By Nate Raymond
NEW YORK (Reuters) - The U.S. Justice Department's internal watchdog has opened a criminal probe of an FBI agent's leaks to journalists about an insider trading probe involving a Las Vegas sports gambler and professional golfer Phil Mickelson, a prosecutor said on Wednesday.
Joan Loughnane, chief counsel for Manhattan U.S. Attorney Preet Bharara, disclosed the probe by the Justice Department's Office of the Inspector General during a court hearing on the insider trading case against gambler William "Billy" Walters.
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The hearing came after prosecutors on Friday revealed that an unnamed Federal Bureau of Investigation agent had confessed to being a "significant source" of leaks about the probe to The Wall Street Journal and The New York Times.
Those newspapers published a series of reports beginning in 2014 about the investigation, two years before prosecutors in May brought insider trading charges against Walters, who has built a fortune as a sports bettor.
Barry Berke, Walters' lawyer, said in court on Wednesday that further proceedings were needed to determine "who knew or should have known and turned a blind eye to it."
He cited internal emails released on Tuesday that showed Bharara's office and the FBI were long aware of leaks. In one 2014 email, Bharara's then-deputy reported that a New York Times reporter had even told him his source was at the FBI.
U.S. District Judge Kevin Castel said that in light of the revelations, he would allow the defense to file a motion to convince him to dismiss the case.
"To say I was shocked would be an accurate statement," Castel said.
He called the situation a "true irony," given that the case itself was about a corporate insider leaking information so Walters could trade on it.
Prosecutors say Walters made more than $40 million through insider trading on tips supplied by Thomas Davis, the former chairman of Dean Foods Co.
The U.S. Securities and Exchange Commission in a related lawsuit said Mickelson, who has won three Masters pro golf titles, at one point bought Dean Foods' stock on a recommendation by Walters, to whom he owed money.
Mickelson was not accused of wrongdoing, but he reached an agreement with the Securities and Exchange Commission to pay back $1.03 million the regulator said he earned trading shares of Dean Foods. Davis has pleaded guilty. Walters is scheduled to face trial on March 13.
The case is U.S. v. Davis et al, U.S. District Court, Southern District of New York, No. 16-cr-338.