The U.S. attorney's office in New York said yesterday that it intends to abandon a controversial legal theory that a former Wall Street Journal reporter defrauded his readers by failing to disclose he profited from leaking advance information on stories to be published in the paper's "Heard on the Street" column.
Peter J. Romatowski, chief of the securities and commodity fraud section of the U.S. attorney's office in Manhattan, said he dropped what some lawyers considered an unusual or novel legal theory in order to speed up proceedings in the case, which is now scheduled to go to trial Jan. 16.
Romatowski said the government will proceed against R. Foster Winans, the former reporter, on one legal argument -- that Winans defrauded the paper by misappropriating or misusing "confidential information from the Wall Street Journal" when he allegedly leaked stories.
Winans, his roommate David Carpenter and Kenneth P. Felis, a former stock broker with Kidder, Peabody & Co., were charged last August in a 61-count indictment with conspiracy, securities fraud, and mail and wire fraud. Peter N. Brant, also a former broker with Kidder, Peabody, pleaded guilty in July to conspiracy and two counts of securities fraud in the same matter. Brant agreed to cooperate with the government in the criminal investigation.
Winans was charged with accepting $31,000 in payoffs in return for advance information that enabled others to net $700,000 in allegedly illegal stock trading.
Calling the abandoned theory "novel," Floyd Abrams, a prominent lawyer dealing in press issues, said such a contention "threatened to establish a principle that journalists could be obliged by the government to disclose one or another type of information about themselves before they could engage in journalism itself.
"It could put the government in business of deciding who was able to speak and on what terms they could speak," Abrams said. Abrams added that although there has been some debate recently about whether journalists should disclose information about their stock holdings, he said the government should not be in the business of requiring such releases of information.
"The important principle is that government must be kept out of the newsroom," Abrams said. "The theory that was dropped today would put them that much closer to the newsroom."
Don D. Buchwald, Winans' attorney, said that the theory might have had implications beyond journalism, requiring politicians to disclose any potential interests before they held a press conference.
"Suppose I endorse President Reagan for president and somebody feels its because I'm hopeful I'll be appointed ambassador to England. They might have been able to file suit saying I should have advised that I had a potential bias."