Chalk up another one for the government's campaign against white-collar crime. On Monday, a United States district court found Wall Street Journal reporter R. Foster Winans, his roommate, and his stockbroker guilty of securities fraud. The court said that the men traded stocks on advance information of what would be said in Mr. Winans's ``Heard on the Street'' column. The government claims that by taking advantage of the stock movements of the company discussed in the column, the men netted a total of $675,000.
``The government got a victory, one that is important to the government's insider-trading program,'' says Theodore Levine, a former associate director of the Securities and Exchange Commission (SEC), who now defends clients prosecuted by the commission.
Winans faces a maximum penalty of 295 years in prison and $266,000 in fines for conspiracy, securities fraud, and wire and mail fraud. Kenneth Felis, a former stockbroker at Kidder, Peabody & Co. who was found guilty of the same charges, faces a maximum 205 years and $194,000 in fines. Winans's roommate, David Carpenter, could receive up to 60 years and $71,000 in penalties for securities fraud and wire and mail fraud. They are expected to appeal the case.
The SEC under John Shad, who previously worked at E. F. Hutton & Co., has made the prosecution of insider trading a high priority.
And the courts seem willing to oblige with fairly stiff penalties. In May, former Deputy Defense Secretary Paul Thayer was sentenced to four years in prison and fined $550,000 for covering up an insider-trading scheme.
The Winans decision follows a recent setback for the SEC, when the Supreme Court ruled that the commission had no authority to block the publication of a stock market newsletter because of misconduct by the newsletter's publisher. That ``scalping'' theory -- whether Winans had a fiduciary obligation to his readers to disclose his interest interest in the companies discussed in his column -- was not an issue in the criminal proceedings against Winans.
But it is an issue in the civil action against Winans, which can begin now that there has been a ruling in the criminal case.
The Turner Broadcasting System Inc. began its tender offer to take over CBS Inc. with the mailing Tuesday of a prospectus to the network's shareholders. The Securities and Exchange Commission ``gave clearance to send the prospectus last Friday,'' said TBS spokesman Arthur Sando. He said CBS's 24,000 shareholders ``now have to decide whether they want to tender their shares in exchange for our offer.''
If necessary, the Sept. 30 deadline for that decision can be extended, Mr. Sando said Monday.
Although the SEC gave permission for Ted Turner's company to offer high-interest securities for CBS stock, there are other legal hurdles for the $5.4 billion network bid to overcome.
Mr. Turner must obtain permission from the Federal Communications Commission and the US Department of Justice's antitrust division to complete the network takeover bid.
The FCC is still reviewing Turner's bid, because it would change the ownership of broadcast licenses for local radio and television stations owned by CBS, while the Justice Department must determine if antitrust laws would be violated if CBS and Turner's company, which also owns Cable News Network, were allowed to merge.
Last week, the SEC's staff approved the Turner offer -- in which he would obtain 67 percent of CBS stock -- to give CBS stockholders high-interest securities in return for their shares of network stock, valued at $5.4 billion. The offer pledges future profits and assets as collateral for the debt.
Turner, whose also owns the Atlanta Braves baseball team and Atlanta-based ``superstation'' WTBS, has said he would not buy any shares until he obtained FCC approval to acquire local television stations owned by the network.
CBS opposes the takeover. The network has asked the FCC to conduct a formal hearing where documents and witnesses can be subpoenaed before making a decision on Turner's request.