For nearly two years, U.S. District Judge Liam O’Grady has handed Amazon.com Inc. a string of court victories in a continuing suit in which it accuses two former employees of taking kickbacks from a real-estate developer and violating Amazon’s conflict-of-interest policies.

All that time, Judge O’Grady had a conflict of his own: a financial interest that under federal law barred him from hearing the case in the first place.

Throughout the case, Judge O’Grady’s wife owned Amazon stock. Judges are forbidden by a Watergate-era law to hear cases involving companies in which they or their spouses have a financial interest, however small.

After The Wall Street Journal contacted Judge O’Grady about the conflict, his wife’s investment adviser earlier this month sold the Amazon shares, valued at more than $20,000.

Now the question is whether he will continue overseeing the high-profile litigation.

“I should have disqualified myself,” Judge O’Grady said in a Dec. 1 email. He said he would remove himself from the case if asked to. After learning of the conflict, the defendants—the two ex-Amazon employees and a Colorado real-estate developer—asked the judge to step aside in a Dec. 21 court filing, on which he hasn’t yet ruled. A hearing is scheduled for Jan. 6.

Judge O’Grady is by all accounts a skilled and accomplished lawyer who has sat on the federal bench since 2007, handling major espionage, drug and government-leak cases, as well as complex patent litigation. Yet by his own...

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