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Brokerage Firm Was Worried About Walking to ‘Close to the Line’

February 1, 1985

NEW YORK (AP) _ The general counsel for Kidder, Peabody & Co. testified Thursday that he told two of the firm’s brokers not to make stock trades based on advance information about Wall Street Journal articles because he did not want the firm to ″walk that close to the line″ of illegality.

Robert A. Krantz Jr., the attorney, said he told the brokers, Peter Brant and Kenneth P. Felis, to ″cut it out.″

He testified at the trial in U.S. District Court of Felis, former Journal columnist R. Foster Winans and David Carpenter, Winans’ roommate.

The three defendants are accused of using information leaked by Winans to Brant about upcoming Journal articles between October 1983 and February 1984 to make over $675,000 on the stock market. They contend they did not violate any laws in the process.

Brant was a witness for the government and testified that Winans had given him advance informance on stocks he was writing about. Brant said he then made trades through a client, David Clark, an attorney in whose account he was a silent partner.

Krantz said that when Kidder’s surveillance department noted a correlation between trading in the account and information appearing in Winans’ column, ″Heard on the Street,″ he asked Clark about it.

He said Clark denied getting information fron the Journal, saying he got it from other sources on Wall Street, but agreed to stop those trades through Kidder.

When he told Brant and Felis about Clark’s decision, he said, ″Mr. Brant asked me if we did anything wrong. I said I don’t think so, (but) I said, regardless, a firm like Kidder, Peabody was not going to let this go on and walk that close to the line.″

Krantz said that at the time he was acting on the assumption that Krantz was not getting advance Journal information.

Brant asked him if they had to report anything to the Securities and Exchange Commission, he recalled, and told him, ″I said no. I thought all we had done was accept unsolicited orders.″

He even went to the trouble of getting an outside law firm, Sullivan & Cromwell, to give an opinion on the matter, he said,

Krantz said he had discussed the opinion with Clark and ″I indicated to him ... Sullivan Cromwell indicated civil liabilities were weak, but criminal liabilities (might apply) if the information was coming, in fact, from the Wall Street Journal.″

When the defense made efforts to subpoena the law firm’s opinion, Krantz invoked a lawyer-client relationship on behalf of Kidder & Peabody and Judge Charles E. Stewart Jr., reserved decision on it. He directed that he review the opinion first.

Krantz said that another trade had been detected later in a Swiss account managed by Brant which coincided with a Winans column. He said he phoned Brant and asked, ″Who was behind this account?

″Peter said David Clark. I said, ‘No way 3/8 ... I said cut it out 3/8 No more 3/8’.″

Krantz said that the legality of the trades was uncertain at the time because of a U.S. Supreme Court ruling in the ″Dirks″ case that it was not a crime for an employee of a firm to buy stock on inside information.

However, the lawyer drew laughter in the courtroom when he said, ″I was certain in my own mind there was a problem. I was troubled that the Supreme Court said there might not be a problem.″

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