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Court Urged To Uphold Convictions Of Former Reporter And Two Others

October 8, 1987

WASHINGTON (AP) _ Government lawyers want the Supreme Court to uphold insider-trading convictions against a former Wall Street Journal reporter and two others who profited from stocks he wrote about, arguing that to do otherwise would create a bulging loophole in securities law enforcement.

Solicitor General Charles Fried, the Reagan administration’s top courtroom attorney, said in arguments before the high court Wednesday that ″a cascading deterioration″ of laws protecting investors would result if the justices sanction what Fried called ″profit from stolen information.″

The case against ex-Journal reporter R. Foster Winans and his two co- defendants has attracted enormous interest because of its implications for the prohibition of insider trading, the illicit use of non-public information to profit from trading in securities.

Winans used to write the Journal’s widely followed ″Heard on the Street″ column, which could cause stocks mentioned in the column to rise or fall. He, his former roomate and a stockbroker were convicted of using advance knowledge of the column’s contents to trade on those stocks.

The case is distinct from typical insider violations involving company officials and others who use confidential information of pending corporate takeovers, for example, to make money before the public learns the information.

But the Supreme Court’s ruling in the Winans case could have a significant impact on the legal underpinning of insider trading prosecutions.

The government previously has argued that exempting Winans and his co- defendants from prosecution could create a loophole for other accused violators of insider trading rules. It cited takeover speculator Ivan Boesky, investment banker Martin Siegel and former investment banker Dennis Levine.

But the justices, who are expected to announce their decision in the Winans case by July, repeatedly expressed doubts about the government’s arguments.

Chief Justice William H. Rehnquist said federal securities law did not seem to cover the Winans’ case. ″You’re putting layers on″ the law, Rehnquist told Fried.

Justice Antonin Scalia said Fried was making ″strange usage of the word fraud.″

Don D. Buchwald, a lawyer representing the three defendants, said the government is trying to convert the Wall Street Journal’s rules for ethical conduct by its employees into a federal law.

Accepting the government’s theory would mean ″you’ve elevated every ethical breach into a violation of federal law,″ Buchwald said.

He conceded that Winans violated the newspaper’s rules. But he said the remedy for such misconduct is to fire the reporter, which the Journal did. ″They effectively drummed him out of the profession,″ Buchwald said.

Winans, who was in the courtroom Wednesday, has been sentenced to 18 months in prison for securities fraud and mail and wire fraud.

The mail and wire fraud charges stemmed from the fact that Wall Street Journal articles are transmitted by telephone line to its printing plant and the newspaper is mailed to subscribers.

Winans was one of two Wall Street Journal reporters who took turns writing the ″Heard on the Street″ column from August 1982 through 1984.

Winans revealed the subject matter of some columns in advance to two stockbrokers, Peter Brant and Kenneth Felis.

Prosecutors said the stockbrokers made about $690,000 and paid $31,000 in kickbacks to Winans and his former roommate David Carpenter, who had worked as a clerk at the newspaper and was an alleged errand boy in the scheme.

Brant became the government’s key witness; Felis was sentenced to six months in prison, and Carpenter was placed on three years probation.

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