Also see: Fiduciary Duty
|||SUPREME COURT OF THE UNITED STATES
484 U.S. 19, 5 U.S.P.Q.2D (BNA) 1059, 108 S. Ct. 316, 98 L. Ed. 2d 275,
56 U.S.L.W. 4007
|||November 16, 1987
|||CARPENTER ET AL.
|||CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.
|||Don D. Buchwald argued the cause for petitioners. With him on the briefs
were Jed S. Rakoff, Howard W. Goldstein, James Niss, E. Michael Bradley,
I. Scott Bieler, and Alan R. Kaufman.
|||Solicitor General Fried argued the cause for the United States. With him
on the brief were Assistant Attorney General Weld, Deputy Solicitor General
Cohen, Charles A. Rothfeld, Daniel L. Goelzer, Paul Gonson, Jacob H. Stillman,
Rosalind C. Cohen, and Katherine Gresham.*
|||White, J., delivered the opinion for a unanimous Court as to holding number
|||The opinion of the court was delivered by: White
|||Petitioner Winans was co-author 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.
|||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, 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.
|||(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.
|||JUSTICE WHITE delivered the opinion of the Court.
|||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), *fn1
and Rule 10b-5, 17 CFR § 240.10b-5 (1987). *fn2
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, *fn3
and were convicted for conspiracy under 18 U. S. C. § 371. *fn5
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 (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 impact 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 confidentiality 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
|||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 Journal within the meaning of the mail and wire fraud statutes; *fn6
and that in any event, they did not obtain any "money or property"
from the Journal, which is a necessary element of the crime under our decision
last Term in McNally v. United States, 483 U.S. 350 (1987). We are unpersuaded
by either submission and address the latter first.
|||We held in McNally that the mail fraud statute does not reach "schemes
to defraud citizens of their intangible rights to honest and impartial government,"
id., at 355, and that the statute is "limited in scope to the protection
of property rights." Id., at 360. Petitioners argue that the Journal's
interest in prepublication confidentiality for the "Heard" columns
is no more than an intangible consideration outside the reach of § 1341;
nor does that law, it is urged, protect against mere injury to reputation.
This is not a case like McNally, however. The Journal, as Winans' employer,
was defrauded of much more than its contractual right to his honest and
faithful service, an interest too ethereal in itself to fall within the
protection of the mail fraud statute, which "had its origin in the
desire to protect individual property rights." McNally, supra, at 359,
n. 8. Here, the object of the scheme was to take the Journal's confidential
business information -- the publication schedule and contents of the "Heard"
column -- and its intangible nature does not make it any less "property"
protected by the mail and wire fraud statutes. McNally did not limit the
scope of § 1341 to tangible as distinguished from intangible property rights.
|||Both courts below expressly referred to the Journal's interest in the
confidentiality of the contents and timing of the "Heard" column
as a property right, 791 F.2d, at 1034-1035; 612 F. Supp., at 846, and we
agree with that Conclusion. Confidential business information has long been
recognized as property. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001-1004
(1984); Dirks v. SEC, 463 U.S. 646, 653, n. 10 (1983); Board of Trade of
Chicago v. Christie Grain & Stock Co., 198 U.S. 236, 250-251 (1905);
cf. 5 U. S. C. § 552(b)(4). "Confidential information acquired or compiled
by a corporation in the course and conduct of its business is a species
of property to which the corporation has the exclusive right and benefit,
and which a court of equity will protect through the injunctive process
or other appropriate remedy." 3 W. Fletcher, Cyclopedia of Law of Private
Corporations § 857.1, p. 260 (rev. ed. 1986) (footnote omitted). The Journal
had a property right in keeping confidential and making exclusive use, prior
to publication, of the schedule and contents of the "Heard " column.
Christie Grain, supra. As the Court has observed before:
|||"ews matter, however little susceptible of ownership or dominion
in the absolute sense, is stock in trade, to be gathered at the cost of
enterprise, organization, skill, labor, and money, and to be distributed
and sold to those who will pay money for it, as for any other merchandise."
International News Service v. Associated Press, 248 U.S. 215, 236 (1918).
|||Petitioners' arguments that they did not interfere with the Journal's
use of the information or did not publicize it and deprive the Journal of
the first public use of it, see Reply Brief for Petitioners 6, miss the
point. The confidential information was generated from the business, and
the business had a right to decide how to use it prior to disclosing it
to the public. Petitioners cannot successfully contend based on Associated
Press that a scheme to defraud requires a monetary loss, such as giving
the information to a competitor; it is sufficient that the Journal has been
deprived of its right to exclusive use of the information, for exclusivity
is an important aspect of confidential business information and most private
property for that matter.
|||We cannot accept petitioners' further argument that Winans' conduct in
revealing prepublication information was no more than a violation of workplace
rules and did not amount to fraudulent activity that is proscribed by the
mail fraud statute. Sections 1341 and 1343 reach any scheme to deprive another
of money or property by means of false or fraudulent pretenses, representations,
or promises. As we observed last Term in McNally, the words "to defraud"
in the mail fraud statute have the "common understanding" of "'wronging
one in his property rights by dishonest methods or schemes,' and 'usually
signify the deprivation of something of value by trick, deceit, chicane
or overreaching.'" 483 U.S., at 358 (quoting Hammerschmidt v. United
States, 265 U.S. 182, 188 (1924)). The concept of "fraud" includes
the act of embezzlement, which is "'the fraudulent appropriation to
one's own use of the money or goods entrusted to one's care by another.'"
Grin v. Shine, 187 U.S. 181, 189 (1902).
|||The District Court found that Winans' undertaking at the Journal was not
to reveal prepublication information about his column, a promise that became
a sham when in violation of his duty he passed along to his co-conspirators
confidential information belonging to the Journal, pursuant to an ongoing
scheme to share profits from trading in anticipation of the "Heard"
column's impact on the stock market. In Snepp v. United States, 444 U.S.
507, 515, n. 11 (1980) (per curiam), although a decision grounded in the
provisions of a written trust agreement prohibiting the unapproved use of
confidential Government information, we noted the similar prohibitions of
the common law, that "even in the absence of a written contract, an
employee has a fiduciary obligation to protect confidential information
obtained during the course of his employment." As the New York courts
have recognized: "It is well established, as a general proposition,
that a person who acquires special knowledge or information by virtue of
a confidential or fiduciary relationship with another is not free to exploit
that knowledge or information for his own personal benefit but must account
to his principal for any profits derived therefrom." Diamond v. Oreamuno,
24 N. Y. 2d 494, 497, 248 N. E. 2d 910, 912 (1969); see also Restatement
(Second) of Agency §§ 388, Comment c, 396(c) (1958).
|||We have little trouble in holding that the conspiracy here to trade on
the Journal's confidential information is not outside the reach of the mail
and wire fraud statutes, provided the other elements of the offenses are
satisfied. The Journal's business information that it intended to be kept
confidential was its property; the declaration to that effect in the employee
manual merely removed any doubts on that score and made the finding of specific
intent to defraud that much easier. Winans continued in the employ of the
Journal, appropriating its confidential business information for his own
use, all the while pretending to perform his duty of safeguarding it. In
fact, he told his editors twice about leaks of confidential information
not related to the stock-trading scheme, 612 F. Supp., at 831, demonstrating
both his knowledge that the Journal viewed information concerning the "Heard"
column as confidential and his deceit as he played the role of a loyal employee.
Furthermore, the District Court's Conclusion that each of the petitioners
acted with the required specific intent to defraud is strongly supported
by the evidence. Id., at 847-850.
|||Lastly, we reject the submission that using the wires and the mail to
print and send the Journal to its customers did not satisfy the requirement
that those mediums be used to execute the scheme at issue. The courts below
were quite right in observing that circulation of the "Heard"
column was not only anticipated but an essential part of the scheme. Had
the column not been made available to Journal customers, there would have
been no effect on stock prices and no likelihood of profiting from the information
leaked by Winans.
|||The judgment below is
|||* Benjamin W. Heineman, Jr., and Carter G. Phillips filed a brief for
the Reporters Committee for Freedom of the Press et al. as amici curiae
Section 10(b) provides:
|||"It shall be unlawful for any person, directly or indirectly, by
the use of any means or instrumentality of interstate commerce or of the
mails, or of any facility of any national securities exchange --
|||"(b) To use or employ, in connection with the purchase or sale of
any security registered on a national securities exchange or any security
not so registered, any manipulative or deceptive device or contrivance in
contravention of such rules and regulations as the [Securities and Exchange]
Commission may prescribe as necessary or appropriate in the public interest
or for the protection of investors."
Rule 10b-5 provides:
|||"It shall be unlawful for any person, directly or indirectly, by
the use of any means or instrumentality of interstate commerce, or of the
mails or of any national securities exchange,
|||"(a) To employ any device, scheme, or artifice to defraud,
|||"(b) To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not misleading,
|||"(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person,
|||"in connection with the purchase or sale of any security."
Section 1341 provides:
|||"Whoever, having devised or intending to devise any scheme or artifice
to defraud, or for obtaining money or property by means of false or fraudulent
pretenses, representations, or promises, or to sell, dispose of, loan, exchange,
alter, give away, distribute, supply, or furnish or procure for unlawful
use any counterfeit or spurious coin, obligation, security, or other article,
or anything represented to be or intimated or held out to be such counterfeit
or spurious article, for the purpose of executing such scheme or artifice
or attempting so to do, places in any post office or authorized depository
for mail matter, any matter or thing whatever to be sent or delivered by
the Postal Service, or takes or receives therefrom, any such matter or thing,
or knowingly causes to be delivered by mail according to the direction thereon,
or at the place at which it is directed to be delivered by the person to
whom it is addressed, any such matter or thing, shall be fined not more
than $1,000 or imprisoned not more than five years, or both."
Section 1343 provides:
|||"Whoever, having devised or intending to devise any scheme or artifice
to defraud, or for obtaining money or property by means of false or fraudulent
pretenses, representations, or promises, transmits or causes to be transmitted
by means of wire, radio, or television communication in interstate or foreign
commerce, any writings, signs, signals, pictures, or sounds for the purpose
of executing such scheme or artifice, shall be fined not more than $1,000
or imprisoned not more than five years, or both."
Section 371 provides:
|||"If two or more persons conspire either to commit any offense against
the United States, or to defraud the United States, or any agency thereof
in any manner or for any purpose, and one or more of such persons do any
act to effect the object of the conspiracy, each shall be fined not more
than $10,000 or imprisoned not more than five years, or both."
The mail and wire fraud statutes share the same language in relevant part,
and accordingly we apply the same analysis to both sets of offenses here.
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