminal procedure, which could be punished in a variety of ways, including dismissal of the affected criminal case," said David Axelrod, a former assistant U.S. attorney and current partner who handles white-collar criminal cases at Ohio firm Shumaker, Loop & Kendrick LLP. "It appears from the government's letter to the trial judge that this probably happened. Courts are reluctant to dismiss cases based on this kind of government misconduct that has nothing to do with the defendant's guilt or innocence, but they sometimes impose that sort of severe penalty to deter future misconduct and to recognize that doing nothing would reward or at least condone the misconduct."

Jeff Ifrah, a prominent Washington, D.C.-based attorney, told ESPN that it isn't uncommon for material about a grand jury investigation to be leaked to the media before an indictment. Ifrah also said that discovery of a leak doesn't always lead to a dismissal.

"Courts are very hesitant to impose severe sanctions even when a violation is found," said Ifrah, founder of Ifrah PLLC. "It is not inconceivable that a court could agree to dismiss an indictment in order to send a message that violations will not be tolerated. Certainly, indictments are dismissed when a Fourth or Fifth Amendment violation has occurred, such as when evidence supporting the indictment was improperly collected. I think the court can send a message in this case without dismissing the indictment, and it is quite possible that it will do so. A motion to dismiss on this basis will have a high bar to overcome."

Mickelson and Walters have long played golf together and were linked in the Las Vegas sports betting community.

Walters is widely considered the most successful sports bettor in U.S. history. He also owns golf courses and several car dealerships and is active in the stock market.

Walters has been indicted twice previously but hasn't been convicted.