Carpenter v. United States, 86-422
| Decision Date | 16 November 1987 |
| Docket Number | No. 86-422,86-422 |
| Citation | 484 U.S. 19,98 L.Ed.2d 275,108 S.Ct. 316 |
| Parties | David CARPENTER, Kenneth P. Felis, and R. Foster Winans, Petitioners v. UNITED STATES |
| Court | U.S. Supreme Court |
Petitioner Winans was coauthor of a Wall Street Journal investment advice column which, because of its perceived quality and integrity, had an impact on the market prices of the stocks it discussed. Although he was familiar with the Journal's rule that the column's contents were the Journal's confidential information prior to publication, Winans entered into a scheme with petitioner Felis and another stockbroker who, in exchange for advance information from Winans as to the timing and contents of the column, bought and sold stocks based on the column's probable impact on the market and shared their profits with Winans. On the basis of this scheme, Winans and Felis were convicted of violations of the federal securities laws and of the federal mail and wire fraud statutes, 18 U.S.C. §§ 1341, 1343, which prohibit the use of the mails or of electronic transmissions to execute "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises"; petitioner Carpenter was convicted of aiding and abetting. The Court of Appeals affirmed.
Held:
1. Insofar as it affirmed petitioners' convictions under the securities laws, the judgment below is affirmed by an equally divided Court. P. 24.
2. Petitioners' conspiracy to trade on the Journal's confidential information is within the reach of the mail and wire fraud statutes. Pp. 25-28.
(a) The Journal had a "property" right in keeping confidential and making exclusive use, prior to publication, of the schedule and contents of Winans' columns, which right is protected by the statutes. The intangible nature of the Journal's right cannot affect this determination, since McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), did not limit the scope of § 1341 to the protection of tangible as opposed to intangible property rights, but merely distinguished protected property rights from unprotected intangible rights to honest and impartial government. Pp. 25-27.
(b) Petitioners' activities constituted a scheme to defraud the Journal within the meaning of the statutes. It is irrelevant that petitioners might not have interfered with the Journal's use of its confidential information, publicized the information, deprived the Journal of the first public use of the information, or caused the Journal monetary loss, it being sufficient that the Journal has been deprived of its important right to exclusive use of the information prior to disclosing it to the public. The argument that Winans' conduct merely violated workplace rules and did not amount to proscribed fraudulent activity is untenable, since §§ 1341 and 1343 reach any scheme to deprive another of property by means of fraud, including the fraudulent appropriation to one's own use of property entrusted to one's care by another. Here, Winans violated his fiduciary obligation to protect his employer's confidential information by exploiting that information for his personal benefit, all the while pretending to perform his duty of safeguarding it. Furthermore, the evidence strongly supports the conclusion that each of the petitioners acted with the required specific intent to defraud. Pp. 27-28.
(c) Petitioners' contention that the use of the wires and the mail to print and send the Journal to its customers is insufficient to satisfy the statutory requirement that the mails be used to execute the scheme at issue is rejected. Circulation of the column to Journal customers was not only anticipated but was an essential part of the scheme, since there would have been no effect on stock prices and no likelihood of profiting from the leaked information without such circulation. P. 28.
791 F.2d 1024 (CA2 1986), affirmed.
Don D. Buchwald, New York City, for petitioners.
Sol. Gen. Charles Fried, Washington, D.C., for respondent.
Petitioners Kenneth Felis and R. Foster Winans were convicted of violating § 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, 15 U.S.C. § 78j(b),1 and Rule 10b-5, 17 CFR § 240.10b-5 (1987).2 United States v. Winans, 612 F.Supp. 827 (SDNY 1985). They were also found guilty of violating the federal mail and wire fraud statutes, 18 U.S.C. §§ 1341,3 1343,4 and were convicted for conspiracy under 18 U.S.C. § 371.5 Petitioner David Carpenter, Winans' roommate, was convicted for aiding and abetting. With a minor exception, the Court of Appeals for the Second Circuit affirmed, 791 F.2d 1024 (1986); we granted certiorari, 479 U.S. 1016, 107 S.Ct. 666, 93 L.Ed.2d 718 (1986).
In 1981, Winans became a reporter for the Wall Street Journal (the Journal) and in the summer of 1982 became one of the two writers of a daily column, "Heard on the Street." That column discussed selected stocks or groups of stocks, giving positive and negative information about those stocks and taking "a point of view with respect to investment in the stocks that it reviews." 612 F.Supp., at 830. Winans regularly interviewed corporate executives to put together interesting perspectives on the stocks that would be highlighted in upcoming columns, but, at least for the columns at issue here, none contained corporate inside information or any "hold for release" information. Id., at 830, n. 2. Because of the "Heard" column's perceived quality and integrity, it had the potential of affecting the price of the stocks which it examined. The District Court concluded on the basis of testimony presented at trial that the "Heard" column "does have an im- pact on the market, difficult though it may be to quantify in any particular case." Id., at 830.
The official policy and practice at the Journal was that prior to publication, the contents of the column were the Journal's confidential information. Despite the rule, with which Winans was familiar, he entered into a scheme in October 1983 with Peter Brant and petitioner Felis, both connected with the Kidder Peabody brokerage firm in New York City, to give them advance information as to the timing and contents of the "Heard" column. This permitted Brant and Felis and another conspirator, David Clark, a client of Brant, to buy or sell based on the probable impact of the column on the market. Profits were to be shared. The conspirators agreed that the scheme would not affect the journalistic purity of the "Heard" column, and the District Court did not find that the contents of any of the articles were altered to further the profit potential of petitioners' stock-trading scheme. Id., at 832, 834-835. Over a 4-month period, the brokers made prepublication trades on the basis of information given them by Winans about the contents of some 27 "Heard" columns. The net profits from these trades were about $690,000.
In November 1983, correlations between the "Heard" articles and trading in the Clark and Felis accounts were noted at Kidder Peabody and inquiries began. Brant and Felis denied knowing anyone at the Journal and took steps to conceal the trades. Later, the Securities and Exchange Commission began an investigation. Questions were met by denials both by the brokers at Kidder Peabody and by Winans at the Journal. As the investigation progressed, the conspirators quarreled, and on March 29, 1984, Winans and Carpenter went to the SEC and revealed the entire scheme. This indictment and a bench trial followed. Brant, who had pleaded guilty under a plea agreement, was a witness for the Government.
The District Court found, and the Court of Appeals agreed, that Winans had knowingly breached a duty of con- fidentiality by misappropriating prepublication information regarding the timing and contents of the "Heard" column, information that had been gained in the course of his employment under the understanding that it would not be revealed in advance of publication and that if it were, he would report it to his employer. It was this appropriation of confidential information that underlay both the securities laws and mail and wire fraud counts. With respect to the § 10(b) charges, the courts below held that the deliberate breach of Winans' duty of confidentiality and concealment of the scheme was a fraud and deceit on the Journal. Although the victim of the fraud, the Journal, was not a buyer or seller of the stocks traded in or otherwise a market participant, the fraud was nevertheless considered to be "in connection with" a purchase or sale of securities within the meaning of the statute and the rule. The courts reasoned that the scheme's sole purpose was to buy and sell securities at a profit based on advance information of the column's contents. The courts below rejected petitioners' submission, which is one of the two questions presented here, that criminal liability could not be imposed on petitioners under Rule 10b-5 because "the newspaper is the only alleged victim of fraud and has no interest in the securities traded."
In affirming the mail and wire fraud convictions, the Court of Appeals ruled that Winans had fraudulently misappropriated "property" within the meaning of the mail and wire fraud statutes and that its revelation had harmed the Journal. It was held as well that the use of the mail and wire services had a sufficient nexus with the scheme to satisfy §§ 1341 and 1343. The petition for certiorari challenged these conclusions.
The Court is evenly divided with respect to the convictions under the securities laws and for that reason affirms the judgment below on those counts. For the reasons that follow, we also affirm the judgment with respect to the mail and wire fraud convictions.
Petitioners assert that their activities were not a scheme to defraud the...
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