Reporter Guilty in Stock Fraud : Gave Brokers Advance Wall St. Journal Data
A federal judge Monday found a former Wall Street Journal reporter guilty of illegally giving a ring of stock speculators the names of companies mentioned in articles about to be published by the newspaper.
U.S. District Judge Charles E. Stewart Jr. found R. Foster Winans, 36, guilty of 59 counts of fraud and conspiracy. He faces up to five years in prison on each count.
The case turned on whether a reporter may be held criminally liable for breaching an ethical duty not to profit from information about to be published or broadcast by his employer.
In finding Winans guilty after a non-jury trial, Stewart ruled that, from October, 1983, until March, 1984, the reporter had fraudulently abused his position as one of two principal writers of the Journal’s widely read “Heard on the Street” column by supplying other defendants in advance with company names and publication dates.
The column, which frequently discusses the prospects for individual stocks, is often credited with significantly affecting the price of the shares in the days immediately after publication.
In his 45-page opinion, Stewart said that the Wall Street Journal was the “victim of the fraud . . . the harm suffered was an alleged reputational injury; as a result of having a reporter engage in such unethical conduct, the Wall Street Journal’s reputation for journalistic integrity was sullied.”
The Journal fired Winans in March, 1984, after it learned of the scheme, informed the Securities and Exchange Commission and cooperated in the investigation.
In a statement Monday, Norman Pearlstine, managing editor of the Journal, said only that “from the very beginning we felt that the question of Mr. Winans’ criminal liability was a matter for the courts to decide.”
Also convicted were Winans’ roommate, David J. Carpenter, 35, and Kenneth P. Felis, 31, a former stockbroker with Kidder, Peabody & Co. No sentencing date was set.
Peter N. Brant, another former broker and an associate of Felis, pleaded guilty last year to conspiracy and fraud charges. He cooperated with the government and testified against Winans, Carpenter and Felis.
Winans’ lawyer, Don D. Buchwald, said that he will appeal. “We’re bearish for the short run; we remain bullish for the long haul,” he said in a telephone interview. Attorneys for Carpenter and Felis also said they will appeal.
$675,000 in Profits
The case involved few questions of fact. Winans admitting passing advance information about the content of “Heard on the Street” columns to Brant. Prosecutors alleged that profits of $675,000 were reaped from the scheme, mostly by Brant and Felis. Winans and Carpenter were paid $31,000 for the information by the stockbrokers, the prosecutors said, and made an additional $4,500 by themselves by investing in stocks about be mentioned in the column.
Winans’ lawyers contended that, because “Heard on the Street” columns are assembled from sources generally available to the public, the reporter should not be criminally liable for violating federal securities laws that prohibit use of confidential “inside” information in the buying and selling of stocks. At most, Winans had argued, he was guilty only of breaching journalistic ethics.
However, Judge Stewart decided otherwise. “The focus . . . is not on whether the defendant had an informational advantage that others could not legally obtain,” he wrote, “but on how the defendant gained the advantage, which must be fraudulently.”
During the trial, lawyers for Winans tried to show that a Wall Street Journal conflict-of-interest policy was vague and that Winans was never specifically informed of its contents.
But Winans had testified that he knew that it was journalistically unethical to leak advance word of articles to those who could profit from such information, and the judge concluded that the reporter’s actions therefore constituted a fraud against his employer.
“Winans knew he would be fired if his conduct came to light,” the judge wrote. “He knew that part of his job responsibilities were to keep the subject matter and the publication date of the column secret . . . . Winans breached the policy and he knew he was breaching it.”
Still to be tried is a civil lawsuit against Winans and the others brought by the SEC. That case, which has been delayed pending outcome of the criminal prosecution, alleges that a reporter owes his readers the duty of disclosing any financial interest he holds in companies he writes about.