The criminal trial of former Wall Street Journal reporter R. Foster Winans, charged with securities fraud and conspiracy, opened today with sharp disagreement between federal prosecutors and defense attorneys over whether his conduct was against the law or merely a breach of the newspaper's ethical code.
Assistant U.S. Attorney Peter J. Romatowski charged in opening arguments that Winans and two codefendents defrauded The Wall Street Journal by trading in stocks that Winans wrote about in the column "Heard on the Street."
However, Winans' attorney, Don D. Buchwald, described the case as "the violation of a private policy of a private employer . . . the only victim alleged by the government is Dow Jones owner of The Wall Street Journal -- not investors, not readers, not the public."
The case, which stunned the nations' major news organizations and was the talk of Wall Street, promises to break new legal ground in the tangled relationship between government and the press.
Winans' codefendants are his roommate, David Carpenter, a former Journal news assistant, and Kenneth P. Felis, a broker at Kidder Peabody and Co. The government contends that Felis, Kidder Peabody broker Peter Brant and an attorney, David W.D. Clark, netted $675,000 as a result of tips from Winans. In return, Winans, using Carpenter as the go-between, received $31,000 of the profits in what the government calls payoffs.
Carpenter's attorney, Jed S. Rakoff, argued that the deposit of the funds in Winans' and Carpenter's joint bank account could be explained "innocently" by the fact that the two were not business partners but "homosexual lovers and spouses, a relationship that had at its core a great deal of deep emotion and complete trust."
Felis' attorney, Michael Bradley, said Felis was brought into the arrangement by Brant, at the time Kidder Peabody's star broker with a commission income of almost $2 million a year.
Brant pleaded guilty in July to conspiracy and securities fraud and repaid the government $454,000 in commissions. He is expected to be the government's key witness in the trial.
Clark has not been charged in connection with the case.
According to Romatowski, Winans and Carpenter, in January 1983, began to trade in stocks about which Winans wrote favorably in the column.
Much of what subsequently happened is not disputed.
In October 1983, Winans and Brant arranged for Winans to inform Brant and Felis of upcoming stories. Favorable mention in the influential "Heard on the Street" column often causes a stock price to rise, at least temporarily.
Over five months, Winans informed Brant of about two dozen stories. When Kidder Peabody discovered a coincidence between the newspaper stories and trading in Felis' account, Felis and Brant opened a phony account through a Swiss bank to continue the trades.
Stewart Pinkerton, an assistant managing editor of The Journal, testified today that he had warned Winans when he was hired in August 1982 not to trade in stocks that he wrote about or to tell anyone what he planned to write.
Cross-examined about injury to The Journal, Pinkerton acknowledged that its profits rose in the three months after the Winans affair became public and that Dow Jones and The Journal continued to be held in high public esteem.
As Winans sat quietly next to Carpenter, taking notes on the trial, Buchwald told the court that the 36-year-old writer "knew that if he bought stocks he was writing about, and The Wall Street Journal found out about it, he would be fired.
"He did not know, and did not believe, that what he was doing was a violation of the law . . . . He didn't intend to injure anyone."
A separate Securities and Exchange Commission civil suit has been stayed pending the outcome of the criminal trial. Winans was indicted on 61 counts of criminal conspiracy and fraud, Felis on 47 and Carpenter on 15. The most serious counts carry a maximum penalty of five years in prison and a $10,000 fine.
The trial is expected to last about a week and a half, Romatowski said.