17 Corporate Crime Reporter 23(10), June 9, 2003


R. Foster Winans -- remember him?

He's the Wall Street Journal reporter who wrote the Heard on the Street Column, and was sent to jail for insider trading in the 1980s.

Guess what? Foster thinks Martha Stewart is going to jail, but that sending her to jail has nothing to do with justice and only distracts from the debate over how to fix a systemically corrupt and morally bankrupt Wall Street.

"Whether you love Martha Stewart or think she got too big for her britches, prosecuting her is a publicity stunt that should outrage the millions whose retirement accounts and other investments were shrunk or wiped out by true corporate and Wall Street criminals," Winans said.

Winans says that the Justice Department is writing speeding tickets while the bank robbers are getting away.

We interviewed Winans on June 3, 2003.

CCR: What is your current work?
I am President of the Writers Room of Bucks County in Doylestown, Pennsylvania. It is a non-profit writers center that I started in 1998. Today, it is a thriving organization, serving about 2,000 people a year. That job doesn't pay. The other full-time job is the one I'm trying to make pay. I'm a ghost writer. And I have been a ghost writer since I got out of jail in 1988.

CCR: Do ghost writers disclose who they write for?
It depends on the deal. The first book I wrote was a business motivational book by Peter Glen. It was published by William Morrow. I wrote eight historical novels during the 1990s. And for those, I can't tell you who I wrote them for.

CCR: How did they do?
They did very well, and they continue to sell.

CCR: Well, is the author a real person?
I'm reluctant to go into details, because then it becomes a 20 questions thing. But let's say that it was a known quantity, it was a publishing name that people were familiar with. They hired me to execute some novels that were part of an existing series of books.

CCR: But if a reporter wanted to interview the author whose name appears on the books, does that author exist?

CCR: What is your educational background?
I dropped out of one of the finest schools in North America, McGill University in Montreal, Canada. I thought I wanted to be a doctor and I wanted to be a famous newscaster. When I got to McGill, which has a fine medical school, I discovered that it was a long, long road to becoming a doctor. It was 1967, and I did not want to be in college. I quit and came back to my hometown and worked for the local newspaper. I looked about 12 years old, so I wasn't going to get on television. I started as a reporter when I was 19 years old, back in the day when the qualifications for being a journalist were four years of gym and a set of car keys.

CCR: What paper was it?
The Doylestown Intelligencer.

CCR: Do you still write for them?
No I don't. I just tease them.

CCR: You moved on from that to what?
I worked at local newspapers around the country. I worked on altogether half a dozen newspapers in Pennsylvania, New Jersey, Texas and the state of Washington.

CCR: How did you end up at the Wall Street Journal?
I was working in 1981 at the Trentonian, which is a tabloid daily in Trenton, New Jersey. I was stringing for the New York Times.

I was doing a little bit of research work for CBS's 60 Minutes. I wanted to live in New York. I had lived there previously. I wanted to get back. But I wanted to get back as a journalist.

A friend of mine got a job working at the Dow Jones News Service, which is a news service owned by the same company that owns the Wall Street Journal. I didn't know the difference between a stock and a bond, but I figured why not? I'll give it a try. It is New York.

While I was at the Dow Jones News Service, I wasn't covering anything.

I was just marking up press releases of corporate news. And one day, my boss came to me and said -- I'd like for you to report on stocks that are moving without a good cause, that are rising or falling without some news to explain the movement. I understood it right away, even though I didn't have any training. I really understood Wall Street. It made all the sense in the world to me. And 18 months later, the Journal hired me to write their Heard on the Street column, because I was doing such a good job on the ticker.

CCR: For how long did you write that column?
I worked for Dow Jones altogether for three years. I wrote the Heard on the Street column for half of that -- 18 months.

CCR: How did you get in trouble?
I was living in a slummy block in Manhattan, on 14th street, which I loved. But nevertheless, I wasn't making very much money -- about $25,000 a year. The culture of the Wall Street Journal was not to give praise -- only to criticize when necessary. I felt kind of fraudulent there, considering my lack of experience and background.

CCR: Were you being criticized a lot?
I don't mean to say I was being criticized a lot. I don't mean to say that. I once asked one of my bosses at the Wall Street Journal -- how am I doing? And he said -- well has anybody complained? And I said -- no. And he said -- you are doing a great job.

And I thought -- okay, that's how it works. You don't' get compliments, you only get noticed when you screw up. One day, I met a stock broker, Peter Brant, and was going to write an article about him. After a few months, that kind of fell beside the wayside. He one day said to me -- that column you write is very powerful, it moves stocks, you are doing a great job, how much do they pay you, isn't it terrible, only $25,000 a year, with all of the skill and talent that you have, if you told me what you were going to write about the day before it is published, we'd make a lot of money.

CCR: You knew that was a crime, right?
No. I did not know it was a crime. I knew it was wrong. I knew it was unethical. I knew it was a bad thing to do.

CCR: What did you say when he made the proposal?
I laughed. There is an old expression -- dogs barks and humans laugh at the truth. I was laughing because the thought had occurred to me. Before the market had closed, stocks we were reporting on would begin to move in the direction that the story was shaping up in. We knew that people we were talking to were telling others -- the Wall Street Journal is doing a positive/negative story on this stock -- you should buy or sell this stock.

So, there was an atmosphere of greed at the time. The bull market was new. As Wall Street Journal reporters, we would take people to lunch at these big fancy hotels, the Plaza Hotel, for example, where they served $5 cups of coffee, limousines -- they weren't our limousines, they were the limos of our sources.

Nevertheless, we were lowly paid reporters hanging around with rich guys. You add it all together, the atmosphere of the time, my particular situation, my emotional state, and this guy Peter Brant, who was this young, impressive stock broker, making tons of money, and I just figured -- why not?

It seemed like a college prank at the time. It didn't seem like insider trading. It didn't seem like such a big deal. And I didn't even think it was going to work.

CCR: How did it work?
At about 10:30 or 11 a.m. in the morning, we would decide what the column was going to be about that day and in what direction it was going to go. At 11 a.m. in the morning, let's say we were going to do a negative story about Boeing because Airbus was getting more orders, I would go downstairs to a phone booth and I would call Peter Brant at his office. I would say it is a negative article about Boeing. He would say fine. He would trade. I told him I never wanted to know how much money he made. I asked him for an advance of $15,000 against the profits.

About half way through, I asked him for another $15,000. My total take on it was $30,000. It turned out that unknown to me, by my choice, that he made about $700,000.

CCR: Did he agree to split it with you?
That was the deal.

CCR: So, he was ripping you off?
He was cheating me. But this was my way of insulating myself from my own bad behavior -- I would say -- don't tell me what is going on.

That way, I won't feel as corrupted.

CCR: How many calls did you make?
Altogether there were 24 trades over three to four months at the time.

CCR: Did you think you were going to get away with it?
While in jail, I met many people who had been involved in economic crimes. You don't think about that. An awful lot of criminals weren't criminals until they somehow stumbled into this behavior. It is often a situation where there is an immediate need. You rationalize your behavior.

You say -- I will put the money back later, if it is an embezzlement case.

It just didn't occur to me. I knew I was doing something wrong. I knew I could get fired. I knew intellectually that it would be a big deal.

But I didn't even think it through. I didn't even go through the steps.

I had no experience in the history of Wall Street.

I did not know anything about past scandals.

I did not have any knowledge about the history of stock trading. I didn't know anything about stock trading. I really think I went into this with my eyes closed.

CCR: Rudolph Giuliani was the U.S. Attorney at the time. Was he known in the city at the time?
Yes, but not for white collar crime prosecutions. He made his mark cleaning up the East Village. It was the first time the federal government had organized anti-drug activities in an urban setting.

My case was the first major insider trading case since the depression.

CCR: How did the whole thing unravel?
It turned out that on the very first trade, Peter Brant had been so aggressive in buying the particular options that he was buying on a stock, that he drew attention to himself. Bells went off at a computer at the American Stock Exchange, where those options were traded. That immediately started an investigation. So, in looking back on it, we were cooked from day one.

The Heard on the Street Column was read by everybody in the business.

If you were a trader in the options of XYZ company -- one day you get all of these orders from Kidder Peabody to buy all these options. The next morning there is an article about that company in the Wall Street Journal that is favorable to those options. And here comes the order to sell those options. You don't have to be a brain surgeon to figure out that those two people are probably talking to each other.

CCR: Did they tap his phone?
The SEC started the investigation. And you can't tap a phone for a civil investigation. But apparently, this stuff works its way though the system. Paperwork gets sent from one bureaucracy to another. And eventually, somebody gets far enough into it. And people were saying -- it is happening all of the time. It is happening once a week or twice a week.

CCR: When did you realize they were on to you?
In February 1984, the managing editor of the Wall Street Journal, Norman Pearlstein, called me into his office, and said that the SEC was going to call in five minutes and ask me about one of the my sources.

An investigator from the SEC called on the phone. I've watched enough LA Law and Law and Order to know that today, if I walked in there, and my boss said -- you are going to get a call from a federal government official, I would say -- well, you know what, I'll get back to you on that. But at the time, I was terrified, my boss asked that I sit down and accept a phone call, I was not thinking clearly. I was completely blindsided.

CCR: It starts unraveling --
I went down to the SEC. I told them everything. I took them all of my checkbooks, and my telephone records, and I admitted that I had done what I did. I threw myself on the mercy of the system.

Giuliani, sensed an opportunity to take advantage of the tremendous amount of publicity that accompanied my case. My attorney tried to convince him that a criminal prosecution wasn't necessary. But Giuliani was determined to get on the front page with this. They brought charges.

They charged me with three counts -- a mail, a wire and a securities fraud charge for each of the 24 trades.

The First Amendment lobby and the securities industry lobby were upset by this prosecution. And ultimately, they ended up joining us against the government in the United States Supreme Court.

CCR: Who was your lawyer?
Don D. Buchwald. His law partner is Alan Kaufman. Alan was, until recently, chief of the criminal division in the Southern District of New York. He worked for James Comey. And he worked for Mary Jo White before that.

So, he went from the U.S. Attorney's office, to defense attorney, to chief of the criminal division at the U.S. Attorney's, and now he's back in private practice.

CCR: How did you find your lawyer?
Dow Jones at some point finally provided me with a list of lawyers. They said -- we think you should have your own counsel. And Don was on the list.

CCR: You pled not guilty.
Yes, we said -- I did it. Here is the evidence. But we don't think it is a crime. We don't think that a newspaper journalist can legitimately be considered an insider if he is not an officer or director, or in some other fashion has access to material, non-public information -- which is the legal term for inside information.

CCR: And the courts disagreed?
My case went to the Supreme Court, which ruled 8 to 0 that it was mail and wire fraud, but split 4 to 4 as to whether it was insider trading under the securities laws. You can always get somebody on mail and wire fraud.

On insider trading, they affirmed the lower court decision convicting me of insider trading.

But only last year, the Supreme Court ruled in another case that federal prosecutors can go after journalists for this kind of insider trading. It depends on the policy of the company that the reporter works for. If you work for a company that has a specific policy that prohibits you from trading in stocks that you are writing about, you could be convicted of a crime on that basis.

If you work for a company that has not adopted a policy, then you might not be guilty of insider trading.

The insider trading laws are byzantine. And it is difficult to determine what is and what is not insider trading.

CCR: What happened to Peter Brant?
Peter Brant was discovered to have been stealing from clients as well as trading on my tips. He pled guilty, testified against me at my trial, and was sentenced to eight months in jail, allowed to serve on weekends, and barred from the securities industry for life.

CCR: Should the insider trading laws be repealed?
They should be substantially reformed. It smells like the drug war. All this light, heat and energy is being spent on insider trading. But it is always going on all the time.

In the early 1980s, John Shad, the chairman of the SEC, said that the SEC was going to come down with hobnailed boots on insider trading. And guess what? They put a few folks in jail and a lot of good it did.

Myself, Michael Milken, Ivan Boesky, Dennis Levine. And it didn't do a damn thing to stop insider trading.

It persuaded the Wall Street people to try and figure out ways that sort of looked legal. Analyst recommendations, whisper numbers -- all of the things that you are hearing about that the SEC is onto now. That is the engine of the insider trading business on Wall Street. It is now institutionalized.

Wall Street is systemically corrupt and morally bankrupt.

CCR: How would you pass insider information today legally?
You are on a trading desk at Fidelity and I'm on a trading desk at Merrill Lynch. And I know that our analyst is going to recommend GM tomorrow. I call you up. We have had some drinks. Maybe we have picked up a couple of girls together. And I say -- hey Russell, how about that General Motors? And your ears would perk right up. And you say -- oh yeah, General Motors, what about it? And I would say -- what do you think about GM. And you say -- I don't know, it looks pretty good to me. And I say -- yeah, it looks real good to me.

That's how it happens.

It's talking in code, and it happens all the time every day. You cannot prove that is a crime.

CCR: And you went to jail for it. When were you sentenced?
I was originally sentenced to 18 months in federal prison. I did most of my time at Danbury Federal Prison Camp in Danbury, Connecticut, where I played pool on the Rev. Sun Myung Moon memorial pool table. Moon is the Korean cult leader of the Moonies who owns the Washington Times and UPI and was convicted of tax evasion in 1982. He was a pool shark and spent time there.

While I was there, I began to write letters for inmates who wanted to petition their judges for various things, but mostly to reduce their sentences. I found that I had a real talent for listening to someone's story and repeating it back to them in a way that was very compelling. I got four people out of jail. I got their sentences reduced. And the fourth one was me. I got my sentenced reduced from 18 months to 13 months.

I ended up spending about nine months in the system.

CCR: Do journalists still engage in insider trading?
Insider trading takes place frequently. Obviously I don't think anybody does it today who doesn't worry about it, although there are people who have done trades and didn't realize it was insider trading.

Conflicts of interest abound in life all around us. I have heard stories over the years -- reporters who cover the tire industry in central Ohio and showing up with four new tires on their car.

I don't think it happens a lot at the major newspapers. But during the market bubble, almost everybody was trading on inside information even if they didn't know it.

CCR: You went to jail for it. How did that make you feel?
I don't compare myself to everybody else. I did what I did. The system did what it did. I don't really compare myself to other people. I did something stupid. I admitted it when I got caught. I went through the system. I learned a lot from my experience. I don't compare myself to the research analysts or the big brokerage firms.

CCR: How did prison change your life?
It turned me into a ghost writer. I love helping people tell their stories. Secondly, I learned a lot about the criminal justice system and that's why I have some of the opinions I have about not putting white collar criminals in jail.

I also realized how upside down and corrupt the criminal justice system is.

CCR: You wrote a piece for the Los Angeles Times recently titled "Every Crook Should Write a Book."

In it, you write this:

"If I were sentencing a highly visible Wall Street crook, I'd order him a bright-orange jump suit with the following printed on the front:

"I stole your retirement and all I got was this lousy jumpsuit." On the back, in black letters: INMATE.

If he'd have drawn a five-year prison sentence, I'd make him work that many years, wearing the jump suit, emptying waste baskets on the floor of the NYSE. Let the world see and be reminded, every time the news cameras sweep the floor of the exchange, that cheating and stealing on Wall Street have real consequences.

For people like Sam Waksal, facing seven to 10 years for trading on inside information about his cancer-treatment company Imclone, I'd put him to work cleaning bed pans on a cancer ward for children.

What will happen instead is the taxpaying public will shell out an estimated $40,000 a year to keep Wall Street crooks locked up where they'll sit around complaining about getting caught, worrying about someone finding where they've hidden their ill-gotten gains, and learning bad habits from other crooks.

The public will be lulled into the false impression that the problem has been dealt with, and the bad guys have been put away."
So, no, I don't believe that white collar crooks should be sent to jail. I also happen to believe that if you are an 18 year old kid and you broke into a car, I don't you should go to jail either.

In white collar crime, you have people with well developed careers, assets and the ability to create wealth. Why would you take somebody like that with all of those skills, and stick them in a jail, and make the rest of us pay $40,000 a year to keep them there? And God forbid if they get sick, we have to pay for that too. They could be outside doing something good for society.

And, as I wrote, if you stick someone in jail, it gives the public the misimpression that the matter has been taken care of, when nothing could be further from the truth.

I have been there. These people complain about how they got ratted out by their business partner, or how they got caught. If they are being honest, they have a stash somewhere and they are not telling you. And they are learning bad habits.

Instead, they should be put to work in high visibility positions. On CNBC, about 12 times a day, they train their cameras on the floor of the New York Stock Exchange. A talking head stands there and reads the ticker. Wouldn't it be interesting if the camera were sweeping the NYSE and the camera catches a white collar criminal in the orange jumpsuit with the word INMATE emblazoned on the back? What better way to remind people of what happens when you screw up.

CCR: You believe that for the most part, prosecutions of white collar criminals are show trials, when in fact it is a systemic problem, and the big fish get away. Are you calling for a crackdown on the big fish?
I'm not a big fan of government regulation. And I don't want to see a bloated Department of Justice where they are watching everything we do.

The NYSE is supposed to be self-regulating, but it turns out that they were cheating people every day on the floor of the stock exchange.

The rest of the stock market is supposed to be self-regulating. It didn't work. Now, what is going to happen is that the trial lawyers are going to do the regulating for them. In the next several years, you are going to see these crushing, huge civil lawsuits. The market is going to provide the punishment.

What is going to come out of it is a new ethic. The ethic is going to be -- we can't do that anymore. It is not good for us. It is not good for the world. And we have to change the way we do things.

CCR: It looks like Martha Stewart is going to be indicted with insider trading charges.
Who knows what the real facts are. But from what I have seen reported, the Justice Department instead of proving how tough it is on white collar crime by prosecuting Martha Stewart -- they should go to her and say -- we'll argue for probation with the judge. Do 5,000 hours of community service in a humbling setting, pay a fat fine, and everybody will be satisfied that justice was done.

Instead, they are playing hardball with her. And she is going to jail. She will not get out of an obstruction charge. If they rejected Martha Stewart's efforts to negotiate a deal, that means they have her by the short hairs.

CCR: Why not prosecute if she was engaged in obstruction?
Doesn't our government have enough corruption to chew on right now with billion dollar deals? It is a publicity stunt. It is the same publicity stunt that Congressman Greenwood pulled last summer when he threatened to drag Martha Stewart in front of a Congressional subcommittee. What in the world does Martha Stewart know about corruption on Wall Street?

It is all about public punishment, show trials -- to make people believe that our prosecutors are on the job. It doesn't have anything to do with justice or fairness.

CCR: You wrote an op-ed in the New York Times May 3 titled "Notes from a Little Fish." Was that your coming out piece?
I would say it was my coming out piece. I put a lot of time into that. I wanted to say something that I thought was true.

I got such a good response from that piece, that I realized that I was saying something that many people can't say. If you work on Wall Street, you can't say those things. If you are in law enforcement, you can't say those things.

CCR: One of things you say in that piece is that politicians can use these prosecutions to move up the political ladder. And you focus on Eliot Spitzer, the attorney general in New York. Spitzer was the driving force behind the Wall Street cases. He got a $1.4 billion penalty.
It is parking fine. That's chicken scratch on Wall Street. It sounds like a lot of money, but when you divide it up among the ten firms, and when you realize that $1 billion of it is tax deductible, then it is chicken scratch. It is coming out of our pocket.

CCR: So you see Spitzer as another Giuliani?
No. Rudy Giuliani was a grandstander and broke all of the ethical rules in doing so.

Spitzer is much more clever. But Eliot Spitzer is running for Governor. And guess what -- everybody now knows his name.

CCR: Spitzer could have required these Wall Street firms to admit wrongdoing in the civil cases. But he said he didn't because he would have put them out of business. Why no admission of wrongdoing?
I spoke at the Economic Crimes Summit last month in Virginia.

After I spoke, people came up to me and said -- stay tuned. This is where the civil tort system takes over. They said -- we left a paper trail six lanes wide. The trial lawyers will come in and -- if somebody doesn't file a RICO lawsuit against all of those firms, I'll be shocked.

CCR: Spitzer had the ability to shut down those firms. And he didn't.
And that was the prudent move. We are about 18 months after 911. The economy sucks. It was a bad winter. Who wants to be the prosecutor, who on principle, puts Wall Street out of business? It is bad business and bad politics. If you are running for Governor, you need Wall Street. There is a built-in conflict.

He got a lot of money out of the firms. It looks good. They left a paper trail for the securities plaintiffs law firms. There is a certain amount of punch pulling. For better or worse, we need to trust Wall Street. And that's going to take a long time.

CCR: You got out of jail in September 1988. Why did you decide to resurface now?
The Writers Room became very successful. I told people in this circle who I was. I didn't want anybody to come to me afterward and be surprised. As I started the organization, I filled them in. They knew who I was and expressed no interest.

Then about a year ago, a reporter for the Philadelphia Inquirer came up and did a story on The Writers Room. And he expanded the story to discuss my past. And that was a wire service story that ended up being syndicated. The next thing I knew was that everybody knew who I was. And then along came Martha Stewart. I got a call from Newsnight with Aaron Brown. And people started calling.

CCR: You are going back on CNN tonight about the Martha Stewart case. What is your line going to be?
It is a publicity stunt. It is a tragedy for women in business, the same way that Jason Blair's case is a tragedy for African American journalists. And I don't think she should go to jail.

CCR: What if they have her cold on obstruction?
I do not attach jail with the severity of a crime. She doesn't have a record. We are assuming she wasn't stealing from a company. She was on an airplane. Broker calls and says -- dump the stock. She dumps the stock. And then she tried to cover it up.

Under those circumstances, what is the value of putting her in prison? Make her do something that is visible, humbling that reminds all of us what it is to be ethical and what happens when you aren't.

CCR: But should we empty the prisons?
We have the third largest prison population per capita, behind only the former Soviet Union and South Africa, the two of the most repressive regimes that existed in the world.

In the ideal system, people who are dangerous, repeat offenders, can't control their behavior, need therapy -- but most people do not get better in prison. They get worse.

After the second year, you have lost most of your resources. By the third year, you are finished. If you spend three years in prison, when you come out there is no family, there are no resources -- there is nothing, unless you went in rich.

CCR: What about the double standard -- the golf courses, the surroundings?
There are no golf courses. There are some broken down tennis nets, a track, a softball field, a wall against which you can play handball.

CCR: You haven't been to all of them?
I haven't been to all of them, but I know that the Bureau of Prisons is not maintaining golf courses for inmates. Prison is prison. You don't have freedom. It is not much fun to have no freedom.

Martha Stewart is running this big company.

She knows how to create wealth. Now you are going to take her away from the company, that is going to hurt the company, and when she comes out, she is not only not rehabilitated, she is debilitated.

Leave her out, let her pay money, let her pay huge fines. Let's see it.

Let's have our talent in our society. And if she doesn't want to do the dirty work, then you say -- have a nice time in jail.

CCR: There was a profile of a man who compiles reports for rich convicts, intended for judges, to make the white collar convicts look more human in the hopes of getting a reduced sentence.

Now, street crooks can't afford this guy's services. So, there is a double standard.

Wealth brings less time.
I have a person in my community who is going through the system now. He is at the other end of the scale. There are people who don't even have a lawyer, don't understand their rights. And they end up with a year in jail. And then somebody else shows up, and they are in a suit, and they are white, and the lawyer knows the judge because they used to play golf together. Guess who goes to jail? I see that all the time. But let's look at the entire criminal justice system.

CCR: What do you want to do with your life now?
Public speaking and writing about my experiences.

CCR: There were laws on the books prohibiting crooks from profiting from writing books and making movies about their criminal activity. What is the status of those laws?
In the 1970s, a loony tune named David Berkowitz shot to death a number of young women on the streets of New York. He went to jail. He was a criminal murderer. He was offered money for his story by Hollywood. The politicians, God bless them, went crazy, and passed a law that said you can't profit from your crimes in that way. It was called the Son of Sam law.

The Supreme Court ruled that was an unconstitutional infringement on the First Amendment.

CCR: You now think that white collar crooks should write books about their experiences.
Whatever happens, if somebody wants to write a book, let them write the book. And the criminal should make restitution.

CCR: Have you been rehabilitated enough to get a job as a business reporter with a newspaper?
I believe somebody would hire me for my curiosity value.

But I don't want to do that. I like ghost writing. And I like working with young people on writing, talking about ethics.

I believe we have a chance to introduce a new way of thinking into our culture, one that is less selfish, one that cares more about community, and to the degree that I'm able to, I'd like to play a role in that.

[Contact: R. Foster Winans, 37 S. Clinton Street, Doylestown, Pennsylvania 18901. Phone: (215) 348-8170. Web: fosterwinans.com. E-mail: [email protected]]

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