An article Tuesday incorrectly identified the roommate of former Wall Street Journal reporter R. Foster Winans. He is David Carpenter. Both were convicted of securities fraud.
Former Wall Street Journal reporter R. Foster Winans was found guilty yesterday of securities fraud for using his knowledge of what would appear in the business-oriented newspaper to make money on the stock market.
U.S. District Court Judge Charles E. Stewart, in a 45-page decision after a nonjury trial in Manhattan, also convicted Winans' roommate, Scott Carpenter, and former Kidder, Peabody & Co. stockbroker Kenneth P. Felis. All three face up to five years in jail in the unusual case of "insider trading."
Their lawyers said they planned to appeal.
"In view of the decision, we're bearish for the short term but remain bullish for the long term," said Winans' attorney, Don Buchwald.
Winans, 36, whose firing in March 1984 forced Journal executives to face what one termed "among the most embarrassing" of journalistic setbacks, spent almost two years as a writer on the popular "Heard on the Street" column.
The column, described by the judge as a "daily market gossip feature," is considered a powerful force that many analysts believe can cause stocks to soar or plummet.
During the frequently interrupted trial, which began in January and ended in May, Assistant U.S. Attorney Peter J. Romatowski argued that Winans and another Kidder-Peabody broker, Peter N. Brant, worked out the scheme in October 1983.
Brant pleaded guilty to lesser charges and was the chief witness against the other three. He and Felis netted most of the $675,000 profits from the scheme, Romatowski said, paying $31,000 to Winans and his roommate. Carpenter's defense was based on his claim that he has a spousal relationship with Winans and was not an active participant in the scheme.
However, the judge wrote that "the evidence . . . establishes beyond any doubt the fraudulent scheme, to which each of them knowingly and willfully subscribed."
The case, which the Journal reported at great length after Winans was fired, turned on whether a reporter can go to jail for violating an employer's code of ethical conduct. The Journal's conflict-of-interest policy forbids purchase or sale of securities based on information that appears in the paper. The policy also states that "all material gleaned by you in the course of your work for Dow Jones & Co. Inc., owner of the Journal is deemed to be strictly the company's property."
Winans told the court that he did not remember the conflict-of-interest policy used against him in court.
Dow Jones lawyer Robert D. Sacks said yesterday that he saw no constitutional problems for the press as a result of the Journal's argument that Winans effectively stole Journal property when he leaked information about the column.
"I don't see any difference between stealing this and any other kind of property," Sacks said. "If he had taken this and sold it to The Washington Post that would also be theft."
Stewart said in his ruling that Winans had "actual knowledge" of part of the policy requiring confidentiality.
Buchwald, Winans' lawyer, argued that the issue is whether "the violation of a private policy which doesn't concern accuracy or objectivity of the articles can be the basis for going to jail? We believe the answer is no."
Judge Stewart said the charges "rest on the theory that The Wall Street Journal was the victim of the fraud . . . . As a result of having a reporter engaged in such unethical conduct, The Wall Street Journal's reputation for journalistic integrity was sullied."
It is irrelevent whether the Journal's reputation was actually ruined, Stewart said, because "all that must be shown is that 'some harm or injury was contemplated by the alleged scheme.' "