The Talk of the Money World

A journalist's breach of ethics leads to a major SEC investigation

The "Heard on the Street" column of the Wall Street Journal (circ. 2 million) is always tucked onto the bottom of the paper's penultimate page. But its out-of-the-way position belies its importance as a mover of markets. A gossipy grab bag of investment tips, spot analysis and rumors about companies, the daily feature can drive stocks sharply up or down. Last week, though, the column itself was hot news on Wall Street. In an extraordinary front-page story and related articles, the Wall Street Journal disclosed details of what is shaping up as probably the most severe breach of ethics in the business publication's 94-year history. The case is also raising questions about the use of privileged or confidential information by anyone dealing in the stock market.

The unfolding account was a remarkable exposure of the inside workings of portion of the newspaper. It focused on Foster Winans, 35, one of two main "Heard on the Street" writers before he was fin two weeks ago. At that time, the paper said, Winans admitted to the Securities and Exchange Commission that he had leaked items from upcoming columns to investors. Among those who may have benefited was David J. Carpenter, 34, a former Journal news clerk and Winans' homosexual lover. The two men share an apartment in Manhattan's Greenwich Village.

The SEC last week continued to delve deep into the matter. The agency is examining every "Heard on the Street" column since August 1982 and has subpoenaed personnel records from several of the paper's staffers. The SEC is also investigating stock transactions of investors suspected of profiting from the leaks, as well as records of the brokerage houses that handled their trades.

The Journal, which said it does not believe that any other reporter leaked information, has been cooperating fully. Two weeks ago, Managing Editor Norman Pearlstine and Richard Rustin, Winans' supervisor, testified before investigators in Washington. The newspaper, however, found itself in the unusual position of urging staff members not to discuss the case with the press.

While the paper reported that it did not know what, if anything, Winans got in return for the leaks, which violated a detailed Journal ethics policy,— it noted that the columnist frequently complained about the size of his salary. He continued to do so after receiving a $35-a-week raise last November that boosted his weekly income to $610. Among other things, Winans said he was distressed by the large medical bill owed by Carpenter, whose health had been weakened by a case of leukemia that has been in remission for years.

There may have been reasons for the leaks other than just financial gain. "Heard on the Street" writers are strongly encouraged to dig up scoops, according to one former reporter at the paper. As a result, a column writer could be tempted to swap information with a news source in exchange for fresh tips. "Out of a galaxy of motives," said the ex-staffer, "it is conceivable that there is but one element: simple pressure to get a story."