Winans’ Guilt in Insider Case Upheld

The Supreme Court, in a case with important but uncertain impact on press freedom and insider trading enforcement on Wall Street, upheld the criminal convictions today of a former newspaper reporter and two others who profited from stocks he was writing about.

By an 8-0 vote, the court upheld federal mail and wire fraud convictions against former Wall Street Journal reporter R. Foster Winans and two co-defendants.

But the justices split 4-4 in ruling that the Securities and Exchange Commission acted properly in using laws against insider trading to prosecute the case. The evenly divided vote, caused by a vacancy on the court, means that no national precedent is established with regard to the securities law ruling.

18-Month Sentence

Winans was sentenced to 18 months in prison for passing on to stockbrokers, prior to publication, information he gathered for an influential Wall Street Journal column. The brokers used the information to make $690,000 in profits in stock trades. Prosecutors can now move to have him imprisoned.

The court gave prosecutors broad leeway to use mail and wire fraud laws to go after reporters and others accused of misusing confidential information.

Justice Byron R. White, writing for the court, said those laws can be used to protect employers even if they suffer no monetary loss.

The confidential information Winans and the others used “was generated from the (Wall Street Journal’s) business and the business had a right to decide how to use it prior to disclosing it to the public,” White said.

Within Fraud Statutes

“We have little trouble in holding that the conspiracy here to trade on the Journal’s confidential information is not outside the reach of the mail and wire fraud statutes,” White said. “The Journal’s business information that it intended to be kept confidential was its property.”

The 4-4 vote on the securities fraud conviction upholds a ruling by the U.S 2nd Circuit Court of Appeals, which set a precedent for New York, Connecticut and Vermont. That means the SEC is free to prosecute similar cases in that jurisdiction--where most alleged insider trading violations originate.

But groups that warned that the 2nd Circuit court ruling could have dire consequences for press freedom said today’s decision, while troubling, may have limited impact.

Narrow Application

“I don’t think it’s a sweeping ruling for journalists,” said Jane Kirtley of the Reporters Committee for Freedom of the Press. “It’s drafted to be pretty narrow.”

But she said her organization was distressed that the justices “ignored the free-press implications” of the case. To them, “it was totally incidental that Winans was a reporter,” she said.

Various news organizations had said the appeals court ruling allows the government to regulate the reporter-editor relationship by enforcing vague ethical obligations owed by an employee to an employer.

Gary Lynch, chief of the SEC’s enforcement division, praised the ruling. “I think on balance it’s an extremely good day for the government and the SEC,” he said. “It’s clear now there isn’t going to be any kind of impediment” to the SEC’s crackdown on insider trading, he said.

The Reagan Administration had argued that if Winans and his co-defendants were exempt from securities violations it would create a loophole for other accused violators of insider trading laws.