More on Mickelson: Did Disclosure Stop A Wiretap?
Following on yesterday's post on the investigation by the FBI and SEC of Phil Mickelson's trading in Clorox, the Wall Street Journal is reporting that the disclosure of the investigation may have prevented the FBI from obtaining a wiretap on Mickelson, financier Carl Icahn and/or Las Vegas high-roller Billy Walters. According to the Wall Street Journal, the FBI's investigation was thrown into disarray last week when it learned that the press was about to report on the investigation. Despite the lead agent being away on vacation, the FBI moved quickly to confront Mickelson on Thursday, May 29. Now, the WSJ speculates that a wiretap may not be possible.
My thoughts, based upon my experience obtaining wiretaps as an Assistant United States Attorney, are below the fold.
The Standard To Obtain A Wiretap Is High
In order to obtain a wiretap, law enforcement must meet the standard set forth by Title III of the Omnibus Crime Control and Safe Streets Act of 1968 (“Title III”), 18 U.S.C. §§ 2510-2522. Civil authorities, like the Securities and Exchange Commission, do not have the authority to apply for a wiretap. Under Title III, not all crimes can be investigated by wiretap, but only certain enumerated crimes. Moreover, it is not enough to show that there is probable cause that the target(s) of the investigation have committed one of those enumerated crimes. Instead, law enforcement must establish in its application both (1) probable cause that the phone to be tapped will yield evidence of the enumerated crime and (2) that a wiretap is necessary because other law enforcement techniques have been tried and failed to provide the necessary evidence.
Ironically, insider trading and securities fraud are not on the list of Title III predicate crimes. Wire fraud and money laundering, however, are on the Title III list. In any case where the FBI is seeking a wire tap, securities fraud will necessarily include evidence of wire fraud (and ordinarily money laundering). The federal courts have held that if a wiretap application discloses that it seeks evidence as part of an investigation covering both crimes on the Title III list (like wire fraud and money laundering) and not on the Title III list (like securities fraud), use of a wiretap is permitted in prosecution of securities fraud. [Disclosure - I briefly served as an attorney for one of the defendants in the linked case].
The first hurdle to obtaining wiretap authority is to establish probable cause that the telephone to be tapped will produce evidence of the crime being investigated -- that the phone is "dirty." If possible, the FBI will seek to satisfy the probable cause requirement by having a confidential informant or cooperating witness discuss the crime during a consensually recorded call to the target phone. The transcript of this conversation will be used to establish that the phone is dirty.
The second hurdle to getting wiretap authorization is to establish "necessity" - meaning that other law enforcement techniques short of a wiretap are unlikely to provide the necessary evidence of the crime being investigated. Typically, the wiretap application has a boilerplate listing of techniques that had been utilized (surveillance, use of a pen register to capture the identity of all incoming and outgoing calls to the phone, grand jury subpoenas of witnesses, review of trading records, use of an undercover officer) and failed or reasonably appeared unlikely to succeed if tried.
The DOJ requires close scrutiny of a Title III wiretap application at the highest levels before it can be submitted to a federal judge. The Assistant United States Attorney working on the case will draft the application (which may be 100 pages or more) in conjunction with the FBI case agents. The draft application is sent to the Department of Justice's Office of Enforcement Operations ("OEO) for review. Once the OEO blesses the application, it must be submitted to the office of the Attorney General, where only the Attorney General or one of his principal deputies can approve the application to be submitted. With DOJ approval, the wiretap application can be submitted to a District Judge, who can authorize the wiretap for up to 90 days (although 30 days is more typical).
It Would Have Been Difficult To Meet The Standard In The Mickelson Case
In order to establish probable cause that a wiretap of a particular phone would yield criminal evidence, the FBI would have needed evidence of recent criminal conversations on that phone. The Clorox trading being investigated here took place in 2011. So the FBI would need a cooperating witness to get the target to discuss those 2011 Clorox trades on the phone now, and for those conversations to yield evidence of a crime. The FBI had already approached Mickelson, Walters and Icahn as part of the Clorox investigation. It seems unlikely that any of them (even if they had engaged in prior wrongdoing) would have responded to a new phone call on that subject with incriminating information.