17‐2373‐cr(L) United States v. Walters UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term 2017

(Argued: May 29, 2018 Decided: December 4, 2018)

Docket Nos. 17‐2373(L), 17‐3169(Con), 17‐3425(Con)

UNITED STATES OF AMERICA,

Appellee,

v.

WILLIAM T. WALTERS,

Defendant‐Appellant,

THOMAS C. DAVIS,

Defendant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

Before: JACOBS and CHIN, Circuit Judges, and KUNTZ, Judge.*

* Judge William F. Kuntz, of the United States District Court for the Eastern District of New York, sitting by designation.

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 courtʹs

forfeiture and restitution orders.

AFFIRMED IN PART, VACATED IN PART, AND REMANDED.

Judge JACOBS concurs in a separate opinion.

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 2

York, and Barry H. Berke, Paul H. Shoeman, Kramer Levin Naftalis & Frankel LLP, New York, New York, for Defendant‐Appellant.

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.

(ʺDean Foodsʺ) and Darden Restaurants, Inc. (ʺDardenʺ). Walters was sentenced

principally to 60 monthsʹ 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 ʺextraordinary government misconductʺ ‐‐ a

special agent of the Federal Bureau of Investigation (the ʺFBIʺ) leaked

confidential grand jury information about the investigation to reporters from The

Wall Street Journal (the ʺJournalʺ) and The New York Times (the ʺTimesʺ), 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

3

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 Courtʹs decision in Lagos v. United States,

(2018).

BACKGROUND

A. The Initial Investigation

In July 2011, the FBI and the U.S. Attorneyʹs Office (the ʺUSAOʺ or

the ʺGovernmentʺ) began an investigation into Walters for suspicious trading in

shares of the Clorox Company (ʺCloroxʺ).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 FBIʹs primary case agent for the investigation. His

supervisor was FBI Special Agent David Chaves.

1 The Securities and Exchange Commission (the ʺSECʺ) was also investigating Waltersʹs trading in Clorox. Pursuant to an ʺaccess requestʺ by the USAO, the SEC shared with the USAO documents and information gathered through its parallel civil investigation.

4

On April 26, 2013, the Financial Industry Regulatory Authority

(ʺFINRAʺ) 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 FINRAʹs referral with the USAO,

and the revelation of Waltersʹs close relationship with Thomas Davis, a member

of Dean Foodsʹs 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 Davisʹs 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 Waltersʹs

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

2 The Government has represented that the FBI and USAO learned that a reporter knew details of the investigation in early May 2014, but neither office knew that an article would be published until May 27, 2014, at the earliest. Moreover, it has represented that following that notification in early May 2014, the FBI sought to 5

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 ʺpeople briefed on the matterʺ who ʺspoke

anonymously because they were not authorized to discuss the investigation.ʺ

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 ʺtheor[ies]ʺ the Government was ʺexploring,ʺ including, e.g., that an

inside source gave Walters a heads‐up about Dean Foodsʹs plan to spin off

WhiteWave. App. 78‐99, 321‐24.

dissuade the reporter from publishing the story, including by agreeing to meet with the newspaper staff on May 27, 2014. The USAO does not appear to have participated in that meeting. 6

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 ʺha[d] not

received any subpoenas from the authorities.ʺ App. 92, 94. The June articles also

attributed information about the investigation to ʺpeople briefed on the probe.ʺ

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

7

ʺto let him know if she came across any information regarding Walters.ʺ 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 mediaʹs 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 ʺvarious aspects of the

investigationʺ in exchange for the Journal agreeing to hold publication. The

8

remaining three agents deny this, although one Times reporter told the USAO

that he had multiple ʺsourcesʺ 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: ʺWhomever 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.ʺ 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, ʺthere will be reassignments immediately.ʺ App. 231.

After the May 31, 2014 Journal article was published, Thoresen

forwarded the article to the Assistant United States Attorney (ʺAUSAʺ)

responsible for the investigation, describing the article as ʺ[d]eplorable and

reprehensible.ʺ App. 235.

9

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

forwarded a link to a second Journal article to Venizelos, stating ʺI know you

agree these leaks are outrageous and harmful.ʺ App. 236. Venizelos then

emailed Donald, Chaves, and others, stating that the articles were ʺnow an

embarrassement [sic] to this office,ʺ and instructing them to meet with him to

discuss the issue the next morning. App. 236.

On June 2, 2014, Venizelos met with FBI personnel, expressed anger

over the leaks, and again instructed agents to cease contact with the media.

Despite Venizelosʹs directive, however, Chaves appears to have communicated

with reporters about the investigation sometime between June 2 and June 11,

2014, though he switched to using his personal cell phone and deleted his

personal email account. As noted above, the articles continued into 2015.

D. The Indictment

In February 2016, Davis advised the Government that he wished to

cooperate, and, in meeting with the Government, he quickly implicated Walters.

On May 16, 2016, he pled guilty, pursuant to a cooperation agreement, to a 12‐

count information. On May 17, 2016, the very next day and almost two years

after the first articles were published, the USAO and the FBI presented evidence

10

to a grand jury that Walters had communicated with and received inside

information from Davis prior to his purchase or sale of large quantities of Dean

Foods stock and those trades resulted in significant profits or avoided losses

when news about the company later became public.3 To support its theory, the

Government presented summaries of Waltersʹs trading and phone records, along

with information drawn from contemporaneous Dean Foods board meeting

minutes and earnings announcements. The grand jury also heard a summary of

Davisʹs expected trial testimony, which was to include, among other things, that

Davis had provided Walters with material nonpublic information about Dean

Foods along with another company, Darden; made false statements to

prosecutors; intentionally destroyed a burner cellphone (referred to at trial as the

ʺbat phoneʺ) that Davis used to communicate material nonpublic information to

Walters; and entered into a cooperation agreement with the Government

pursuant to which he pled guilty.

The grand jury returned a 10‐count indictment the same day,

charging Walters with conspiracy, securities fraud, and wire fraud related to

3 The Government submitted to the district court a transcript of the grand jury testimony leading to Waltersʹs indictment. 11

insider trading in Dean Foods and Darden. Walters was arrested on

May 18, 2016.

E. Motion for Hearing on the News Leaks

On September 23, 2016, Walters filed a motion for a hearing on the

issue of the news leaks. In his motion, Walters argued that the content of the

news articles made clear that the Government must have improperly leaked

grand jury information to reporters in violation of the grand jury secrecy

provision, Federal Rule of Criminal Procedure 6(e).4 Walters alleged that the

Government leaked this information ʺas part of a concerted effort to breathe life

into a flagging investigation.ʺ App. 108. On October 21, 2016, the Government

opposed the motion on the basis that Walters had failed to show a Rule 6(e)

violation. First, the Government argued that the articles did not necessarily

include ʺmatters occurring before the grand juryʺ because the articles did not

4 Rule 6(e) provides in relevant part that certain persons, including government attorneys, ʺmust not disclose a matter occurring before the grand jury.ʺ Fed. R. Crim. P. 6(e)(2)(B)(vi). A government attorney may disclose grand jury matters to ʺany government personnel . . . that an attorney for the government considers necessary to assist in performing that attorneyʹs duty to enforce criminal law,ʺ

at r. 6(e)(3)(A)(ii), in which case the person to whom disclosure is made is also bound by the secrecy requirement,

at r. 6(e)(2)(B)(vii). The Government agrees that these provisions bar a government agent, including an FBI agent, from disclosing matters occurring before the grand jury. 12

contain any information from the referenced records or subpoenas and at least

some of the information was public or not protected by the grand jury secrecy

provisions. App. 186, 202‐05. Second, the Government argued that Walters

could not show that the source of the information was a Government agent or

attorney: ʺNone of the articles linked a source directly to the Government,ʺ

Government representatives declined to comment, and civil regulators and

others ‐‐ who are not bound by Rule 6(e) ‐‐ also had access to the information

contained in the articles. App. 206‐09. According to the Government, the

ʺnatural and logical inferences lead to the conclusion that the source was not a

Government official.ʺ App. 209.

The district court issued an order on November 17, 2016, directing

the parties to prepare for an evidentiary hearing to determine whether there had

been communications between FBI agents or AUSAs involved in the

investigation and reporters or employees of the Journal and Times from April 1 to

June 30, 2014. In response to the courtʹs directive, the Government identified 14

agents and AUSAs whom it intended to interview in connection with the news

leaks. The Government also obtained emails, cell phone logs, and text messages

for those individuals for the time period specified by the court.

13

On December 16, 2016, a few days before the scheduled hearing, the

Government submitted an ex parte letter to the court under seal in which it

informed the district court that it had conducted an internal inquiry and that,

contrary to its earlier position, it had learned that an FBI agent ‐‐ Chaves ‐‐ was

the mediaʹs source of confidential information about the investigation.5 The

Government acknowledged that ʺ[i]t is now an incontrovertible fact that FBI

leaks occurred, and that such leaks resulted in confidential law enforcement

information about the Investigation being given to reporters.ʺ App. 217.6 It

represented that Chaves had been referred by the FBI to its Office of Professional

Responsibility and by the USAO to the Office of Inspector General for the

Department of Justice (ʺDOJʺ) for his misconduct.7

5 The letter set forth the Governmentʹs findings, based on interviews and contemporaneous communications within the FBI and USAO. The Government later filed the letter on the public docket in redacted form. See D. Ct. Dkt No. 65. 6 The district court later noted that ʺ[w]hile the governmentʹs artful opposition to Waltersʹ initial motion contained no affirmative statements that were false, it confined itself to denials from limited sources and never disclosed high level concerns over FBI leaks.ʺ Sp. App. 20. The leaks and concerns, as expressed in emails in May and June 2014, were only later revealed to the district court in the Governmentʹs ex parte letter in December 2016. 7 Specifically, the Government revealed that on December 6, 2016, it had interviewed Chaves with FBI counsel present, and Chaves admitted to providing confidential information about the investigation to the Journal and Times dating back to in or about April 2013. On December 8, 2016, Chaves was again interviewed. Before the third interview scheduled for December 13, 2016, however, Chaves retained 14

In its letter, the Government provided the district court with a

detailed chronology, summary of findings, and contemporaneous internal emails

relating to the leaks. It explained, however, that because ʺmuch about the scope

and content of the information that Chaves leaked to reporters remains unclear,ʺ

App. 219, it believed ʺthat the appropriate course is for the Court to assume that

a Rule 6(e) violation occurred and proceed to consider the issue of remedy,ʺ

App. 218.

In light of the Governmentʹs letter, the district court indicated it

would presume a Rule 6(e) violation occurred and cancelled the hearing.

F. Motion to Dismiss the Indictment

On January 13, 2017, Walters moved to dismiss his indictment on the

bases that (1) he was prejudiced by the leaks because they caused Davis to

cooperate against him; (2) even absent a showing of prejudice, the indictment

should be dismissed because the leaks involved ʺsystematic and pervasiveʺ

prosecutorial misconduct; and (3) the Governmentʹs conduct was so ʺoutrageousʺ

that it violated the Due Process Clause of the Fifth Amendment. App. 240.

personal counsel, and informed the Government that he would no longer meet and would assert his Fifth Amendment privilege against self‐incrimination. 15

The district court denied the motion in a written decision on

March 1, 2017. First, it held that Waltersʹs contentions as to prejudice amounted

to ʺsheer speculationʺ because ʺthere is no reason to think that Davis would not

have been indictedʺ in the absence of the government misconduct and articles.

Sp. App. 13‐14. Second, the court rejected Waltersʹs argument that he was not

required to show prejudice because the misconduct at issue was ʺsystematic and

pervasive,ʺ noting that the court was ʺnot aware of any case in which an

indictment was dismissedʺ on such grounds. Sp. App. 17. Third, the court

rejected Waltersʹs due process argument on the basis that the doctrine was

inapplicable to his case and that ʺ[t]he proper remedy here is to investigate and,

if appropriate, prosecute the offender, rather than dismiss the indictment.ʺ Sp.

App. 19.

Finally, the district court concluded that an evidentiary hearing was

unnecessary because ʺChaves has indicated that he will refuse to answer

questions,ʺ and ʺ[i]n any event, the Court has been provided sufficient evidence

. . . to make a ruling.ʺ Sp. App. 16. On March 1, 2017, the district court issued an

order requiring the Government to submit information on a quarterly basis on

16

the status of the investigation into Chavesʹs misconduct. See March 1, 2017

Memorandum and Order, D. Ct. Dkt No. 104, at 2.

G. Trial

Trial began on March 15, 2017, and lasted approximately three

weeks. The evidence included documents and testimony that established that

Walters had repeatedly conspired with Davis to commit insider trading from

2008 through 2014. Specifically, the evidence demonstrated that Davis would

receive material nonpublic information about Dean Foods, closely followed by a

phone call from Davis to Walters, closely followed by Walters initiating

purchases or sales of Dean Foods stock. Davis testified that, in 2013, he had also

tipped Walters about a plan by Barington Capital (ʺBaringtonʺ) to acquire

Darden, and he passed that information on to Walters expecting that he would

trade on it. The evidence further showed that, in exchange for Davisʹs tips,

Walters provided Davis with nearly $1 million in personal loans, which Davis

never fully repaid.

Davis also testified that Walters had provided him with a disposable

cell phone in 2011, the ʺbat phone,ʺ to be used for communications related to

17

Dean Foods and that he had disposed of the ʺbat phoneʺ in a body of water in

May 2014. The phone was never recovered.

On April 7, 2017, the jury returned a verdict of guilty on all counts.

H. Sentence

On July 27, 2017, Walters was sentenced principally to 60 monthsʹ

imprisonment and a $10 million fine. The court also ordered Walters to pay

restitution and forfeiture in an amount to be determined at a later date, following

additional briefing from the parties. On September 20, 2017, the district court

ordered Walters to forfeit $25,352,490, and on October 20, 2017, Walters was

ordered to pay restitution of $8,890,969.33, including $8,882,022.80 to Dean

Foods.

I. Motion for a New Trial

After his conviction, Walters filed a Rule 33 motion for a new trial,

arguing that the Government had knowingly suborned perjured testimony by

Davis about the circumstances of his receipt of the ʺbat phoneʺ from Walters. Sp.

App. 21.

On July 6, 2017, the district court denied the motion, holding that

(1) Walters had failed to show Davis had committed perjury; (2) even assuming

18

an inconsistency in the testimony, it was ʺmore likelyʺ that Davis had

misremembered or confused the circumstances surrounding the receipt of the

ʺbat phoneʺ from Walters, Sp. App. 25; (3) even if Davis had committed perjury,

it would have been immaterial, as Davisʹs testimony simply corroborated the

ʺoverwhelming circumstantial evidenceʺ of insider trading,ʺ Sp. App. 27; (4)

there was ʺno reason to suspect that the government believed Davis to be lying

rather than simply misremembering events,ʺ Sp. App. 27; and (5) both parties

had identified inconsistencies to the jury and the jury had rejected Waltersʹs

argument.

This appeal followed.

DISCUSSION

Walters argues that (1) the indictment should be dismissed because

of the grand jury leaks; (2) the juryʹs verdict should be set aside because the

Government suborned perjury and the evidence was insufficient to support a

conviction; and (3) the district court erred in its restitution and forfeiture orders.

We address each argument in turn.

19

I. Dismissal of the Indictment

It is undisputed that Chavesʹs leaks to reporters violated the grand

jury secrecy provision of Federal Rule of Criminal Procedure 6(e). The principal

question is whether dismissal of the indictment is appropriate in these

circumstances.

First, Walters argues that the indictment should be dismissed

pursuant to the courtʹs supervisory authority because he was prejudiced by the

leaks because they (1) ʺrevivedʺ a ʺdormantʺ investigation and (2) ʺprecipitated

[Davisʹs] cooperation.ʺ Def.‐App. Br. at 40‐41. Second, he argues that, even

absent a showing of prejudice, the indictment should be dismissed as a matter of

due process because this case involves ʺa history of prosecutorial misconduct,

spanning several cases, that is so systematic and pervasive as to raise a

substantial and serious question about the fundamental fairness of the process.ʺ

Def.‐App. Br. at 38 (quoting Bank of Nova Scotia v. United States,

(1988)). Third, he contends, in the alternative, that the case should be remanded

to the district court for an evidentiary hearing.

The parties disagree as to the standard of review on appeal from a

district courtʹs denial of a motion to dismiss an indictment for governmental

20

misconduct: Walters argues that it is de novo while the Government contends that

it is abuse of discretion. We have held, however, that a motion to dismiss an

indictment ʺalleging outrageous governmental conduct is a question of law

directed to the trial judge and review of rulings thereon is de novo.ʺ United States

v. Cuervelo,

(2d Cir. 1991); accord United States v. Vilar,

(2d Cir. 2013) (ʺWe review de novo the denial of a motion to dismiss the

indictment.ʺ); United States v. Yousef,

(2d Cir. 2003) (ʺWe review a

district courtʹs decision denying a motion to dismiss an indictment de novo.ʺ).8

We review a district courtʹs factual findings for clear error. Yousef,

. We review a district courtʹs denial of an evidentiary hearing for abuse of

discretion. CSX Transp. Inc. v. Island Rail Terminal, Inc.,

(2d Cir.

2018).

8 To support its position that an abuse of discretion standard applies, the Government relies primarily on a 1978 decision where we held that the district court abused its discretion in not dismissing an indictment because of misconduct by employees of the SEC in attempting to settle a related civil action, United States v. Fields,

, 646‐47 (2d Cir. 1978), and a non‐precedential summary order, United States v. Palmisano, No. 96‐1142,

(2d Cir. Nov. 22, 1996). Fields did not discuss which standard of review was appropriate and cited no authority, and Palmisano relied solely on Fields. Moreover, the Government acknowledges that denial of a motion to dismiss on due process grounds is reviewed de novo. See United States v. Barrera‐Moreno,

(9th Cir. 1991). 21

A. The Courtʹs Supervisory Authority

1. Applicable Law

A district court may exercise its supervisory authority to dismiss an

indictment for Rule 6(e) violations. See Bank of Nova Scotia, 487 U.S. at 254‐55.

Dismissal is not appropriate, however, ʺunless . . . errors prejudiced the

defendant[].ʺ Id. at 254; see also United States v. Eisen,

(2d Cir.

1992) (ʺ[A] defendant seeking reversal or a hearing regarding alleged grand jury

abuse must show prejudice or bias.ʺ); United States v. Friedman,

(2d Cir. 1988) (concluding that dismissal of an indictment is inappropriate where

a defendant ʺsimply cannot show resultant prejudiceʺ).

In the Rule 6(e) context, ʺ[t]he prejudicial inquiry must focus on

whether any violations had an effect on the grand juryʹs decision to indict.ʺ Bank

of Nova Scotia,

. Accordingly, dismissal is appropriate ʺonly ʹif it is

established that the violation substantially influenced the grand juryʹs decision to

indict,ʹ or if there is ʹgrave doubtʹ that the decision to indict was free from the

substantial influence of such violations.ʺ

at 256 (quoting United States v.

Mechanik,

(1986) (OʹConnor, J., concurring)).

22

b) Application

We start by recognizing that the conduct of the FBI agent in this case

was highly improper. ʺ[T]he proper functioning of our grand jury system

depends upon the secrecy of grand jury proceedings.ʺ Douglas Oil Co. of Cal. v.

Petrol Stops Nw.,

(1979). 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. See, e.g., United States v. Ellerman, No.

07‐cr‐00080‐JSW (N.D. Cal. July 13, 2007) (sentencing defendant, a defense

lawyer, for contempt, making a false declaration, and obstruction of justice for

leaking grand jury information to the press); Commonwealth v. Kane,

, 1221‐25 (Pa. Super. Ct. 2018) (affirming conviction of state attorney general,

who was sentenced to 10 to 23 monthsʹ imprisonment, for charges related to

leaking grand jury information to the press); see also United States v. Sells Engʹg,

Inc.,

(1983) (ʺ[G]overnment attorneys and their assistants[] and

other personnel attached to the grand jury are forbidden to disclose matters

occurring before the grand jury.ʺ); United States v. Girardi,

(7th

Cir. 1995) (affirming sentence of 97 months for grand juror who leaked grand

23

jury information to a friend and others). Even the then‐U.S. Attorney

characterized the leaks here as ʺoutrageous.ʺ App. 236.

Nevertheless, dismissal of the indictment is not appropriate in this

case. Walters has not demonstrated that he was prejudiced by Chavesʹs actions,

that is, that the violations ʺsubstantially influenced the grand juryʹs decision to

indictʺ or that ʺthere is ʹgrave doubtʹ that the decision to indict was free from the

substantial influence of such violations.ʺ Bank of Nova Scotia,

(internal quotation marks omitted); see

(explaining that a court

ʺexceedsʺ its supervisory powers when it dismisses an indictment for

prosecutorial misconduct not prejudicial to the defendant). We agree with the

district court that Waltersʹs asserted claims of prejudice ‐‐ that the news leaks

revived a ʺdormant investigationʺ and precipitated Davisʹs cooperation ‐‐ are

contravened by the record or wholly speculative.

First, the record does not support the assertion that the investigation

was ʺdormantʺ when Chaves began leaking information in April 2013. Chaves

began to leak information around the time that FINRA referred suspicious

trading in Dean Foods to the SEC, and that referral prompted the Government to

expand its criminal investigation. Additionally, in April 2014, the Government

24

received authorization to intercept calls to Waltersʹs cellphone to gather

evidence. The articles at issue were not published until May and June 2014.

While Chaves suggested in his December 2016 interview that the investigation

was dormant, the record establishes that the investigation was in fact active and

ongoing when he leaked information. In fact, the leaks and resultant articles

impeded the investigation as the FBI determined that ʺfurther covert surveillance

was useless.ʺ Sp. App. 5.

Second, we agree with the district court that attributing Davisʹs

cooperation to the news leaks is ʺsheer speculationʺ and ʺnot . . . any basis to

conclude that the newspaper articles had any impact whatsoever on the grand

juryʹs decision to indict.ʺ Sp. App. 14. Davis did not decide to cooperate until

ʺapproximately six months after the publication of the last article which [Walters]

contends contained leaked information.ʺ Sp. App. 9. Moreover, Davis was cross‐

examined extensively at trial about his motivation to cooperate and stated that he

did so because ʺit was pretty clear, based on advice from counsel, that [he] was

highly likely to get indicted in the next couple of monthsʺ because of evidence

uncovered during the investigation. Gov. Br. at 33 (quoting Tr. 910). There

simply is ʺno reason to think Davis would not have been indictedʺ or that he

25

would not have decided to plead guilty and cooperate with authorities had the

articles not been published. Sp. App. 13.

The lack of prejudice in this case is further underscored by the fact

that Walters received a full and fair trial in which there was overwhelming

evidence to support his conviction. See Mechanik, 475 U.S. at 71‐73 (holding that a

petit juryʹs guilty verdict rendered harmless any error in the grand jury

proceeding and that dismissal of the indictment after conviction would result in

excessive social and economic costs); see also Sp. App. 28 (district court observing:

ʺ[T]his is not a case where there is ʹa real concern that an innocent person may

have been convicted.ʹʺ (quoting United States v. Cacace,

(2d Cir.

2015))). Indeed, to dismiss the indictment here absent prejudice would constitute

a ʺpunishment of society for [the] misdeedsʺ of an errant FBI agent. United States

v. Myers,

(E.D.N.Y. 1980) (quoting United States v. Stanford,

(7th Cir. 1978)); accord United States v. Brito,

(2d Cir. 1990) (explaining that the ʺsocial costs of dismissing an indictment

because of an imperfect grand jury proceeding are simply too high . . . when the

defendant has been convicted after a full and fair trial and no harm has been

doneʺ).

26

Accordingly, we conclude that dismissal of Waltersʹs indictment is

not appropriate on this basis.

B. Due Process

Unable to demonstrate prejudice, Walters argues that the indictment

should nevertheless be dismissed because the Rule 6(e) violations were ʺso

systematic and pervasive as to raise a substantial and serious question about the

fundamental fairness of the processʺ resulting in his indictment. Bank of Nova

Scotia,

. Alternatively, Walters argues that Chavesʹs conduct was

so ʺoutrageousʺ that it violated ʺcommon notions of fairness and decency.ʺ Def.‐

App. Br. at 44‐45 (quoting United States v. Schmidt,

(2d Cir. 1997)).

1. Systematic and Pervasive Misconduct

a) Applicable Law

In Bank of Nova Scotia, the Supreme Court recognized a class of cases

in which indictments may be dismissed ʺwithout a particular assessment of the

prejudicial impact of the errorsʺ because the grand jury ʺerrors are deemed

fundamental.ʺ Bank of Nova Scotia,

. The Court explained that

prejudice may be presumed in such cases because ʺthe structural protections of

the grand jury have been so compromised as to render the proceedings

27

fundamentally unfair.ʺ

. The Court made clear, however, that these

cases are ʺisolated exceptionsʺ to the prejudice requirement that involve, for

example, racial discrimination or the exclusion of women in the selection of

grand jurors.

at 256‐57 (citing Vasquez v. Hillery,

, 260‐64 (1986)

(racial discrimination), and Ballard v. United States,

(1946) (exclusion

of women)).

In distinguishing Bank of Nova Scotia from cases involving

ʺfundamentalʺ error, the Court noted that it was ʺnot faced with a history of

prosecutorial misconduct, spanning several cases, that is so systematic and

pervasive as to raise a substantial and serious question about the fundamental

fairness of the process which resulted in the indictment.ʺ

. We have

observed, based on this language, that a history of ʺsystematic and pervasiveʺ

prosecutorial misconduct may ʺpossiblyʺ support the dismissal of an indictment.

Brito,

.

b. Application

As a threshold matter, it is not clear that the Supreme Court created

a stand‐alone exception to the prejudice requirement for cases involving

systematic and pervasive prosecutorial misconduct. See id.; Friedman,

582 (explaining that ʺno matter how pervasively the rules concerning grand jury

secrecyʺ were violated, those violations would not warrant dismissal absent a

showing of prejudice); United States v. Blaszczak, No. 17‐CR‐357,

, at *6 (S.D.N.Y. Mar. 12, 2018) (explaining that the court ʺdoes not read

Bank of Nova Scotia as instructing that the question of prejudice may be

discardedʺ in case involving a motion to dismiss an indictment based on

systematic and pervasive government misconduct). The portion of Bank of Nova

Scotia upon which Walters relies is prefaced by the following: ʺ[W]e note that we

are not faced with a history of prosecutorial misconduct, spanning several cases,

that is so systematic and pervasive as to raise a substantial and serious question

about the fundamental fairness of the process which resulted in the indictment.ʺ

Bank of Nova Scotia,

(emphasis added). We are not aware of any

court that has applied this dicta from Bank of Nova Scotia to dismiss an

indictment.

Even assuming an indictment could be dismissed on this basis, we

are not persuaded that dismissal would be appropriate in this case. As discussed

above, the Supreme Court gave only two examples where grand jury errors were

ʺdeemed fundamentalʺ and prejudice was presumed: racial discrimination in the

29

selection of grand jurors and the exclusion of women from the grand jury. The

Court explained that, in the face of such discrimination, ʺit could be presumed

that a discriminatorily selected grand jury would treat defendants unfairlyʺ and

any inquiry into prejudice ʺwould have required unguided speculation.ʺ

. The conduct here does not warrant a presumption of prejudice, and the

prejudice ‐‐ if any ‐‐ can be ascertained without ʺunguided speculation.ʺ Cf.

Friedman,

(explaining that ʺno matter how pervasively the rules

concerning grand jury secrecy were violated,ʺ the violations would not warrant

dismissal absent a showing of prejudice); United States v. Silver,

(S.D.N.Y. 2015) (explaining that, in the context of potentially improper

pre‐indictment statements made by the U.S. Attorney to the press, ʺthe grand

jury is ʹnot confined to a passive roleʹʺ and absent a showing of prejudice, the

grand jury ʺpresumptively has access to the media without being prejudicedʺ

(quoting United States v. Nunan,

, 593‐94 (2d Cir. 1956)).

Walters argues that there was systematic and pervasive

prosecutorial misconduct here because the leaks went on for two years, Chaves

had leaked similar information in other white‐collar criminal cases, and other

30

members of the FBI and the USAO were complicit in leaking the information and

covering the leaks up.

Chavesʹs misconduct is deeply troubling, and the decision to forgo a

hearing prevents us from understanding if there were other cases like this one.9

But the violations in this case do not raise a substantial and serious question

about the fundamental fairness of the process that resulted in Waltersʹs

indictment. Nor are we persuaded that representatives of the USAO or other

members of the FBI were complicit. As the district court concluded, ʺ[n]o

evidence has been presented indicating that others besides Chaves were illegally

sharing information with the press.ʺ Sp. App. 19. Moreover, when the articles

came to light at the end of May 2014, the U.S. Attorney immediately emailed the

Assistant Director of the FBIʹs New York Field Office to express concern.

Finally, Walters argues that the Government misled the district court

about the leaks, pointing to the Governmentʹs assertions in its October 2016

opposition to Waltersʹs motion that Walters ʺcannot show that the source of the

information was an agent or attorney for the Government.ʺ Def.‐App. Br. 18

(quoting Govʹt Mem. of Law in Opp. to Def. Motion at 52‐53). With the benefit of

9 Although the issue was raised below, the district court made no findings as to whether Chaves had in fact leaked information in prior cases. 31

hindsight, it is evident that the Government should have conducted a more

thorough investigation prior to its initial response to the district court.

Nevertheless, while the district court found the Governmentʹs denials to be

ʺartful,ʺ it also concluded that the Government had made ʺno affirmative

statements that were false.ʺ Sp. App. 20. The district court, of course, was much

closer to the situation then we are, and we defer to its findings. Moreover,

prompted by the district courtʹs November 17, 2016 order, the Government did

conduct a more thorough investigation and determined ‐‐ and promptly

disclosed ‐‐ that Chaves ʺwas a significant source of confidential information

regarding the Investigation for the Times and Journal.ʺ App. 217.

Accordingly, dismissal of the indictment pursuant to the courtʹs

supervisory power is not appropriate on this basis.

We note that our conclusion is reinforced by the availability of

remedial measures short of dismissal. As this Court has repeatedly emphasized,

the exercise of a courtʹs supervisory authority to dismiss an indictment is a

ʺdrastic remedyʺ that should be utilized with caution and only in extreme cases.

United States v. Brown,

(2d Cir. 1979) (internal quotation

marks omitted). Indeed, ʺdeterrence is an inappropriate basis for reversal where

32

means more narrowly tailored to deter objectional prosecutorial conduct are

available.ʺ Bank of Nova Scotia,

(internal quotation marks omitted).

The district court therefore properly denied the motion to dismiss

the indictment in favor of remedies that would not result in a ʺwindfallʺ to

Walters.

; see Sp. App. 16 (ʺThe proper remedy here . . . is to investigate

and, if appropriate, prosecute the offender, rather than dismiss the indictment.ʺ).

Chaves was publicly identified as the leaker and he has been referred to the FBIʹs

Office of Professional Responsibility and the DOJʹs Office of the Inspector

General. The latter has opened a criminal investigation into his misconduct, the

district court released the grand jury minutes, and the district court has required

the Government to update the court on the status of the investigation on a

quarterly basis. See March 1, 2017 Memorandum and Order, D. Ct. Dkt No. 104,

at 2; United States v. Helmsley,

(2d Cir. 1988) (denying a request for

a hearing but approving the referral of grand jury leaks for prosecution); Bank of

Nova Scotia,

(explaining that Rule 6(e) errors may be ʺremedied

adequately by means other than dismissal,ʺ including, e.g., punishing the

violation as a contempt of court, disciplining a prosecutor and requesting the bar

or DOJ initiate disciplinary proceedings, and chastising the prosecutor in a

33

published opinion). These remedies were sufficient to address the violations in

this case. See Bank of Nova Scotia,

(explaining that proper remedies

for grand jury violations should ʺfocus on the culpable individual rather than

granting a windfall to the unprejudiced defendantʺ).

2. ʺOutrageousʺ Governmental Misconduct

To meet the ʺvery heavyʺ burden of establishing a due process

violation to dismiss an indictment for outrageous governmental misconduct, a

defendant must show that the Governmentʹs conduct was ʺso outrageous that

common notions of fairness and decency would be offended were judicial

process invoked to obtain a conviction.ʺ United States v. Al Kassar,

(2d Cir. 2011) (internal quotation marks omitted). This inquiry ʺturn[s] on

whether the governmental conduct, standing alone, is so offensive that it shocks

the conscience.ʺ United States v. Chin,

(2d Cir. 1991) (internal

quotation marks omitted). Successful motions to dismiss on this ground have

ʺ[o]rdinarilyʺ involved ʺcoercionʺ or a ʺviolation of the defendantʹs person.ʺ

United States v. Schmidt,

(2d Cir. 1997); see, e.g., Rochin v. California,

(1952) (forcible extraction of accusedʹs stomach contents); Watts

v. Indiana,

(1949) (confession obtained after six days of intense

34

custodial interrogation); Brown v. Mississippi,

(1936)

(ʺconfessions shown to have been extorted by officers of the state by brutality

and violenceʺ). ʺAbsent such extreme misconduct, relief in the form of reversal

of a conviction is rare.ʺ Schmidt,

; see, e.g., United States v. Lard,

, 1296‐97 (8th Cir. 1984) (holding defendant was entrapped into

committing the crimes and adding that the governmentʹs conduct ʺapproached

being so outrageousʺ as to offend due process because ʺit was aimed at creating

new crimes for the sake of bringing about criminal chargesʺ where defendant,

ʺbefore being induced, was lawfully and peacefully minding his own affairsʺ

(internal quotation marks omitted)); United States v. Myers,

, 836‐37

(2d Cir. 1982) (rejecting outrageous governmental conduct claim in Abscam case,

where defendant alleged government agents violated due process by creating

and instigating the crime); United States v. Twigg,

, 380‐82 (3d Cir.

1978) (finding government conduct was outrageous where government

ʺdeceptively implanted the criminal design in [the defendantʹs] mind,ʺ ʺset him

up, encouraged him, provided the essential supplies and technical expertise, . . .

[and] assisted in finding solutionsʺ when defendant encountered difficulties in

consummating the crime).

35

We agree with the district court that this doctrine is not properly

invoked here. See Sp. App. 19. Although the misconduct at issue is deeply

disturbing and perhaps even criminal, it simply is not commensurate with the

conduct in those cases where indictments were dismissed for coercion or

violations of bodily integrity. See United States v. Bout,

(2d Cir.

2013) (affirming denial of motion to dismiss indictment on due process grounds

and explaining that defendant ʺhas not alleged anything akin to ʹeither coercion

or a violation of [his] personʹʺ (quoting Al Kassar,

)). 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

ʺshocks the conscience.ʺ 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.

In any event, Waltersʹs constitutional claim fails because he has not

demonstrated prejudice in this case. See Bank of Nova Scotia,

(noting that harmless‐error standard applies to constitutional errors as well as

non‐constitutional Rule 6 violations); United States v. Stein,

(2d

Cir. 2008) (ʺDismissal of an indictment is a remedy of last resort, and is

36

appropriate only where necessary to restore the defendant to the circumstances

that would have existed had there been no constitutional error.ʺ (citation and

internal quotation marks omitted)). The district court did not err in refusing to

dismiss the indictment on this basis.

C. The Request for an Evidentiary Hearing

Walters requests, in the alternative, that we direct the district court

to conduct an evidentiary hearing to generate a more thorough record on the

issue of the leaks and prejudice. The district court determined that a ʺfurther

evidentiary hearing [was] not necessaryʺ because it had sufficient evidence to

rule on Waltersʹs motion to dismiss the indictment and Chaves had asserted his

Fifth Amendment rights and refused to answer any further questions. Sp.

App. 16.

The district court did not abuse its discretion in denying Waltersʹs

request for an evidentiary hearing. Although ʺa hearing is the preferred course

of action where disputed factual issues exist,ʺ we agree that a further hearing

would not assist in the resolution of the issues raised by Waltersʹs motion to

dismiss. Cuervelo,

.

37

First, the district court had a sufficient record on which to make its

rulings. The Government conducted an internal inquiry in which it interviewed

the 14 individuals connected to the investigation and collected relevant phone

records, emails, and text messages. It also provided the court with a detailed

summary of its findings, which included documents and a chronology of events.

See In re Grand Jury Subpoena,

(1st Cir. 2001) (evidentiary

hearing not required where the ʺpaper record is quite extensiveʺ).

Second, Walters submitted multiple briefs and a declaration in

response to the Governmentʹs letter and thus had a fair opportunity to challenge

the Governmentʹs reported findings. See

(explaining that ʺthe key

determinantʺ in whether a hearing is required ʺis whether, given the nature and

circumstances of the case[,] the parties had a fair opportunity to present relevant

facts . . . and . . . counter the opponentʹs submissionsʺ (internal quotation marks

and alterations omitted)).

Finally, as the district court disclosed the grand jury minutes and

Chaves has refused to answer questions, we are not persuaded that a hearing

could have further developed the record in any meaningful way. Accordingly,

we decline to remand the case for an evidentiary hearing.

38

II. The Evidence at Trial

Walters raises two additional challenges to his conviction based on

the evidence presented at trial. First, he argues that the Government suborned

perjury by introducing Davisʹs testimony regarding the ʺbat phoneʺ used by

Davis and Walters to communicate inside information. Second, Walters argues

that the evidence was insufficient to support his counts of conviction related to

Darden.

As to Waltersʹs argument that the Government suborned perjury, we

review the district courtʹs denial of Waltersʹs Rule 33 motion on these grounds

for abuse of discretion, and the factual findings in support of such a decision for

clear error. See United States v. Alston,

(2d Cir. 2018).

A defendant claiming that his conviction should be reversed based

upon allegations of perjured testimony must show: ʺ(i) the witness actually

committed perjury, (ii) the alleged perjury was material, (iii) the government

knew or should have known of the alleged perjury at time of trial, and (iv) the

perjured testimony remained undisclosed during trial.ʺ United States v.

Zichettello,

(2d Cir. 2000) (internal quotation marks and citations

omitted); accord United States v. Josephberg,

(2d Cir. 2009). Where

39

the Government was not aware of the perjury, the conviction must be set aside

ʺonly if the testimony was material and the court is left with a firm belief that but

for the perjured testimony, the defendant would most likely not have been

convicted.ʺ United States v. Wallach,

(2d Cir. 1991) (internal

quotation marks and alteration omitted).

The district court determined that (1) inconsistencies in Davisʹs

testimony about the ʺbat phoneʺ were likely the result of misremembering or

confusing the circumstances rather than lying; (2) even if Davis had committed

perjury, Davisʹs testimony regarding the ʺbat phoneʺ was immaterial in light of

the ʺoverwhelming circumstantial evidenceʺ of Waltersʹs guilt at trial, Sp. App.

27; (3) there was no reason to suspect the Government believed Davis to be

lying; and (4) in any event, Walters was allowed to marshal sufficient evidence in

support of his position that Davis was lying about the ʺbat phoneʺ, and the jury

had ample opportunity to weigh the evidence and make a credibility

determination. We conclude that the district court did not clearly err in its

factual determinations or abuse its discretion in denying the motion.

Accordingly, Waltersʹs argument in this respect fails.

40

We review Waltersʹs argument second argument ‐‐ that the evidence

was insufficient to support the Darden counts ‐‐ de novo, and reverse only if a

reasonable juror could not have found that the Government proved its case

beyond a reasonable doubt. See, e.g., United States v. Coplan,

(2d

Cir. 2012).

The evidence was sufficient to convict Walters of the counts related

to insider trading in Darden. ʺ[A] person violates [the securities laws] when he

misappropriates material nonpublic information in breach of a fiduciary duty or

similar relationship of trust and confidence and uses that information in a

securities transaction.ʺ United States v. Falcone,

(2d Cir. 2001)

(quoting United States v. Chestman,

(2d Cir. 1991)). A defendant

who acts upon a tip of inside information is equally liable if he had ʺknowledge

that the tipper had breached the duty.ʺ Id. at 234.

At trial, Davis testified that, during the summer of 2013, he acquired

material nonpublic information about a plan by Barington to acquire Darden and

passed that information onto Walters expecting that Walters would trade on it.

Specifically, Davis testified that, pursuant to a non‐disclosure agreement,

Barington shared with him at least one dealbook setting out its plan to buy a

41

large stake in Darden and that dealbook was marked ʺCONFIDENTIAL.ʺ Davis

called Walters after a meeting during which Baringtonʹs investment plan was

discussed. Davis then immediately mailed a dealbook to Walters.

In August 2013, Baringtonʹs plan still was not public. On August 20

and August 21, 2013, after receiving the dealbook, Walters called his broker and

instructed him to purchase $30 million worth of Darden stock. When Baringtonʹs

plan became public on October 9, 2013, Walters made approximately $1 million

in profit.

On this evidence, a reasonable jury could have found beyond a

reasonable doubt that Walters knew, or consciously avoided knowing, that Davis

breached a duty he owed to Barington to keep the information confidential and

nonetheless traded upon Davisʹs tip. See Jackson v. Virginia,

(1979) (a verdict must be upheld if ʺany rational trier of fact could have found the

essential elements of the crime beyond a reasonable doubtʺ).

III. Restitution and Forfeiture Orders

A. Restitution

Walters raises several challenges to the district courtʹs restitution

order, including whether certain fees included in the restitution award to Dean

42

Foods are recoverable under the Mandatory Victim Restitution Act (the

ʺMVRAʺ), 18 U.S.C. § 3663A.

After oral argument before this Court, the Supreme Court issued a

decision in Lagos v. United States,

(2018), which addressed the

categories of fees recoverable under the MVRA. See

. The Government

has advised the Court, in a letter pursuant to Federal Rule of Appellate

Procedure 28(j), that it consents to a limited remand for the district court to

reconsider its restitution order in light of Lagos.

We agree that remand is appropriate. We therefore vacate the

restitution order and remand for the district court to determine whether the fees

encompassed in the restitution award are recoverable under the MVRA,

consistent with the Supreme Courtʹs guidance in Lagos.

B. Forfeiture

On September 20, 2017, the district court entered a forfeiture order

against Walters in the amount of $25,352,490. On appeal, Walters challenges the

methodology employed by the district court to calculate the forfeiture amount,

arguing that it was ʺarbitraryʺ and resulted in a grossly inflated amount. Def.‐

App. Br. at 74.

43

1. Applicable Law

We review a district courtʹs legal conclusions regarding forfeiture de

novo and its factual findings for clear error. United States v. Sabhnani,

(2d Cir. 2010). We must determine whether the trial courtʹs method of

calculation was legally acceptable, but we ʺwill not disturb a district courtʹs

ʹreasonable estimate of the [amount], given the available information.ʹʺ United

States v. Vilar,

, 95‐96 (2d Cir. 2013) (quoting United States v. Turk,

(2d Cir. 2010)).

When a defendant is convicted of insider trading, a district court

must ʺorder the forfeiture of ʹ[a]ny property, real or personal, which constitutes

or is derived from proceeds traceable to [the] violation.ʹʺ United States v.

Contorinis,

(2d Cir. 2012) (quoting

(a)(1)(C)).

Proceeds is defined as ʺthe amount of money acquired through the illegal

transactions resulting in the forfeiture, less the direct costs incurred in providing

the goods or services.ʺ

(quoting

(a)(2)(B)). Because ʺ[c]riminal

forfeiture focuses on disgorgementʺ of a defendantʹs ʺill‐gotten gains,ʺ the

calculation ʺof a forfeiture amount . . . is usually based on the defendantʹs actual

gain.ʺ Id. at 146 (internal quotation marks omitted). The Government must

44

establish facts supporting a forfeiture amount by a preponderance of the

evidence. See United States v. Roberts,

(2d Cir. 2011).

2. Application

The principal question here is whether the district court employed a

reasonable method for calculating forfeiture. The district court adopted the

Governmentʹs estimate of Waltersʹs gains: the value accrued to him as a result of

trading on insider information, which was calculated by using the closing price

at the end of the first trading day following the public announcement of

information that had been tipped to Walters (the ʺend‐of‐day methodʺ).10

According to the Government, the end‐of‐day method rests on the assumption

ʺthat the market needs about a day to process material information about a stock

and incorporate it into the stockʹs price.ʺ Gov. Br. at 71; see SEC v. MacDonald,

(1st Cir. 1983) (en banc) (directing sentencing court in

disgorgement context to ʺdetermine a figure based upon the price of . . . stock a

reasonable time after public dissemination of the inside informationʺ); SEC v.

Wyly,

, 100‐01 (S.D.N.Y. 2011) (using closing price to calculate

profits).

10 Gains were estimated using the end‐of‐day method for all trades at issue, with the exception of trades occurring on April 30, 2008, June 25, 2008, and February 11, 2009. 45

Walters contends that instead of employing the end‐of‐day method,

the district court should have adopted the methodology used by the district

court in Contorinis, in which the court opted to use ʺwhatever the price during

the day that results in the least loss . . . in the interest of being conservative.ʺ

Def.‐App. Br. at 71 (quoting United States v. Contorinis, 09 Cr. 1083 (RJS) (S.D.N.Y.

Dec. 17, 2010), Tr. 59:9‐13).11 Walters further contends that this would have

reduced the amount to $12,651,727.67.

The Government argued, however, and the district court agreed,

that Waltersʹs proposed method would result in a windfall because Walters was

ʺtrading in huge volumes [and] he himself is actually moving the market . . . in

numerous instances,ʺ which ʺcan cause a depreciation of the stock price.ʺ App.

1037. Consequently, the Government argued that if the court were to employ

Waltersʹs proposed method, he would ʺget[] the benefit of his own sales.ʺ App.

1037. Although the Government recognized that Walters did not always sell his

stock (so as to cause an artificial dip in price), it argued that the approach was

nevertheless appropriate in this case and is ʺone commonly employed in insider

trading cases.ʺ Gov. Br. at 73.

11 We note that in Contorinis, the district court did not use this methodology to calculate gain; rather, it used it to calculate avoided losses. 46

We are not persuaded that the district court erred in its decision to

reject Waltersʹs proposed methodology in favor of the end‐of‐day method.

District courts are afforded broad discretion in calculating illicit gains based on

the circumstances of a case. See United States v. Treacy,

, 47‐48 (2d Cir.

2011) (explaining that the calculation of forfeiture ʺis not an exact scienceʺ and

district courtʹs forfeiture calculations may ʺuse general points of reference as a

starting point for calculating the losses or gains from the [criminal activity] and

may make reasonable extrapolations from the evidenceʺ). As the district court

explained:

It suffices to say that I am convinced that the methodology on the estimation of loss in terms of using the closing price at the end of the trading day is most appropriate in this case, the end of the trading day following disclosure, and I recognize that some of the disclosures were made even before the market opened. I think the government is quite correct about the fact that the size of the trades by Mr. Walters is such that they make it particularly inappropriate to use intraday trading. The Court only need make a reasonable estimate of the loss, and the Sentencing Commission says the sentencing judge is in the unique position to assess the evidence and estimate the loss based upon the evidence. And so I will use the end of the trading day methodology.

Sent. Tr. 12.

47

Given the complexity of calculating gains in insider trading cases,

and that the parties submitted detailed briefing as to this issue, we conclude that

the district court did not err in its determination that the end‐of‐day

methodology provided a reasonable estimate of Waltersʹs gains for purposes of

forfeiture. We therefore affirm the forfeiture order.

CONCLUSION

Accordingly, for the reasons set forth above, 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 the issue of restitution.

48

JACOBS, Circuit Judge, concurring:

Waltersʹs crime was the illegal leaking of confidential information,

which is why he is going to jail for five years. The arresting feature of this case is

that the supervisor of the FBI investigation was likewise involved in the illegal

leaking of confidential information; and the leak of grand jury testimony is in

some respects more egregious than anything Walters did ‐‐ the FBI supervisor

took an oath to uphold the law and was acting in a supervisory capacity to

discharge an important public function.

The district court had discretion to forgo a hearing on what

happened; still, without a hearing, it is unknown how far or where the abuse

reached. The FBI depends on the confidence of the public, jurors and judges.

That confidence is critical to its mission; so this kind of thing is very bad for

business.

49