17 Corporate Crime Reporter 23(10), June 9, 2003
INTERVIEW WITH R. FOSTER WINANS, FORMER WALL STREET JOURNAL REPORTER, DOYLESTOWN, PENNSYLVANIA
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?
CCR: Do ghost writers disclose who they write for?
CCR: How did they do?
CCR: Well, is the author a real person?
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?
CCR: What paper was it?
CCR: Do you still write for them?
CCR: You moved on from that to what?
CCR: How did you end up at the Wall Street Journal?
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?
CCR: How did you get in trouble?
CCR: Were you being criticized a lot?
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?
CCR: What did you say when he made the proposal?
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?
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?
CCR: So, he was ripping you off?
That way, I won't feel as corrupted.
CCR: How many calls did you make?
CCR: Did you think you were going to get away with it?
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?
My case was the first major insider trading case since the depression.
CCR: How did the whole thing unravel?
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?
CCR: When did you realize they were on to you?
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 --
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?
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?
CCR: You pled not guilty.
CCR: And the courts disagreed?
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?
CCR: Should the insider trading laws be repealed?
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?
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?
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?
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?
CCR: How did prison change your life?
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."
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
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.
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?
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 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.
CCR: So you see Spitzer as another Giuliani?
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?
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.
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?
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?
CCR: What if they have her cold on obstruction?
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?
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?
CCR: You haven't been to all of them?
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.
CCR: What do you want to do with your life now?
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?
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.
CCR: Have you been rehabilitated enough to get a job as a business
reporter with a newspaper?
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.