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When The Unethical Is Also Illegal

In 1985, as a reporter for The Associated Press, I covered the federal trial of former Wall Street Journal writer R. Foster Winans. Winans, a contributor to The Journal’s influential “Heard on the Street” column, was convicted of securities, wire and mail fraud for tipping two stockbrokers and a client of one of the brokers about the contents of upcoming columns.

The case was a novel application of the laws against insider trading. Winans was not a corporate insider, nor was the information reported in his columns the kind of material, nonpublic information theretofore required to be the basis of illegal trading activity. Instead, the prosecution’s theory was that Winans and his co-conspirators, who also included his domestic partner at the time, stole The Journal’s proprietary information. The defense acknowledged that Winans was a disloyal employee; it argued that this did not, however, make him a crook.

The U.S. Supreme Court disagreed. In late 1987, it split 4-4 on the securities fraud issue, but it ruled unanimously that his conduct did, indeed, constitute wire and mail fraud. This let stand his convictions on all of those charges, and Winans spent most of 1988 in prison. Since then, he says he has made a living by ghost-writing a series of novels published in the 1990s as well as a few other books, and by co-writing a book of his own, “The Great Wall Street Swindle,” published last year. He now is writing a book about his experiences in prison. He also founded and heads the Writers Room of Bucks County, a support group for local writers in the Pennsylvania region where Winans grew up.

I recently interviewed Winans because I wanted to know what he thinks about today’s Wall Street scandals. In particular, it seemed to me that one of the lessons of his case — that unethical behavior also may be illegal, even if you don’t know it — may have been lost on today’s generation of executives, notably Arthur Andersen’s lead Enron auditor and document shredder, David Duncan, but also perhaps on securities analysts, bankers and others. Time will tell.

Sentinel: You have acknowledged, have you not, that at the time you leaked information about your forthcoming Journal columns, you felt it was morally and ethically wrong. Did you believe, or were you at least concerned, that it might also be a crime?

Winans: I had no clue about what the law was, except for what I knew sort of anecdotally, which is that insider trading meant you were an insider. I knew for a fact that I was never in that category. When you get involved in behavior like that, you just don’t think about the consequences. The whole thing evolved the way a college prank evolved. Then the thing becomes real, and then you’re on a treadmill that goes about as fast as you can run….I felt terrible. By the time the [Securities and Exchange Commission] got in touch with me, I was basically done with it. I didn’t think about the law. I didn’t see it as a legal issue. I saw it as an ethical issue.

Sentinel: Do you see any parallels between your experience and that of David Duncan, the Arthur Andersen partner who pleaded guilty to obstructing justice by shredding documents, at a time when he did not know it would be obstruction of justice to do so?

Winans: That sounds like splitting hairs to me. I never even got to that point. I knew what I was doing was ethically and morally wrong. I was experiencing a great deal of self-hatred over it. I also left a paper trail six lanes wide. If you’re drawing those fine distinctions, you don’t accept a check from the person who’s paying you, like I did.

Sentinel: You were a young journalist who had a dream job, writing ‘Heard on the Street.’ You had to know that if The Journal discovered what you were doing, your career there – and probably everywhere in journalism – would be ruined. Why did you do what you did?

Winans: I spent a lot of time thinking about that. The conclusion I came to was as follows: Deep down inside, I didn’t believe I deserved the job, and if you look at it on paper, I didn’t. Eighteen months before I got the ‘Heard on the Street’ job, when I started working on the ticker [the Dow Jones news wire], I didn’t know what the difference between a stock and a bond was…the second thing was, I had a boss who was very unpleasant. That’s the kindest thing I can think to say about it. I didn’t really feel there was anybody I could go to, to talk about these things. Third, I had zero in my bank account when I started this thing with Peter Brant. [Brant was a Kidder, Peabody stockbroker who pleaded guilty and became the government’s chief witness against Winans.] I was living with someone who was a spendthrift. And Peter Brant was a Svengali. He was charming; he was handsome. He said there was no way we would get caught.

And another element was, ‘hey, everybody was doing it.’ It’s not an excuse; it’s an explanation. I’m sitting there receiving phone calls about takeover deals that haven’t been announced yet. If I made a few phone calls about Apple Computer and the gossip is negative, guess what: Before the day is over, Apple stock is dropping because word gets around that The Journal is doing a negative piece about Apple Computer.

In those days, before we all had computers and we wrote our stories on typewriters, we had one little Quotron machine in the corner of the newsroom. At the end of the day, we had to check the prices of the stocks we wrote about. And I had to get in line behind all the editors who were checking their portfolios.

Sentinel: Some people have expressed shock that an American icon, someone as well known as, say, Martha Stewart, might try to trade on inside information when she stands to lose much more than she stands to gain. This is not to say that Ms. Stewart actually did this, since that has not been proven. Speaking hypothetically, but based on your own situation, would such a thing shock or surprise you?

Winans: I cannot understand how a woman who was a stockbroker, probably still has her Series 7 [license for securities sales], sits on the board of the stock market, can do something that (expletive) stupid. I think, sometimes, someone gets to the top and they think they’re invulnerable. Psychologically, people who are very successful both believe they’re invulnerable and perhaps, like me, think they are frauds and have a self-destructive urge.

Sentinel: Legal commentators have observed that The Wall Street Journal itself could have executed the same trades as Brant, [co-defendant Kidder broker Kenneth] Felis and [Brant client David] Clark based on your forthcoming columns and it would have been legal, because your columns were derived from public information and The Journal “owned” the knowledge that it was about to publish those columns. Yet, you went to prison. In your view, does this say anything about the state of the securities laws – then or now – or the transparency of the securities markets?

Winans: I don’t think it says too much about securities laws in general. I think it does say something about the way they are applied. I think if I hadn’t been working for a very visible newspaper, the case would have been ignored or they would have let it be a state case. You remember [then-SEC Chairman] John Shad had announced, ‘We are going to come down with hobnailed boots on insider trading,’ and here comes Juicy Case Number One. I was the Martha Stewart of the 1980s. Well, nobody had heard of me, but The Wall Street Journal was the Martha Stewart of the ‘80s. People were suspicious of what was going on on Wall Street, and this was a way to act out their resentment.

Sentinel: You have been quoted as saying, ‘The only reason to invest in the markets is because you think you know something others don’t.’ Do you believe that today?

Winans: Absolutely. I believe it in every sense. In the sense of somebody who invests because they think they know something immediately valuable. Why would anybody put their money into anything unless they think it’s going to be more valuable in the future?

Illegal trading on inside information happens all the time, every day, no matter what. People just do it.

Sentinel: What would you say to a young executive, or journalist, who feels he or she should have a way to profit at least a little from his or her own efforts, when strangers stand to make so much?

Winans: The short-term gain is not worth all the long-term emotional agony and, if you get caught, the real agony. When I was in jail, I met a lot of people who did not start out to commit a crime. They were going to solve a little problem, like ‘the cash flow is a little short this month.’

Sentinel: What would you say to an executive, or an auditor for that matter, who is just now being called to account for a breach of trust that also turns out to be a breach of the law?

Winans: That’s the way the system works. If you get caught up in the system, then you do the best you can to cope. But at some point you say to yourself, ‘Hey, I wasn’t lucky. I was in the wrong place at the wrong time. I got caught.’

In a white-collar prison you’re going to get good food, a dry place to sleep, lots of time to read. Make the most of it. You’re there because of something that you did. Whether it was as bad as they say it is, is irrelevant.

My response [to going to prison] was, ‘Half of my friends are dying of AIDS. I don’t have AIDS. In 13 months [the eligibility period for probation on Winans’ original 18-month sentence, later reduced to 366 days], I’ll be back out on the street, healthy and alive, and still able to write.’

Sentinel: Is there a journalistic redemption for someone in your position?

Winans: I think so, in the same way that G. Gordon Liddy or Jeb Magruder [both convicted of charges growing out of the Watergate scandal] or Oliver North did. They go through this experience, and they come out with a unique perspective on what’s going on….I do think there is some redemption. I don’t know if it’s journalistic.

I think my redemption comes from the Writers Room of Bucks County. It is something that I love. I use my notoriety to bring some attention to this organization.

Winans did not give up on the stock market after he was convicted. As he ruefully noted: “In the summer of 2000, along with everybody else, I lost whatever money I had in the stock market.

"Never take advice from a stock market writer. At least, not this one.”