R. Foster Winans and Inside Trading

Flattery may not get you everywhere, but it can put you in a position to become ethically compromised. Particularly when you have access to information that other people want. But loose lips do indeed sink ships and in the case of R. Foster Winans they engulfed him in an insider trading scandal that is now a case study for journalistic ethics. 

However, as is the case with many cases of insider trading, the case is not as open-and-shut as it may seem. Winans was not found guilty of insider trading but you can be the judge.

What Happened?

R. Foster Winans was a well-known journalist in the 1980s. He wrote the influential “Heard on the Street” column for the Wall Street Journal.  As the story goes, Winans leaked inside information from his reporting to a stockbroker at Kidder Peabody. The broker, Peter Brant, in turn, placed trades on the behalf of Winans and both parties were enriched as a result of having the trades executed before an article was published and available for the general public. 

In this case however, we have the words of Winans himself. Here is the writer in his own words from 2011:

“In the early 1980s, when I was a stock market columnist at The Wall Street Journal, I stupidly agreed to tell a stockbroker what I was writing about that was scheduled to appear in the next day’s edition. He made more than $700,000, of which I received $31,000, trading in advance of the short-term effect the column had on the prices of stocks mentioned.”

As Winans recounts the story he was approached by Brant who remarked how Winans was underpaid for his work and how they could both profit if Brant could be tipped off about the direction an article about a particular security was going to go. All told, Winans says he and Brant conducted 24 trades over three to four months. 

How was the fraud discovered?

In a separate interview he gave in 2003, Winans said that Brant was very aggressive in buying the particular options that it drew the attention of the American Stock Exchange. As their investigation continued it was apparent that a pattern of one to two trades a week was forming. 

It wasn’t long before the SEC was calling the Wall Street Journal and asking about Winans source. 

Although Winans confessed to his part in the scheme immediately, then-U.S. Attorney Rudy Giuliani saw an opportunity to charge Winans and Brant with violating insider trading laws. Ultimately the Supreme Court voted 4-4 (one of the justices had resigned and no replacement had been confirmed) on the insider trading charges. 

The court did vote 8-0 on the fraud charges against Winans. Said Winans in that 2011 article, 

“In other words, what I did may or may not have been insider trading, but it sure as hell was stealing from The Wall Street Journal it’s corporate secrets—the schedule of articles that were to appear in the paper… I accept the argument that I used something that didn’t belong to me to enrich myself.”

What Were the Consequences For R. Foster Winans?

Winans served nine months in prison for his role in the fraud. Winans has co-written and/or independently produced over 30 books since his release. His most notable work is Trading Secrets: An Insider’s Account Of The Scandal At The Wall Street Journal.

Conclusion

In the years following his conviction, Winans has spoken out about the need for more clarity on what constitutes insider trading. This further emphasizes the idea that insider trading is very difficult to prove because it is becoming more institutionalized.