United States v. Carpenter, 791 F. 2d 1024 - Court of Appeals, 2nd Circuit 1986

*Judge Miner\u27s dissent begins at page 1036 This is an appeal from judgments of conviction in the United States District Court for the Southern District of New York, Charles E. Stewart, Jr., Judge, entered after a twenty-day non-jury trial, following which Winans and Felis were found guilty of securities fraud by misappropriating material, nonpublic information from the Wall Street Journal ( Journal ) in connection with the purchase and sale of securities, and of mail and wire fraud. Winans and Felis were also convicted of conspiracy to commit such securities and mail and wire frauds and to obstruct justice. Carpenter was convicted of aiding and abetting in the commission of securities fraud and mail and wire fraud. United States v. Winans, et al., 612 F.Supp. 827 (S.D.N.Y.1985). Appellants contend, inter alia, that they may not be held criminally liable for violating, or conspiring to violate or aiding and abetting in violating, section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78ff, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, because they were not corporate insiders or quasi-insiders and did not misappropriate 1026*1026 material nonpublic information from such insiders or quasi-insiders. We hold that section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 proscribe an employee\u27s unlawful misappropriation from his employer, a financial newspaper, of material nonpublic information in the form of the newspaper\u27s forthcoming publication schedule, in connection with a scheme to purchase and sell securities to be analyzed or otherwise discussed in future columns in that newspaper, and that the use of the newspaper\u27s interstate wire and mail production and distribution channels for purposes of effectuating said scheme may serve as a predicate for criminal liability for mail and wire fraud. We therefore affirm the convictions based on these substantive counts. We also affirm the district court\u27s conviction of defendants Winans and Felis of conspiracy and of defendant Carpenter of aiding and abetting. However, we reverse Winans\u27 conviction of conspiracy to the extent that it is based upon certain trades made between Felis and a third party, named Stephen Spratt, since these transactions were not within the scope of the unlawful agreement to trade on the misappropriated information. Affirmed in part and reversed in part