DAVID CARPENTER, KENNETH P. FELIS, AND R. FOSTER WINANS,
PETITIONERS V. UNITED STATES OF AMERICA

   No. 86-422

   In the Supreme Court of the United States

   October Term, 1986

   On Writ of Certiorari to the United States Court of Appeals for the
Second Circuit

   Brief for the United States

            TABLE OF CONTENTS
   Opinions below
   Jurisdiction
   Statutes involved
   Questions presented
   Statement
   Summary of argument
   Argument:
      Petitioners' misappropriation and use of
      confidential information violated federal law
      A. An employee violates the federal mail and wire
         fraud statutes when, in a scheme that requires
         use of the mails and interstate wires, he fosters
         and maintains a misimpression that affords him
         access to his employer's confidential information,
         which he uses to his benefit and to his
         employer's detriment
      B. Petitioners' trading in securities on fraudulently
         acquired, market-affecting information violated
         Section 10(b) of the Securities Exchange Act of
         1934 and Rule 10b-5 thereunder
   Conclusion
   Appendix

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. 1a-29a) is reported
at 701 F.2d 1024.  The opinion of the district court (Pet. App.
33a-73a) is reported at 612 F. Supp. 827.

                             JURISDICTION

   The judgment of the court of appeals was entered on May 27, 1986.
Petitions for rehearing were denied on July 17, 1986.  The petition
for a writ of certiorari was filed on September 15, 1986, and was
grated on December 15, 1986.  The jurisdiction of this Court is
invoked under 28 U.S.C. 1254(1).

                           STATUTES INVOLVED

   The texts of 15 U.S.C. 78j(b), 18 U.S.C. 371, 1341 and 1343, and 17
C.F.R. 240.10b-5, are set out in an appendix to this brief.

                          QUESTIONS PRESENTED

   1. Whether petitioners' trading in securities on confidential,
market-affecting information that had been misappropriated in breach
of a duty of trust and confidence violated the mail and wire fraud
statutes, 18 U.S.C. 1341 and 1343.

   2. Whether petitioners' trading in securities on this
misappropriated information violated Section 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C. 78j(b), and Rule 10b-5, 17 C.F.R.
240.10b-5.

                               STATEMENT

   Petitioners engaged in a scheme to trade in securities on
market-affecting information that was the property of The Wall Street
Journal.  Petitioner Winans, a writer for the Journal, misappropriated
confidential information about forthcoming Journal articles that were
expected to -- and did -- affect the prices of securities discussed in
the articles;  Winans, petitioner Felis, a stockbroker, and petitioner
Carpenter used that information to buy and sell securities before
publication of the articles.  After a bench trial in the United States
District Court for the Southern District of New York, Felis and Winans
were convicted of conspiracy to commit fraud and to obstruct justice,
in violation of 18 U.S.C. 371;  they were also convicted, together
with Carpenter, of securities fraud, in violation of 15 U.S.C. 78j(b)
and 78ff, 17 C.F.R. 240.10b-5, and 18 U.S.C. 2;  mail fraud, in
violation of 18 U.S.C. 1341;  and wire fraud, in violation of 18
U.S.C. 1343.

   1. a. Petitioner Winans was hired by the Dow Jones News Service in
March 1981.  In the summer of 1982, Winans became one of the two
full-time writers responsible for The Wall Street Journal's "Heard on
the Street" column (Heard column).  Pet. App. 35a.  This feature,
which was regarded by Journal editors as "one of the most important"
and "sensitive" of the newspaper's colums (C.A. App. A118), was
characterized by the district court as "a daily market gossip feature,
which highlights a stock or group of stocks and analyzes notable
volumes of trading or price movements occurring in the market" (Pet.
App. 35a).  The Heard column "also takes a point of view with respect
to investment in the stocks that it reviews" (ibid.).  Both courts
below found that the column has a predictable -- and at times dramatic
-- short-term effect on the prices of the securities it discusses (id.
at 19a n.9, 35a-36a).  Winans and the other petitioners understood the
column to have such an impact on the market (id. at 36a).

   b. When Winans was hired by the Journal he was informed of the
conflict of interest policy maintained by Dow Jones & co., the
Journal's publisher.  Compliance with that policy (see J.A. 39-43),
which has been promulgated to forestall employee actions "detrimental
to the best interests of Dow Jones" (id. at 39), was labelled
"essential" to avoid "the tremendous embarrassment and damage to the
Company's reputation that could come about through (an employees's)
lapse in judgment" (Id. at 41;  see id. at 43).  To this end, the
policy flatly prohibited Journal employees from disclosing information
about the subject or publication date of forthcoming articles, and
from trading securities in anticipation of the appearance of those
articles.  The policy stated:

         First and foremost, all material gleaned by you in the course
      of your work for Dow Jones is deemed to be strictly the
      Company's property.  This includes not only the fruits of your
      own and your colleagues' work, but also information on plans for
      running items and articles on particular companies and
      industries and advertising schedules in future issues.  Such
      material must never be disclosed to anyone outside the Company,
      including friends and relativies.

   J.A. 41-42;  se id. at 40.  The policy went on to provide that
"(n)o employee with knowledge of a forthcoming article, item or
advertisement concerning a company or industry should, prior to the
publication of such article, item or advertisement, invest in that
company or companies in that industry;" employees were instead
directed to avoid dealing in the securities of the company involved
for two full trading days, "until the general public has an
opportunity to read and digest the information" (id. at 42).  /2/
Because compliance with these rules was understood to be critical to
the preservation of Dow Jones' reputation, the statement indicated
that "any slip in judgment in * * * (areas) covered in this policy
statement (is) serious enough to warrant dismissal" (id. at 41).

   During Winan's tenure at the Journal, the newspaper took other
steps as well to emphasize the importance of, and to insure compliance
with, the Dow Jones policy.  At least two Journal editors personally
reminded Winans early in his employment "of the confidential and
sensitive nature of the Heard column" and emphasized "the importance
of not investing in stocks the writer is covering." These editors
subsequently gave Winans "follow-up reminders about the
confidentiality of the column." Pet. App. 36a.  In February 1984, the
Journal's managing editor and New York bureau manager issued a
directive to all employees reiterating that "(w)e don't ever tell
anyone outside the paper when or if a story is going to run or what it
is going to say.  Ever" (C.A. App. A108).  The district court found
that "Winans had actual knowledge of the policy with respect to
maintaining confidentiality of the column," "knew that part of his job
responsibilities were to keep the subject matter and publication date
of the column secret," and "knew that he was supposed to tell his
editors if he heard that word was out about a column's topic" (Pet.
App. 37a).  Winans also knew that he would be fired if he was caught
trading in the stock of companies mentioned in the Heard column of
disclosing information about forthcoming columns (ibid.).  /3/

   2. a. In October 1983 Winans entered into a scheme with two
stockbrokers at Kidder, Peabody & Co.  (Kidder), petitioner Felis and
Peter Brant, to trade on his knowledge of forthcoming Heard columns.
The three agreed that Winans would leak information to the brokers
about "the timing, subject and tenor" of soon-to-be-publised columns.
Armed with this knowledge -- and their awareness of the Heard column's
market impact -- the brokers would then buy or sell the securities of
the companies to be discussed in the column.  The profits would be
split among the conspirators.  Pet. App. 40a.

   Over the next five months, Winans leaked information about
approximately 27 Heard columns, including columns that he had written
and columns written by other Journal reports.  /4/ When the topic was
set for the following day's column, Winans would call Brant or Felis
with that information.  As the district court explained, "(d)epending
on the positive or negative tone of the article, stock was either
bought or sold short, and call or put options were either bought or
sold.  Most often, the transactions were closed on the same day as an
article's publication, thereby maximizing its impact." Pet. App. 42a.
Winans also used his knowledge of forthcoming Heard columns to
complete six trades for the account of his friend, petitioner
Carpenter, who "was aware that these purchases and sales were
connected with the appearance of articles in the Journal" (id. at
45a).  /5/ In all, the scheme netted its participants profits of
approximately $690,000 (id. at 42a).

   b. During the course of the scheme, petitioners adopted elaborate
strategems to avoid detection by the Journal or public authorities.
Winans objected to meeting with Felis or Brant in places where he
might be seen by Journal employees or Wall Street acquaintances;  he
telephoned the two brokers from empty Journal offices or outside pay
phones and frequently used a false name when identifying himself to
Brant's secretary (Pet. App. 7a, 42a, 44a).  Felis and Brant in turn
paid Winans his share of the trading profits by checks made payable to
Carpenter.  To support a cover story that those checks represented
payments for decorating services, Felis wrote the word "drapes" on a
$10,000 check, and Carpenter subsequently provided Brant and Felis
with false invoices for decorating services.  Id. at 7a, 40a, 43a,
47a-49a.

   Petitioners and Brant continued trading in securities even after
their activities had aroused suspicion.  When questioned by Kidder's
Regional Manager in November 1983 about a correlation between their
trading and the Heard columns, Felis and Brant lied about the source
of their information.  After being told to stop their trading, they
liquidated Felis's existing account but opened a Swiss bank account in
the name of a Costa Rican shell corporation through which they
continued to trade on Winans' information.  Pet. App. 7a, 46a.  As
investigations into their activities continued, Winans, Felis and
Brant repeatedly lied to the Securities and Exchange Commission (SEC),
the Journal, and Kidder about the nature both of their trading and of
their relationships with one another (id. at 7a, 47a-48a).
Petitioners and Brant also made efforts -- utlimately unsuccessful --
to coordinate their deceptive stories (id. at 48a-49a).

   3. Petitioners were convicted following a 20-day bench trial.  In
finding petitioners guilty of securities fraud, the district court
explained that "'one who misappropriates nonpublic information in
breach of a fiduciary duty and trades on that information to his own
advantage violates Section 10(b) (of the Securities Exchange Act of
1934, 15 U.S.C. 78j(b)) and Rule 10b-5 (17 C.F.R 240.10b-5)'" (Pet.
App. 53a (citation omitted)).  The court noted that this
"misappropriation theory" of securities fraud finds support in the
concurring and dissenting opinions in Chiarella v. United States, 445
U.S. 222 (1980), and is firmly rooted in Second Circuit precedent
(Pet. App. 52a-55a).  In this case, the court added, "Winans knew he
was not supposed to leak the timing or contents of his articles or
trade on that knowledge.  * * * Winans breached the (Dow Jones) policy
and he knew he was breaching it" (id. at 58a-59a).

   The district court also held that petitioners had committed mail
and wire fraud, explaining that Winans' breach of duty and failure to
notify the Journal about leaks of the Heard column defrauded his
employer.  The court noted that "Winans' disclosures can only be seen
as an abuse of his employers' confidences since he owed a fiduciary
duty to the Wall Street Journal not to disclose the contents of the
(Heard) column in advance" (Pet. App. 61a);  Winans was "aware() that
he had a duty not to disclose the content and timing of publication of
the column as well as a duty to disclose, at the very least, any leaks
of the column" (id. at 62a).  The court also found that the scheme
contemplated actual harm to the Journal:  petitioners' activities
"placed immediately in jeopardy probably (the Journals's) most
important asset -- its reputation for fairness and integrity" (id. at
64a).  The court thus found that "(t)he scheme's injurious
consequences to the Journal must have been known to Winans" (ibid.)
and to the other participants (id. at 64a-65a).  Similarly, the court
held that the telexing of articles for printing and the mailing of the
Journal to subscribers were "integral part(s) of the scheme to
defraud" (id. at 66a).  And the court found that Winans and Felis
acted with specific intent to deceive and defraud the Journal (see id.
at 68a-69a, 71a-72a).  /6/

   4. In relevant part, the court of appeals affirmed petitioners'
convictions.  /7/ Addressing the securities law counts, the court
found that Winans "breached a duty of confidentiality to his employer
by misappropriating from the Journal confidential prepublication
information" (Pet. App. 10a), an action that "sull(ied) (the
Journal's) reputation and thereby defraud(ed) it 'as surely as if
(petitioners) took (its) money'" (id. at 18a (citation omitted)).
This misappropriation, the court continued, ran afoul of Section 10(b)
and Rule 10b-5, which "broadly proscribe( ) the conversion by
'insiders' or others of material nonpublic information in connection
with the purchase or sale of securities" (Pet. App. 11a (emphasis in
original));  the court added that application of the misappropriation
theory in this context serves generally to forestall fraudulent
practices (id. at 13a) and furthers "congress' stated concern for the
perception of fairness and integrity in the securities markets" (id.
at 13a-14a).  And "the use of misappropriated information for the
financial benefit of (petitioners) and to the financial detriment of
those investors with whom (petitioners) traded," the court held,
"supports the conclusion that (petitioners') fraud was 'in connection
with' the purchase or sale of securities under section 10(b) and Rule
10b-5) (id. at 18a).

   The court of appeals found it unnecessary to "dwell at length on
(petitioners') convictions for violating federal mail and wire fraud
statutes" (Pet. App. 23a).  The court explained that confidential
commercial information "may constitute fraudulently misappropriated
'property' under the mail fraud statute" (ibid.), and that
petitioners' scheme to misappropriate nonpublic information from the
Journal accordingly fell within the scope of 18 U.S.C. 1341 and 1343
(Pet. App. 24a).  The court also concluded that the "forseeability and
centrality to the scheme" of the mailings and wirings associated with
the publication and distribution of the Journal "were sufficient
predicates to allow a conclusion that (petitioners) violated the mail
and wire fraud statutes" (id. at 25a).  /8/

                          SUMMARY OF ARGUMENT

   A. Petitioner Winans posed as a loyal employee of The Wall Street
Journal.  That deception afforded him continuing access to the
Journal's confidential information, which he and the other petitioners
used to trade securities.  His trading violated his duties to the
Journal and knowingly endangered the very asset of the newspaper that
made the scheme work -- the Journal's reputation for reliability and
integrity.  Winans' present pose as a newspaperman who happened to
traverse the idiosyncratic workrules of a fussy employer is sheer
nonsense.

   Petitioners' conduct was more than the dishonest and ethically
reprehensible action that they concede it to have been:  it was a
criminal fraud.  It was well settled at the time of the enactment of
the mail fraud statute in 1872, and it is equally clear today, that
deceptive use of a relationship of trust and confidence with the
victim, to gain advantage while knowingly harming or risking harm to
the victim, is a fraud.  Winans plainly had such a relationship with
his employer.  He fostered and carefully maintained a misimpression,
on the part of the Journal, that he was a trustworthy employee and
that the Heard column was not, to his knowledge, being leaked or
misused.  Petitioners used this misimpression and Winans' position of
trust to gain access to a continuing flow of confidential information;
 that flow started because Winans made at least implicit
representations of loyalty at the outset of his employment, and
continued because Winans failed both to disabuse the Journal of its
mistaken belief in the continuing validity of those representations
and to comply with his specific duty to disclose leaks of the Heard
column.  And as petitioners well knew, their scheme to make money both
relied on, and posed a substantial risk of harm to, and extremely
valuable (albeit intangible) asset of the Journal, its reputation for
reliability and integrity.

   This scheme depended for its success on the publication of the
Heard column, which required use of the mails and interstate wires.
Winans concededly caused use of the mails and wires when he delivered
Heard columns to his editors with the expectation and intention that
they be wired to the Journal's printing plant and mailed to the
Journal's subscribers.  Petitioners' contention that these
transmissions would have occurred in the same form in the absence of
the scheme is both unwarranted by the record and irrelevant:  Winans
caused the mailing and wiring of his columns with the pre-existing
intention of using these particular columns (once transported) to
commit a fraud.  The scheme therefore violated 18 U.S.C. 1341 and
1343.

   B. 1. Petitioners used their fraudulently misappropriated
information to "'reap instant no-risk profits in the stock market'"
(Pet. App. 19a-20a (citation omitted)).  As four Justices of this
Court (in Chiarella v. United States, 445 U.S. 222 (1980)), lower
courts, and committees of Congress had concluded even prior to the
events of this case, trading on misappropriated information violates
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder.

   Petitioners' trading on fraudulently misappropriated information
clearly falls within the broad language of the statute and rule:
Section 10(b) makes it unlawful for "any" person, "directly or
indirectly," to use "any" deceptive device in connection with the
purchase or sale of "any" security, in violation of SEC rules;  Rule
10b-5 proscribes "any" fraud upon "any" person in connection with the
purchase or sale of "any" security.  Here, petitioners committed a
deliberate fraud upon the Journal, and the sole purpose of the fraud
was to profit in securities trading.  Beyond fidelity to the language,
the prohibition of petitioners' trading on misappropriated information
also serves both the Exchange Act's central purpose of "insur(ing) the
maintenance of fair and honest markets" (15 U.S.C. 78b), and Section
10(b)'s particular aim of eliminating from securities trading all
"manipulative and deceptive practices which have been demonstrated to
fulfill no useful function" (S. Rep. 792, 73d Cong., 2d Sess. 6
(1934)).

   2. At certain points in their argument, petitioners seem to attack
the misappropriation theory, suggesting that Section 10(b) proscribes
only trading by "insiders" of the corporation whose stock is traded
(who owe fiduciary duties to the persons on the other side of the
transactions).  But no decision of this or any other court has ever
endorsed such a limitation on the scope of Section 10(b) or Rule
10b-5, which would be contrary to the language of the statute and
rule.  Such a limitation also would leave a large and illogical gap in
the enforcement of the securities laws:  it would permit persons who
trade on information that is misappropriated from a tender offer
bidder, from an investment banker advising a client about a possible
investment in the subject company, or indeed from any party other than
the company whose shares are traded, to go largely unpunished.
Petitioners' related suggestion that in a public enforcement action
the government must allege and prove injury to specified persons on
the other side of the transactions has no basis in language,
precedent, or logic.

   At other points in their argument, petitioners appear to
acknowledge that trading in the stock of one company on information
fraudulently misappropriated from another is unlawful, but only (they
say) if the third-party owner of the information is itself a "market
participant," such as a takeover bidder.  This limitation also finds
no basis in language, precedent, or logic.  While the misappropriation
of information from a potential buyer or seller of securities may
cause that person particular injury in connection with its purchases
or sales of securities, the fundamental evil of trading on
misappropriated information is that it "is unfair and inconsistent
with the investing public's legitimate expectation of honest and fair
securities markets where all participants play by the same rules."
H.R. 98-355, 98th Cong., 1st Sess. 5 (1983).  The use of such devices
will drive investors out of the market, threatening both "(c)apital
formation and our nation's economic growth and stability (id. at 2).
Trading on misappropriated information inflicts a wound on the market
and all who participate in it.

   Petitioners' suggestion that they should not be convicted for
trading that would have been lawful for Dow Jones is an attempt to
throw sand in the Court's eyes.  First, it is by no means clear, as
the court of appeals noted, that a financial newspaper could make
prepublication trades without violating Section 10(b) (albeit under a
different theory than the one involved in this case).  Second, there
plainly are situations (such as preannouncement purchases by a
takeover bidder) where an owner of information is permitted,
consistently with the language and philosophy of the securities laws,
to trade on information that may not be misappropriated and used by an
employee.  Third, conversely, there is nothing anomalous about relying
on the integrity and self-interest of the owner of the information
(reflected in this instance by the very rules petitioners broke) to
deter trading that is barred to a thief by a criminal statute such as
Section 10(b).

                               ARGUMENT

 PETITIONERS' MISAPPROPRIATION AND USE OF CONFIDENTIAL INFORMATION
VIOLATED FEDERAL LAW

   Petitioner's scheme was a classic fraud.  Winans posed as a loyal
employee of The Wall Street Journal, a deception that afforded him
continuing access to confidential information;  petitioners used that
information to buy and sell securities in a manner that they knew
endangered interests of the Journal.  This sort of deceptive use of a
position of trust is "as old as falsehood" (Weiss v. United States,
122 F.2d 675, 681 (5th Cir. 1941)), and as fraudulent.  Because
petitioners' scheme depended for its success on the use of the mails
and interstate wires, it violated 18 U.S.C. 1341 and 1343.  And
because the purpose of the scheme was to "'reap instant no-risk
profits in the stock market'" (Pet. App. 19a-20a (citation omitted))
by trading with investors who "would not have purchased or sold, at
least at the transaction prices, had they had the benefit of that
(improperly acquired) information" (id. at 18a), it violated the
antifraud provisions of the federal securities laws as well.

 A. An Employee Violates The Federal Mail And Wire Fraud Statutes
When, In A Scheme That Requires Use Of The Mails And Interstate Wires,
He Fosters And Maintains A Misimpression That Affords Him Access To
His Employer's Confidential Information, Which He Uses To His Benefit
And To The Employer's Detriment

   The federal mail and wire fraud statutes, which in relevant part
are identical, make it illegal to use the mails or interstate wires
"for the purpose" of furthering "any scheme or artifice to defraud."
18 U.S.C. 1341, 1343.  /9/ It is common ground that the crimes defined
by these statutes have two elements:  a scheme to defraud (which
contemplates some sort of harm to the victim), and a mailing or
wiring.  Both of those elements are abundantly present here.
Petitioners' case is unusual if at all, only in "the subtlety of
the(ir) scheme" (United States v. Bush, 522 F.2d 641, 646 (7th Cir.
1975), cert. denied, 424 U.S. 977 (1976)).

   1.  Scheme or artifice to defraud.  a. Sections 1341 and 1343 are
written in broad terms.  They apply to "any scheme or artifice to
defraud," language that contains no explicit limits and that was
drafted in a "sufficiently general" fashion to be applicable against
novel or unanticipated forms of fraudulent conduct.  United States v.
Maze, 414 U.S. 395, 399 n.4 (1974).  Indeed, Congress chose not to
write an express definition of the term "fraud," and the term has
resisted judicial definition;  the courts have recognized, in Judge
Holmes' famous phrase, that fraud is "as versable as human ingenuity"
(Weiss, 122 F.2d at 681).  But the concept of fraud nevertheless has
defined boundaries:  it draws its content from the background of the
mail and wire fraud statutes, and from a century of case law.

   As the Court explained over 60 years ago, the hallmark of fraud is
"trick, deceit, chicane or overreaching." Fasulo v. United States, 272
U.S. 620, 627 (1926).  Certainly, as petitioners note (Pet. Br. 34),
an explicit, affirmative misrepresentation about particular facts
falls within this category of conduct.  But so does a defendant's
deliberately deceptive use of what the courts have called a
relationship of "trust and confidence." When a defendant enters into
such a relationship with the victim, feigns continuing loyalty,
conceals his disloyal actions in violation of established disclosure
obligations, and uses the resulting misimpression to his benefit and
to the victim's detriment -- for example, by obtaining continuing
access to the victim's property or information, which he then
misappropriates -- the defendant has committed fraud.  In such a case
the defendant is able to benefit himself only because the victim
trusted him, and because he allowed the victim to act under a
misimpression about the nature of their relationship that he fostered
and was under a duty to correct.  These are the essential
characteristics of a fraudulent breach of trust.  See generally
Chiarella v. United States, 445 U.S. 222, 227-228, 232 (1980);  id. at
247 (Blackmun, J., dissenting);  SEC v. Capital Gains Research Bureau,
375 U.S. 186, 193-194 (1963);  Restatement (Second) of Torts Sections
551 (2)(a)(1977);  Keeton, Fraud -- Concealment and Non-Disclosure, 15
Tex. L. Rev. 1, 11, 12-13 (1936);  James & Gray, Misrepresentation --
Part II, 37 Md. L. Rev. 488, 525 (1978) (cited in Chiarella, 445 U.S.
at 228 n.9).  /10/ See also authorities cited at pages 20-21 note 16,
22, 24-25, note 23, infra.

   The courts have long recognized that persons who assume positions
of trust, undertaking to work loyally on another's behalf, commit "a
major type of dishonesty" (Post v. United States, 407, F.2d 319, 329
(D.C. Cir. 1968), cert. denied, 393 U.S. 1092 (1969)) when they
"obtain ( ) and then betray ( ) the confidence of another." Shushan v.
United States, 117 F.2d 110, 115 (5th Cir.), cert. denied, 313 U.S.
574 (1941).  See United States v. Lemire, 720 F.2d 1327, 1335 (D.C.
Cir. 1983), cert. denied, 467 U.S. 1226 (1984).  /11/ The victim is,
after all, as entitled to rely on the loyalty of those who hold
themselves out as trustworthy as on arm's length representations made
in the course of business.  See 2 F. Harper, F. James & O. Gray, The
Law of Torts, Sections 7.14, at 473-474 (2d ed. 1986).  And one who
enters a relationship of trust on the understanding that he will act
in accord with certain rules, who continues in that position after
deliberately breaking those rules and failing to inform the other
party of this change in the basis of their relationship, and who uses
his position of trust to benefit himself at the other's expense, has
indeed engaged in "trick, deceit, chicane, or overreaching." /12/ What
constitutes deception turns on context;  if the victim allows the
defendant to manage his business or obtain access to his property on a
certain set of shared understandings, the defendant's failure to
disclose his rejection of those understandings is recognized by the
courts to be fundamentally deceptive as an outright lie.

   b. Contrary to petitioners' contention (Pet. Br. 33-36), a
relationship of trust, in which concealment and nondisclosure of a
breach of duty may disadvantage the victim, does not depend on the
existence of a formally denominated "fiduciary" duty:  it has long
been understood that "(t)he confidential relationship is not at all
confined to any specific association of the parties to it." Appeal of
Darlington, 147 Pa. 624, 629-630, 23 A. 1046, 1047 (1892).  Such
associations include not only formal trust relationships, but also
those of "principal and agent, master and servant, * * * and,
generally, all persons who are associated by any relation of trust and
confidence" (ibid.).  See Restatement (Second) of Torts Section 551
comment e;  Restatement (Second) of Agency Sections 381, 389 (1958 ;
2 F. Harper, F. James & O. Gray, supra, Sections 7.14, at 473-474 &
n.11.

   As the common law recognizes, the relationship of employer and
employee has these characteristics of trust and confidence.  An
employee has a duty not only to work loyally for the benefit of his
employer, but also to disclose matters relevant to his employment and
to refrain from acting in a manner adverse to his employer's interests
absent full disclosure to the employer.  See Restatement (Second) of
Agency Sections 381, 389, 390 and comment d, 395.  /13/ It follows
that an employee, no less than anyone else in a relationship of
confidence grounded in mutual understandings, engages in the special
form of dishonesty and deception that accompanies a breach of trust
when he "hold(s) himself out to be a loyal employee, acting in (the
employer's) best interests, but actually not giving his honest and
faithful services, to (the employer's) real detriment." United States
v. Bryza, 522 F.2d 414, 422 (7th Cir. 1975), cert. denied, 426 U.S.
912 (1976).  Such an employee, "in using (his) relationship (of trust
and confidence with his employer) for the express purpose of carrying
out a scheme to obtain his employer's confidential information and
other property * * * would be guilty of deliberately producing a false
impression on his employer in order to cheat him.  Such conduct would
constitute a positive fraud." United States v. Procter & Gamble Co.,
47 F. Supp. 676, 678 (D. Mass. 1942).  /14/

   The courts of appeals have thus uniformly held, in Judge Friendly's
words, that "a scheme to use a private fiduciary position to obtain
direct pecuniary gain is within the mail fraud statute," at least
where that scheme contemplates some sort of harm to the principal.
United States v. Dixon, 536 F.2d 1388, 1399-1400 (2d Cir. 1976).
Without dissent on the point, /15/ the courts of appeals have
concluded, as the District of Columbia Circuit explained in a
thoughtful opinion, that "(s)o long as the jury finds (that the
employee's) non-disclosure furthers a scheme to abuse the trust of the
employer in a manner that makes an identifiable harm to him, apart
from the breach itself, reasonably foreseeable, it may convict the
employee of fraud." Lemire, 720 F.2d at 1337.  /16/ And the courts of
appeals have reached what has been called a "judicial consensus" that
the duty giving rise to the fraud may stem from an employment
relationship.  Id. at 1335-1336.  /17/

   c. The concept of fraud is in fact substantially broader than
necessary to sustain the conviction here, and petitioners are simply
wrong in arguing (see Pet. Br. 31, 36) that there is some novelty in
treating a breach of trust or fiduciary duty as either fraudulent or
criminal.  At the time of the enactment of the original predecessor to
Section 1341 in 1872, a breach of duty by one with whom the victim
shared "any relation of trust and confidence" (Darlington, 147 Pa. at
629-630, 23 A. at 1047) was well understood to be fraudulent.  /18/
This Court regularly noted in the nineteenth century that self-dealing
agents or trustees "commit(ted) * * * fraud upon" their principals.
Wardell v. Railroad Co., 103 U.S. 651, 657 (1880).  See, e.g., Michoud
v. Girod, 45 U.S. (4 How.) 503, 553 (1846).  Indeed, courts of equity
in the ninteenth century recognized as frauds "'all acts, omissions
and concealments which involve a breach of legal or equitable duty,
trust, or confidence, justly reposed, and are injurious to another.'"
Moore v. Crawford, 130 U.S. 122, 128 (1889) (quoting 1 J. Story,
Equity Jurisprudence Section 187).  See Capital Gains Research Bureau,
375 U.S. at 143-144;  United States v. Carter, 217 U.S. 286, 306
(1910).  /19/

   Congress plainly had these general notions of fraud in mind when it
enacted Section 1341.  While the legislative history of the statute is
not illuminating, /20/ Congress's choice of language expressed an
extraordinarily broad purpose.  The statute's "any scheme or artifice
to defraud" formula was novel;  that phrase's general reference to
"fraud" -- a term that was understood at the time to encompass
breaches of trust -- omitted familiar limitations found both in the
ancient property offenses such as false pretenses and in the common
law civil action of deceit.  /21/ As a result, this Court and the
lower federal courts, from the time of their earliest interpretations
of the mail fraud statute, made it clear that Section 1341 reaches
beyond both the crime of false pretenses and common law
misrepresentation.  Durland v. United States, 161 U.S. 306, 313
(1896);  United States v. Loring, 91 F. 881 (N.D. Ill. 1884);  United
States v. Bernard, 84 F. 634 (C.C.S.D.N.Y. 1898);  O'Hara v. United
States, 129 F. 551 (6th Cir. 1904).  See generally Rakoff, The Federal
Mail Fraud Statute (Part I), 18 Dug. L. Rev. 771, 799 (1980);  Note,
Survey of the Law of Mail Fraud, 1975 Ill. L.F. 237-239.  Indeed, the
Court consistently held that the predecessor to 18 U.S.C. 371, a
companion statute to Section 1341 that makes it illegal to conspire to
"defraud the United States * * * in any manner," reaches corruption
and breach of duty on the part of public officials even in the absence
of any affirmative misstatement on their part.  /22/

   Given this background, it is not surprising that the courts of
appeals, from the time of their first encounter with the issue, have
held that breaches of duty by employees or other persons in positions
of trust and confidence -- either private or public -- violate the
mail fraud statute.  Almost 50 years ago, the Second Circuit upheld a
prosecution under the predeccessor to Section 1341 on the theory that
"(u)sing a fiduciary position as a (bondholder) protective committee
member to obtain secret profits based upon inside information is not
only a breach of trust, but an active fraud on the bondholders."
United States v. Buckner, 108 F.2d 921, 926 (2d Cir.), cert. denied,
309 U.S. 669 (1940).  And other courts of appeals uniformly came to
the same conclusion in the immediately succeeding years.  /23/

   d. Petitioners' conduct involved a deliberate and deceptive breach
of Winans' duty of trust.  Winans plainly occupied a position of trust
and confidence at the Journal.  Winans knew that he had been entrusted
with the Journal's most sensitive and confidential information -- some
of which he was hired to create for the Journal's benefit -- and that
the Journal considered the information strictly "the Company's
property" (J.A. 41-42).  He knew that his employer considered it
"essential" (id. at 41, 43) that he not disclose that information or
use it to buy and sell securities on his own account.  He was
specifically told (id. at 41), and was found by the district court to
have understood (Pet. App. 37a), that complaince with the Journal's
conflict rules was a condition of his continued employment.  He was
given special and repeated reminders of the importance of
confidentiality (id. at 36a).  The Journal thus plainly expected
Winans not to use, and to report any unauthorized use of, its
confidential information.  And contrary to petitioners' assertion
(Pet. Br. 33, 34 & n.77), this latter duty of disclosure arose not
only from Winans' common law duty as an employee but from his
employer's explicit requirements:  the district court specifically
found that "it was part of (Winans') job" to "tell his editors if he
heard that word was out about a column's topic" (Pet. App. 37a).  /24/

   Winans' conceded violation of these duties was not, as petitioners
like to suggest, merely a breach of his employer's workrules and a
failure to tell about it.  The sucess of petitioners' scheme depended
on Winans continuing, fictitious pose as a loyal employee.
Petitioners used the Journal's misimpression that Winans was a loyal
employee who was complying with his employer's rules to gain access to
a flow of confidential information.  That flow of information would
not have started in the absence of Winans' at least implicit
representations of loyalty;  it would not have continued had Winans
disabused the Journal of its mistaken belief in the continuing
validity of those representations, or had he complied with his
specific duty to disclose leaks of the Heard column.

   Winans thus did more than simply break the Journal's rules or
deprive the Journal of his own loyalty:  he took advantage of what he
knew to be the Journal's misimpression of his motives and actions to
remain in a position that allowed him access to the Journal's property
-- confidential information -- for use in a scheme that threatened an
independent harm to the Journal.  The district court thus found that
Winans and Felis (aided by Carpenter) acted with a specific intent to
defraud the Journal (Pet. App. 72a), which included a "'specific
intent to deceive'" (id. at 67a (citation omitted)).  And the court
properly concluded as well that the scheme did in fact operate as a
"deceit on the Wall Street Journal" (id. at 71a).  Such a scheme,
which was possible only because the Journal relied on Winans' good
faith, and which would continue only because petitioners concealed
Winans' abuse of his position, was a fraud.

   e. The holdings below do not, as petitioners portentously assert,
convert "disobedience of any internal workrule" into "a mail or wire
fraud violation, no matter how technical the rule or trivial the
conduct it prohibits" (Pet. Br. 34-35).  /25/ This case involves
deception (in the sense of a deliberate failure by one party in a
relationship of trust and confidence to correct a misimpression held
by the other party);  it involves the use of that misimpression to
obtain access, on a continuing basis, to the employer's property
(here, confidential information);  and it involves use of that
property in a manner that not only violated the employer's rules but
involved a harm to the employer independent of the employer's loss of
the employee's loyal services.  Courts and commentators, including
those cited with approval by petitioners, have recognized that
circumstances such as these demonstrate deceitful conduct that is
appropriately treated as criminal under a properly cabined
interpretation of the mail and wire fraud statutes.  See, e.g.,
Lemire, 720 F.2d at 1336-1338 (cited at Pet. Br. 29 n.57);  Coffee,
supra, 19 Am. Crim L. Rev. at 134, 167 (cited at Pet. Br. 29 n.58,
37);  id. at 122-123 n.30 (citing cases).  Indeed, as we demonstrate
below, petitioners' scheme was sufficiently elaborate to require use
of the mails and interstate wires for its success, a factor that is
hardly likely to be true in cases involving trivial or offhand
infractions of workrules.  /26/

   2. Harm to the victim.  a. In addition to an element of trickery
and violation of trust, it is common ground that, for a course of
conduct to be prosecuted as a "scheme or artifice to defraud," it must
pose a risk of harm to the victim.  In this case, as both courts below
explained, that requirements was amply satisfied by the danger
petitioners knowingly posed to the Journal's reputation.  /27/ While
petitioners complain that actual harm to the Journal was not
established at trial (Pet. Br. 41), they acknowledge (ibid.) -- as the
courts have uniformly held -- that proof of injury-in-fact is not
necessary under Sections 1341 and 1343, so long as the scheme
contemplated or created a risk of harm.  /28/ Here, both the district
court and the court of appeals found that petitioners' scheme raised
the prospect of "potentially devastating harm" to the Journal (Pet.
App. 65a;  see id. at 18a, 24a).  Petitioners' argument (Pet. Br. 41)
that their actions did not really put the Journal's reputation at risk
is a mere quarrel with these concurrent findings of fact.

   These findings by the courts below are plainly correct.  The
Journal itself had concluded that the misuse of its confidential
information by an employee could result in "tremendous embarrassment
and damage to the Company's reputation" (J.A. 41);  Dow Jones adopted
its rules to forestall precisely that eventuality.  And petitioners'
argument to the contrary sounds a particularly sour note here when
placed against the district court's specific finding that "(t)he
scheme's injurious consequences to the Journal must have been known to
Winans" (Pet. App. 64a) and to the other participants (id. at
64a-65a).

   b. Citing the common law of deceit and this Court's decisions in
Fasulo v. United States, 272 U.S. 620 (1926), and Hammerschmidt v.
United States, 265 U.S. 182 (1924), petitioners also make the broader
argument (Pet. Br. 38-39 & n.95, 41 n.106) that a scheme is
"fraudulent" only if it deprives the victim of money or tangible
property.  Whatever the limitations on the common law tort of deceit,
however, this Court and the lower federal courts settled almost 100
years ago that Congress intended Section 1341 to reach beyond both the
common law and other property crimes.  See pages 23-24, supra.  And
Fasulo did not, as petitioners assert, "insist( ) on tangible economic
injury" in a prosecution under Section 1341 (Pet. Br. 41 (footnote
omitted));  to the contrary, the Court there indicated in general
terms that "fraud" involves "the deprivation of something of value"
(272 U.S. at 627), a conclusion that reflected the understanding of
the word at the time of the enactment of the mail fraud statute.  /29/

   Similarly, Hammerschmidt, far from confining "fraud" to schemes to
take money or tangible property, explicitly recognized -- as the Court
had before (see Haas v. Henkel, 216 U.S. 462, 479-480 (1910)) and has
since (see United States v. Johnson, 383 U.S. 169, 172 (1966)) -- that
a conspiracy to defraud the United States under 18 U.S.C. 371 may
include a scheme to "interfere with or obstruct one of (the United
States') lawful government functions" (265 U.S. at 188).  And the
courts of appeals have since held without exception under Sections
1341 and 1343 that "criminal fraud encompasses schemes to defraud
persons of significant intangibles" (Lemire, 720 F.2d at 1336).  /30/
Indeed, a contrary conclusion would be remarkable given the realities
of the modern world, where intangible interests such as information,
business opportunities, goodwill, and contract rights have enormous
value.

   The Journal's reputation for reliability and integrity, moreover,
was a concrete, pre-existing asset, independent of the Journal's
interest in Winans' loyal services.  Petitioners themselves recognized
this, for they used that asset in their scheme:  the Journal's
reputation gave the Heard column the market punch that allowed
petitioners to reap their "'no-risk profits.'" /31/ Indeed, as
principles of libel and defamation law make clear, reputation --
unlike certain other interests whose deprivation also has been held to
create liability under the mail and wire fraud statutes /32/ -- is
"recognized in law as having independent value" (Lemire, 720 F.2d at
1336-1337 n.11).  See, e.g., Gertz v. Robert Welch, Inc., 418 U.S.
323, 341 (1974).  That is particularly true where the injury is
suffered by a financial newspaper, which is able to gather information
and maintain its readership precisely because of its reputation for
reliability and integrity.  The district court accordingly concluded
that the Journal's reputation is "probably its most valuable asset"
(Pet. App. 64a).  By scheming to put that asset at risk, petitioners
defrauded the Journal "'as surely as if they took (its) money'" (id.
at 18a (citation omitted)).

   3. Mailings and Wirings.  Petitioners finally argue that they did
not, in the language of Sections 1341 and 1343, "cause" the mailings
and wirings in this case -- the wiring of Winans' column to the
Journal's printing plant and the mailing of the Journal to its
subscribers -- "for the purpose of executing" their scheme.  As they
elliptically acknowledge, however, they did in fact "cause" the
mailings and wirings as a matter of "general proximate causality"
(Pet. Br. 45).  And that concession is compelled by this Court's
decisions.  "Where one does an act with knowledge that use of the
mails will follow in the ordinary course of business, or where such
use can reasonably be foreseen * * * then he 'causes' the mails to be
used." Pereira v. United States, 347 U.S. 1, 8-9 (1954) (citation
omitted).  Here, Winans did just that by producing his columns and
delivering them to his editors with the expectation that they would be
wired to the Journal's printing plant and mailed to the Journal's
subcribers.

   These mailings and wirings, moreover, were essential to the scheme.
 As the district court explained, "(t)his is hardly a situation where
the nexus between the mailings and wirings and the alleged fraud is
too remote;  without publication and distribution of the copies of the
Journal containing the columns in question there would be no point to
the scheme" (Pet. App. 66a (footnote omitted)).  Petitioners'
suggestion (Pet. Br. 43) that the mailings and wirings were
"irrelevant" to their trading is for that reason wholly incorrect.
Petitioners' further observations that the mailings were not directed
to the victim of the fraud and that those mailings may have occurred
after Winans leaked the Journal's confidential information (id. at 44)
are simply beside the point.  See, e.g., Pereira, 347 U.S. at 4-6, 8;
United States v. Sampson, 371 U.S. 75, 80-81 (1962).  It is enough
that the mailings and wirings were "incident to an essential element
of the scheme" (Pereira, 347 U.S. at 8-9).  And the mailings and
wirings here were clearly that.  See generally United States v. Muni,
668 F.2d 87, 89 (2d Cir. 1981);  United States v. Castor, 558 F.2d
379, 385 (7th Cir. 1977), cert. denied, 434 U.S. 1010 (1979);  Gregory
v. United States, 253 F.2d 104, 109 (5th Cir. 1958).  Cf. United
States v. Green, 786 F.2d 247, 250 (7th Cir. 1986).

   Petitioners' principal contention is that they did not cause the
mailings here "for the purpose" of executing their scheme, because,
they assert (a) the timing and accuracy of Winans' columns were not
affected by the fraud, and (b) the columns accordingly would have been
mailed and wired in the same form even in the absence of a fraud.  But
whatever the accuracy of these assertions, /33/ success of the scheme
depended, as petitioners acknowledge, on "t(aking) advantage of the
fact that Winans' columns would be printed and distributed" (Pet. Br.
44).  Winans produced his columns, and introduced them onto the
interstate wires and into the mails, with the fixed intention of using
those columns (once transported) to commit a fraud.  He is in no
position to claim now that his use of the mails and wires in
furtherance of that scheme was fortuitous, or that the arguable
existence of a legitimate purpose for the mailings and wirings
eliminates his manifestly fraudulent aims.  /34/

 B. Petitioners' Trading In Securities On Fraudulently Acquired,
Market-Affecting Information Violated Section 10(b) Of The Securities
Exchange Act of 1934 And Rule 10b-5 Thereunder

   Petitioners used the information that they fraudulently
misappropriated from the Journal to "'reap instant no-risk profits in
the stock market'" (Pet. App. 19a-20a, quoting SEC v. Marteria, 745
F.2d 197, 203 (2d Cir. 1984), cert. denied, 471 U.S. 1053 (1985)).
Indeed, the purpose of their misappropriation was to take advantage of
investors who "would not have purchased or sold, at least at the
transaction prices, had they had the benefit of (the fraudulently
acquired) information" (Pet. App. 18a).  Petitioners nevertheless
assert that, because the information that gave them this advantage was
misappropriated from the Journal rather than from a "market
participant" that was itself trading securities, their conduct was
outside the "protective zone" (Pet. Br. 15) of Section 10(b), the
Exchange Act's "catchall" anti-fraud provision.  Herman & Maclean v.
Huddleston, 459 U.S. 375, 382 (1983).  See Chiarella, 445 U.S. at 226.

   Petitioners' argument misconceives both the purpose and the theory
of the prosecution here.  Petitioners were prosecuted not to correct a
private wrong, but to further the Exchange Act's fundamental purpose
of "insur(ing) the maintenance of fair and honest markets in
(securities) transactions." 15 U.S.C. 78b.  And petitioners were not
charged on the theory that they were "insiders" of the corporations
whose stock they traded, who for that reason owed a duty of disclosure
to the shareholders on the other side of their transactions.
Petitioners were prosecuted and convicted on the theory that
"misappropriation of confidential information by a fiduciary" for use
in trading securities violates Section 10(b) and Rule 10b-5.  United
States v. Newman, 664 F.2d 12, 18 (2d Cir. 1981), aff'd after remand,
722 F.2d 729 (2d Cir.) (Table), cert. denied, 464 U.S. 863 (1983).
The elimination of that sort of "cunning device" (Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 203 (1976) (brackets omitted)) from trading
is a central purpose of the securities laws.

   1. Section 10(b) (emphasis added) makes it unlawful for "any
person," "directly or indirectly," to use "in connection with the
purchase or sale of any security * * * any manipulative or deceptive
device or contrivance" in violation of rules promulgated by the SEC.
Rule 10b-5 (emphasis added) in turn prohibits "any person" from
engaging in "any act (or) practice" that "operates or would operate as
a fraud or deceit upon any person" in connection with a purchase or
sale of securities.  This Court has consistently construed these
provisions broadly noting that Section 10(b) is "a 'catchall' clause
to enable the Commission to 'deal with new manipulative or cunning
devices'" (Hochfelder, 425 U.S. at 203 (brackets omitted)).  The
statute and rule thus "'prohibit all fraudulent schemes in connection
with the purchase or sale of securities, whether the artifices
employed involve a garden type variety of fraud, or present a unique
form of deception.'" Bankers Life, 404 U.S. at 11 n.7 (quoting A.T.
Brod & co. v. Perlow, 375 F.2d 393, 397 (2d Cir. 1967) (emphasis in
original)).  See Huddleston, 459 U.S. at 386;  United States v.
Naftalin, 441 U.S. 768, 773 (1979);  Affiliated Ute Citizens v. United
States, 406 U.S. 128, 151 (1972).  See also S. Rep. 792, 73d Cong., 2d
Sess. 6 (1934).

   Petitioners' fraudulent misappropriation and use of confidential
information in breach of a duty of trust was a fraud on "any person"
-- The Wall Street Journal.  /35/ Indeed, petitioners assume this to
be true for purposes of their discussion of the securities counts in
this case (Pet. Br. 10);  since they "misappropriated -- stole to put
it bluntly -- valuable nonpublic information entrusted to (them) in
the strictest confidence" (Chiarella, 445 U.S. at 245 (Burger, C.J.,
dissenting)), they could hardly contend otherwise.  It is equally
clear that a fraud of this sort is, vis-a-vis the defrauded party, a
"deceptive practice" -- a proposition that petitioners also do not
contest.  Compare Santa Fe Industries, Inc. v. Green, 430 U.S. 462,
474 (1977) (no deception).

   That fraud, moreover -- the misappropriation of information for the
purpose of trading -- plainly occurred "in connection with"
petitioners' purchases and sales of securities.  Without the fraud
their purchases and sales would not have occurred, "at least at the
transaction prices." Pet. App. 18a;  see id. at 19a-21a.  Indeed, "the
misappropriated information had 'no value whatsoever' * * * except 'in
connection with' (petitioners' subsequent purchase(s and sales) of
securities" (id. at 19a (quoting Materia, 745 F.2d at 203)).  Thus,
"(t)he fraud perpetrated on (Winans') employer was part and parcel of
a larger design, the sole purpose of which was to reap instant no-risk
profits in the stock market" (Materia, 745 F.2d at 203).  See
generally Naftalin, 441 U.S. at 772-773 & n.4.  The court below
accordingly found "frivolous" petitioners' contention that the "in
connection with" requirement had not been satisfied in this case (Pet.
App. 20a), and petitioners have not expressly repeated that contention
to this Court.

   2. Petitioners nevertheless argue, at length and in a variety of
formulations, that their fraud fell outside the "protective zone of
section 10(b)" (Pet. Br. 15) because it did not involve breach of "a
duty * * * to a market participant" (id. at 17).  /36/ They appear to
mean by this assertion either (a) that Section 10(b) and Rule 10b-5
are violated only by classic "insider trading" (in violation of a
fiduciary duty owed by a corporate insider to the shareholders of the
subject corporation) (see Pet. Br. 17), or (b) that while trading on
information misappropriated from a third party may also violate
Section 10(b) and Rule 10b-5, it does so only when the third party is
itself a market participant (see Pet. Br. 19-20).  Both proposed
limitations are incorrect.

   a. Petitioners' contentions are, first of all, flatly inconsistent
with the language of both the statute and the rule.  Section 10(b)
prohibits the "direct( ) or indirect( )" use of "any" deceptive device
in connection with the purchase or sale of "any" security.  Rule 10b-5
explicitly proscribes "any * * * fraud" committed on "any person." As
the Court has explained, these "proscriptions, by statute and rule,
are broad and, by repeated use of the word 'any,' are obviously meant
to be inclusive." Affiliated Ute Citizens, 406 U.S. at 151.  See
generally Huddleston, 459 U.S. at 386-387.

   Rather than discuss the language of Section 10(b) or Rule 10b-5,
/37/ petitioners suggest (see Pet. Br. 13-19) that this Court has
effectively limited the reach of Section 10(b) to classic insider
trading that violates a fiduciary duty to the person on the other side
of the trade.  But as the courts below noted (Pet. app. 12a, 57a), the
cases upon which petitioners rely for this proposition -- Chiarella v.
United States, supra, and Dirks v. SEC, 463 U.S. 646 (1983) -- say no
such thing.  These cases do explain that the liability of a corporate
insider or his tippee for trading on nonpublic information is premised
on the particular duty of the insider to persons trading in the stock
of that corporation, and they hold that there is no liability for
trading on disparities in information where there has been no breach
of any duty to anyone.  See 463 U.S. at 653-654;  445 U.S. at 228-230.
 See generally In re Cady, Roberts & Co., 40 S.E.C. 907 (1961).  But
these cases did not purpose to "wr(i)te the book on insider and
outsider trading;  (they) wrote one chapter with respect to one type
of fraudulent trading" (Pet App. 57a).  /38/ Neither these cases nor
any other decision of this Court has suggested that a fraud
intentionally practiced on a third party, for the purpose of gaining
an unfair advantage in securities trading, violates Section 10(b) only
if the perpetrator owes an antecedent duty to his trading partners.
/39/

   To the contrary, the Court in Chiarella expressly noted and left
open the possibility that a person who owes no corporate-law duty to
the subject corporation's shareholders may violate Section 10(b) and
Rule 10b-5 by trading on information misappropriated from a third
party.  See 445 U.S. at 235-237.  Cf. Bateman Eichler, Hill Richards,
Inc. v. Berner, 472 U.S. 299, 313 n.22 (1985).  And the four Justices
who addressed the validity of this "misappropriation theory" of
liability in Chiarella concluded that "a person violates Section 10(b)
whenever he improperly obtains or converts to his own benefit
nonpublic information which he then uses in connection with the
purchase and sale of securities" (445 U.S. at 239 (Brennan, J.,
concurring in the judgment)).  /40/ In the succeeding years, this
misappropriation theory has received the endorsement both of
committees of Congress /41/ and of the lower courts, which have
consistently upheld application of Section 10(b) and Rule 10b-5
against persons who traded on confidential information fraudulently
misappropriated from employers or clients.  /42/

   The misappropriation theory fills what would otherwise be a large
and illogical loophole in the securities laws.  A person who trades on
information that he fraudulently misappropriated from a takeover
bidder, from an investment banker analyzing a possible acquisition for
a client, or for that matter from any entity other than the
corporation whose stock is being traded, is ordinarily not a corporate
insider of that corporation (or an insider's tippee) and ordinarily
has no insider's duty of disclosure to the stockholders of that
corporation.  See generally Dirks, 463 U.S. at 659.  In such cases --
which unfortunately occur with some frequency /43/ -- the theory of
the prosecution is that trading on fraudulently misappropriated
information violates Section 10(b) even if the defendant is not an
insider and the information does not originate in the target company.
/44/

   The misappropriation theory does more than follow from a literal
reading of Section 10(b) and Rule 10b-5.  It also furthers the central
purpose of the Exchange Act:  "to insure the maintenance of fair and
honest markets in (securities) transactions." 15 U.S.C. 78b.  /45/ In
its first consideration of a private civil action under Rule 10b-5,
the Court noted that the basic purpose of Section 10(b) is
"'preserving the integrity of the securities market'" (Bankers Life,
404 U.S. at 12 (citation omitted)), a goal that serves the interests
both of individual investors and of the market as a whole.  See
Naftalin, 441 U.S. at 776.  The only specific legislative history of
Section 10(b), the Exchange Act's catchall antifraud provision,
confirms that the clause had the equally broad purpose of eliminating
from the securities markets all "manipulative and deceptive practices
which have been demonstrated to fulfill no useful function." S. Rep.
792, 73d Cong., 2d Sess. 6 (1934).  Section 10(b) (emphasis added)
thus expressly authorizes the Commission to adopt rules that are
"necessary or appropriate in the public interest or for the protection
of investors."

   The present case dramatically illustrates the damage to the "public
interest" that flows from the use of fraudulently misappropriated
information in securities trading.  As the court of appeals observed
with some understatement, there was nothing "'useful' about
(petitioners') scheme" (Pet. App. 13a);  their "information advantage
(was) obtained by conversion and not by legitimate economic activity
that society seeks to encourage" (Chiarella, 445 U.S. at 242 n.3
(Burger, C.J., dissenting)).  See id. at 241.  Compare Dirks, 463 U.S.
at 658-659.  Suc conduct has a profoundly negative effect on the
functioning of the securities markets.  It is a commonplace -- often
noted by commentators, by those involved in regulation of the markets,
and by committees of Congress -- that "(t)he abuse of informational
advantages that other investors cannot hope to overcome through their
own efforts is unfair and inconsistent with the investing public's
legitimate expectation of honest and fair securities markets where all
participants play by the same rules." H.R. Rep. 98-355, supra, at 5.
/46/ The use of illegally acquired information to obtain an advantage
in trading thus "undermin(es)" public confidence in the honesty of
securities transactions, inevitably driving investors out of the
market and threatening both "(c)apital formation and our nation's
economic growth and stability." Id. at 2.  See 129 Cong. Rec. S3865
(daily ed. Mar. 23, 1983) (remarks of Sen. D'Amato;  130 Cong. Rec.
H7759 (daily ed. July 25, 1984).  (remarks of Rep. Wirth);  ABA
Committee on Federal Regulation of Securities, Report of the Task
Force on Regulation of Insider Trading -- Part I:  Regulation Under
the Antifraud Provisions of the Securities Exchange Act of 1934, 41
Buss Law. 223, 227-228 & n.8 (1985).  /47/

   Trading on fraudulently misappropriated information also, of
course, injures investors, both individually and as a class.
Petitioners, for example, exploited the information they
misappropriated "for (their own) financial benefit * * * and to the
financial detriment of those investors with whom (they) traded";
"those who purchased or sold securities without the misappropriated
information would not have purchased or sold, at least at the
transaction prices, had they had the benefit of that information" (Pet
App. 18a).  More broadly, as the Court has observed, the well-being of
investors is inextricably linked to the health of the market and of
the economy as a whole.  See Naftalin, 441 U.S. at 776.  Petetioners'
conduct inflicted a wound on the market and all of the participants in
it.

   b. Petitioners themselves appear at various points (see, e.g., Pet.
Br. 19) to concede that trading on fraudulently misappropriated
information may violate Rule 10b-5.  They seem to recognize, for
example, that trading on information misappropriated from a takeover
bidder is unlawful, even when the defendant traded neither with the
bidder nor in the bidder's shares (id. at 19-20).  They argue,
however, that while trading on confidential information
misappropriated from a "market participant" may violate Section 10(b)
and Rule 10b-5, the identical use of similar information purloined
from a market observer such as the Journal does not (see Pet. Br.
19-22).

   Petitioners offer absolutely no justification for their stopping
place for Section 10(b) liability -- which finds no support in the
language of the statute or Rule 10b-5 -- beyond the bald assertion
that the first category of these frauds falls within, and the second
without, the "protective zone of (Section) 10(b)" (Pet. Br. 15).  /48/
But a principal purpose of the Exchange Act as a whole, and of the
misappropriation doctrine in particular, is to foster orderly
competition for information, guarantee honest markets, and maintain
investor confidence.  See pages 43-46, supra.  The fact that the owner
of the purloined information is not itself trading has absolutely no
bearing on the fact that the thief who does trade on that information
is corrupting the trading process, creating a disincentive to research
and analysis, gaining an improper advantage over honest investors, and
discouraging those investors from participating in the market.  It is
hardly a novel idea that the deception of one person may also, in this
way, injure others.  /49/ Here, petitioners' fraud not only harmed the
Journal but also damaged the integrity of the market as a whole.
Conduct that can cause such damage must, to use petitioners' language,
fall within the "zone" proscribed by Section 10(b).

   Certainly, trading on information misappropriated from a takeover
bidder or other securities trader also violates Section 10(b) and Rule
10b-5 in connection with that person's purchases and sales of
securities.  See, e.g., Newman, 664 F.2d at 17-18.  But both a
"connection" with purchases or sales of securities and a fundamental
harm to the integrity of the market are present whenever trading is
based on fraudulently misappropriated information.  Petitioners'
proposed limitation of misappropriation liability to cases where the
owner of the information is injured in respect of its trading would,
to take just one example, lead to the absurd conclusion that trading
on information misappropriated from an investment banker is outside
the "zone" of conduct regulated by Section 10(b) whenever the
information belongs to the investment banker and not to a market
participant.

   Of course, only a purchaser or seller of securities may bring suit
for damages under Rule 10b-5's judicially created private right of
action, and such a plaintiff must prove injury to himself.  See Blue
Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975).  But
limitations on the recovery of damages in private suits are grounded
on considerations of policy that have no application in actions
brought by enforcement authorities to vindicate the public interest.
See id. at 740-747;  id. at 757-760 (Powell, J., concurring).  Indeed,
the Court has expressly indicated that the purchaser-seller limitation
"is inapplicable" in criminal prosecutions or SEC civil enforcement
actions for securities fraud.  Naftalin, 441 U.S. at 774 n.6.  See
Blue Chip Stamps, 421 U.S. at 753 n.14;  SEC v. National Securities,
Inc., 375 U.S. 453, 467 n.9 (1969).  In such cases, "'the precise
direction in which a duty may have been owed'" (Materia, 745 F.2d at
202 (citation omitted)) is immaterial so long as deceitful conduct was
practices, "directly or indirectly," in connection with the purchase
and sale of securities.  /50/

   3. Petitioners' remaining contentions also lack merit.  There would
be nothing anomalous in the application of Rule 10b-5 to petitioners
even if it were true, as they assert (Pet. Br. 22), that Dow Jones
could have traded on its knowledge of forthcoming Heard columns.  /51/
As the court of appeals noted (Pet. App. 21a), petitioners' argument
"illogically casts the thief and (his) victim in the same shoes."
There are, of course, situations in which it is perfectly proper for
the owner to trade on information that a thief may not use in trading;
 for example -- as petitioners appear to acknowledge (Pet. Br. 19-20)
-- a tender offeror may make pre-announcement purchases of target
company stock for its own account (although the Williams Act, 15
U.S.C. 78m(d)(1), imposes post-purchase disclosure requirements), but
an employee of the offeror (or its printer) commits a fraud if he
misappropriates information about the offeror's plans in order to
trade for himself.  See Chiarella, 445 U.S. at 240 (Burger, C.J.,
dissenting);  Materia, 745 F.2d at 201-203.  /52/ Here, on the other
hand, it would have been unethical and against it self-interest (as
reflected in the rules that Winans broke), for Dow Jones to have
traded on information about its publication schedule, but there is no
anomaly in relying on the owner's integrity and self-interest to deter
its misuse of its own information, while prohibiting such misuse by a
thief.

   Petitioners' further contention that they lacked notice of the
illegality of their conduct (Pet. Br. 23-28) is simply incorrect.  In
fact, the district court specifically found that Felis "understood"
that he was involved in "an unlawful venture" (Pet. App. 71a), and the
court found generally that petitioners were aware that their acts were
wrongful (id. at at 69a).  They surely "'would have (been) most
ingenuous'" to have believed otherwise (ibid. (citation omitted)).
Notwithstanding petitioners' rhetorical questions (see Pet. Br.
25-26), it has long been the law that deceitful use of confidential
information obtained from an employer is unlawful in a variety of
settings.  See Newman, 664 F.2d at 18 (citing cases).  By the time of
petitioners' scheme, the Second Circuit had expressly so ruled in
Newman itself, a case involving Section 10(b) and Rule 10b-5.  See
also Pet. App. 22a (citing cases).  /53/ Petitioners are hardly
entitled to immunity because their scheme differed in some particulars
from the ones previously prosecuted:  "that there is no litigated fact
pattern precisely in point may constitute a tribute to the cupidity
and ingenuity of the malefactors involved but hardly provides an
escape from the penal sanctions of the securities fraud provision."
United States v. Brown, 555 F.2d 336, 339-340 (2d Cir. 1977).  /54/

                              CONCLUSION

   The judgment of the court of appeals should be affirmed.

   Respectfully submitted.

   CHARLES FRIED

      Solicitor General

   WILLIAM F. WELD

      Assistant Attorney General

   LOUIS R. COHEN

      Deputy Solicitor General

   CHARLES A. ROTHFELD

      Assistant to the Solicitor General

   DANIEL L. GOELZER

      General Counsel

   PAUL GONSON

      Solicitor

   JACOB H. STILLMAN

      Associate General Counsel

   ROSALIND C. COHEN

      Assistant General Counsel

   RICHARD A. LEVINE

      Special Counsel

   KATHARINE GRESHAM

      Attorney Securities and Exchange Commission

   MAY 1987

   /1/ Carpenter was sentenced to concurrent terms of three years'
probation and to concurrent $1,000 fines on six counts of securities
fraud, three counts of mail fraud and three counts of wire fraud.
Winans was sentenced to concurrent terms of 18 months' imprisonment on
one count of conspiracy, five counts of mail fraud, and five counts of
wire fraud;  he was also assessed concurrent $5,000 fines on the
conspiracy count and on each of five counts of securities fraud, as
well as concurrent $1,000 fines on five counts of mail fraud and five
counts of wire fraud, and was placed on five years' probation.  Felis
was sentenced to concurrent six month sentences on one conspiracy
count and on five counts each of securities, mail, and wire fraud;  he
was also fined a total of $25,000 (specifically, fines of $10,000 on
the conspiracy count, $5,000 on one count of securities fraud, and
$1,000 on each of five counts of mail and wire fraud), and was placed
on five years' probation.

   /2/ The policy also indicated that employees were "expected" to
"avoid any action, no matter how well-intentioned, that could provide
grounds even for suspicion" that they "made financial gains by acting
on the basis of 'inside' information obtained through a position on
our staff, before it was available to the general public.  Such
information includes * * * our plans for running stories (and) items
that may affect price movements * * *." Employees were also directed
to avoid actions that might give rise to a suspicion "that the writing
of a news story or item * * * was influenced by a desire to affect the
stock's prices." J.A. 40-41.

   /3/ At trial, Winans denied knowledge of the Journal's policy and
testified that he was not informed of the confidentiality of the Heard
column by his editors (see Pet. App. 36a).  The district court,
however, specifically "accept(ed) the testimony" of Winans' editors to
the contrary, and found "incredible Winans(') denial that he ever
received the conflicts of interest policy statements" (id. at 37a).

   /4/ Both Brant and Winans testified that it was part of their
original scheme "that the arrangement would not affect the
journalistic purity" of Winans' writing (Pet. App. 40a).  The district
court, however, noted Winans' testimony before the Securities and
Exchange Commission that the "promise of a big distribution of
profits" from Brant "was 'an inducement' and a factor in his choosing"
to write about a certain stock.  While Winans later testified that he
in fact exercised independent journalistic judgement in deciding to
write the column in question, the district judge did "not accept
(Winans') rejection of his SEC testimony;  rather, (the judge)
accept(ed) it as evidence of Winans' criminal intent." Id. at 45a.
While the court found that several others of Winans' columns appeared
to be unaffected by the conspiracy, it noted "the difficulty of
maintaining a stance of journalistic purity when the reporter is
engaged in a decidedly unpure venture" (id. at 44a (footnote
omitted)).  In any event, the court concluded that "(m)aintaining the
journalistic purity of the column was actually consistent with the
goals of the conspirators" because "a particularly compelling column
or a fresh investment thesis would have a significant impact on the
price of the featured stock" (id. at 44a n.4).

   /5/ Carpenter, a former Journal news clerk, was generally aware of
the Dow Jones policy (Pet. App. 37a-38a).  In addition to the profits
he obtained from the trading in his account, Carpenter acted as a
messenger between the conspirators (id. at 5a-6a).

   /6/ Petitioners assert that "neither Winans, Brant, nor Felis
believed that they were acting illegally" (Pet. Br. 4).  The district
court, however, expressly found otherwise.  It determined that "Felis'
conduct throughout demonstrates that he was a willful and knowing
participant in what he understood was an unlawful venture" (Pet. App
71a).  The court also found that "Winans and Felis, together with
Brant, each had the requisite specific intent to defraud" (id. at
72a).  The court found that Carpenter aided and abetted the scheme
with the awareness "that what Winans was doing was a fraud on the
(Journal)" (ibid.; see id. at 73a).

   /7/ The court of appeals reversed Winans' conviction on several
counts involving trading by Felis that was outside the scope of the
conspiracy (Pet. App. 26a-27a).

   /8/ Judge Miner joined the court's opinion insofar as it upheld
petitioners' convictions on the mail and wire fraud counts, but he
dissented from the court's holding on securities fraud (Pet. App.
27a-29a).  He reasoned that "(n)o confidential securities information
imparted by reason of any special relationship was purloined by
(petitioners)," concluding that petitioners' "conduct is addressed
adequately by statutes establishing the mail and wire fraud offenses
of which (petitioners) stand convicted" (id. at 28a, 29a).

   /9/ As petitioners note (Pet Br. 30 n.60), the mail and wire fraud
statutes should be given a parallel interpretation.  See, e.g., United
States v. Lemire, 720 F.2d 1327, 1335 (D.C. Cir. 1983) (citing cases),
cert. denied, 467 U.S. 1226 (1984).  References in this brief to
either statute accordingly apply to both, unless differences are
indicated.

   /10/ While petitioners acknowledge that this sort of conduct may
constitute a "constructive fraud" (Pet Br. 33-34 & n.74), they argue
that a breach of duty, when unaccompanied by an express
misrepresentation, cannot give rise to criminal liability.  But that
proposition has been flatly rejected by this Court under the antifraud
provisions of the securities laws.  See Chiarella, 445 U.S. at 232.
Indeed, under Sections 1341 and 1343, the courts of appeals have
uniformly held that criminal liability may be imposed when the
defendant breaches a duty of trust with the intention of taking
advantage of the principal, and when concealment and an intent to
deceive are elements of the scheme.  The crucial question is not
whether the scheme involved an affirmative misstatement rather than a
breach of duty, but whether the defendant intended to take advantage
of -- to defraud -- the other party to the relationship.  See United
States v. Ballard, 663 F.2d 534, 541 n. 17 (1981), modified on reh'g,
680 F.2d 352 (5th Cir. 1982);  United States v. Von Barta, 635 F.2d
999, 1005 n.14 (2d Cir. 1980), cert. denied, 450 U.S. 998 (1981);
Epstein v. United States, 174 F.2d 754, 766 (6th Cir. 1949).  See
generally Coffee, From Tort to Crime:  Some Reflections on the
Criminalization of Fiduciary Breaches and the Problematic Line Between
Law and Ethics, 19 Am. Crim. L. Rev. 117, 122-123 n.30 (1981);
Langevoort, Fraud and Deception by Securities Professionals, 61 Tex.
L. Rev. 1247, 1252-1257 (1983).  See also note 21, infra.

   /11/ As Professor Coffee notes in an article that is selectively
quoted by petitioners (Pet. Br. 37), "a knowing fiduciary breach may
be as egregious, injurious and deliberately fraudulent as the garden
variety embesslement." From Tort to Crime:  Some Reflections on the
Criminalization of Fiduciary Breaches and the Problematic Line Between
Law and Ethics, 19 Am. Crim L. Rev. 117, 149 (1981).

   /12/ As one commentator has noted, "the fiduciary's failure to
disclose material facts to a person who is entitled to rely on him is
a tacit representation of the nonexistence of those facts." Similarly,
one who misappropriates something with which he is entrusted violates
his "implicit representation that he would not convert the thing to
his own use." Aldave, Misappropriation:  A General Theory of Liability
for Trading on Nonpublic Information, 13 Hofstra L. Rev. 101, 116, 119
(1984).  This sort of fraud is often put in terms of breach of a duty
of disclosure;  one party to a relationship of trust is entitled to
rely on the loyalty of the other party unless the second party reveals
an adverse interest.  See generally Restatement (Second) of Agency
Sections 389, 390, 395 comment c (1958).  In such a situation, as
Professor Keeton has explained, "the operative effect of
nondisclosure, where the courts have imposed a duty to speak, is the
same as if there had been a misrepresentation." Keeton, supra, 15 Tex
L. Rev. at 1-2.  This duty to disclose need not be expressly imposed
by the principal, as petitioners seem to assert (Pet. Br. 33, 34)
(althought the Journal did in fact expressly impose a disclosure
obligation on Winans, as we explain at page 26, infra).  It arises
from the relationship of trust;  a party to to such a relationship is
obligated to communicate to the other party "matters known to him that
the other is entitled to know because of a fiduciary or other similar
relation of trust and confidence between them." Restatement (Second)
of Torts Section 551(2)(a) (emphasis added).  Cf. Dirks v. SEC, 463
U.S. 646, 655 n.14 (1983).  While petitioners argue that it would have
been anomalous to expect Winans to disclose his activities to the
Journal, that fact demonstrates only that Winans' conduct was utterly
inconsistent with the Journal's interest.  See also Restatement
(Second) of Torts Sections 529, 551(2)(b);  Keeton, supra, 45 Tex. L.
Rev. at 1, 6, 27;  2 F. Harper, F. James & O. Gray, supra, Section
7.14, at 472, 474.

   /13/ Agents generally are "subject to a duty" to give to their
principals "information which is relevant to the affairs entrusted to
(them) and which, as the agent(s) ha(ve) notice, the principal(s)
would desire to have." Restatement (Second) of Agency Section 381.  An
agent must disclose such information "although not specifically
instructed to do so.  The duty exists if the agent has notice of facts
which, in view of his relations with the principal, he should know may
affect the desires of the principal as to his own conduct." Id.
Section 381 comment a.  In addition, the common law rule is that "an
agent is subject to a duty to the principal not to use or communicate
information confidentially given him by the principal or acquired by
him during the course of or on account of his agency * * * to the
injury of the principal, on his own account or on behalf of another."
Id. Section 395.  This rule precludes the use by the agent of
confidential information "for any purpose likely to cause his
principal harm * * *.  Thus, an agent who is told by the principal of
his plans * * * is not privileged to use such information at his
principal's expense." Id Section 395 comment a.

   /14/ Use of a continuing misimpression to gain access to property
or information is even more obviously a crime of "trick, deceit,
chicane, or overreaching" than offenses such as embezzlement or
misappropriation, which are understood to be "'garden variety' type(s)
of fraud" (Superintendent of Insurance v. Bankers Life & Casualty Co.,
404 U.S. 6, 11 n.7 (1971));  embezzlement need involve no more than a
betrayal of confidence by the defendant after he has been entrusted
with the victim's property.  See Grin v. Shine, 187 U.S. 181, 189-190
(1902) ("it is impossible for a person to embezzle the money of
another without committing a fraud upon him");  Parr v. United States,
363 U.S. 370, 385 (1960).  See generally 2 W. LaFave & A. Scott,
Substantive Criminal Law Section 8.6 (1986).

   /15/ Petitioners have cited a number of opinions (primarily
dissents and separate concurrences) and law review articles for the
general proposition that "expansion of the mail and wire fraud
statutes have been severly criticized" (Pet. Br. 28;  see id. at 28
n.56, 29 n.57, 29-30 n.58).  Whatever the validity of that criticism,
however, it has been leveled almost entirely at aspects of mail and
wire fraud doctrine that are not at issue in this case.  See, e.g.,
United States v. Weiss, 752 F.2d 777, 791 (2d Cir.) (Newman, J.,
dissenting) (addressing specificity of the indictment), cert. denied,
No. 84-1645 (Nov. 4, 1985);  United States v. Margiotta, 688 F.2d 108,
140 (2d Cir. 1982) (Winter, J., dissenting) (addressing application to
political party officials), cert. denied, 461 U.S. 913 (1983);  United
States v. Craig, 573 F.2d 455, 497 (7th Cir. 1977) (Swygert, J.,
dissenting) (addressing use of mails on the facts of that case), cert.
denied, 439 U.S. 820 (1978);  Jeffries, Legality, Vagueness, and the
Construction of the Penal Statutes, 71 Va. L. Rev. 189, 237-242 (1985)
(addressing application to policital party officials).  And none of
the decisions cited by petitioners has taken issue with the
fundamental (and here dispositive) proposition that an employee may
commit a fraud by obtaining a benefit, at this employer's expense, by
abusing the employer's misplaced trust.  While a number of the
opinions and articles cited by petitioners suggest that the
deprivation of an employee's loyal services, standing alone, cannot
support a prosecution under Sections 1341 and 1343, that conclusion,
even if correct, is simply inapposite in this case:  The government
charged, and both courts below found, that the victim here suffered
other substantial and expectable injuries.  See pages 28-32, infra.

   /16/ See, e.g., United States v. Conner, 752 F.2d 566, 572 (11th
Cir.), Cert. denied, 474 U.S. 821 (1985);  United States v. Alexander,
741 F.2d 962 (7th Cir. 1984);  United States v. Siegel, 717 F.2d 9,
13-14 (2d Cir. 1983);  United States v. Feldman, 711 F.2d 758, 763
(7th Cir.), cert. denied, 464 U.S. 939 (1983);  United States v.
Curry, 681 F.2d 406, 409, 411 (5th Cir. 1982);  United States v.
Ballard, 663 F.2d 534, 540 (1981) (dictum), modified on reh'g, 680
F.2d 352 (5th Cir. 1982);  United States v. Bronston, 650 F.2d 920,
926 (2d Cir. 1981), cert. denied, 456 U.S. 915 (1982);  United States
v. Shamy, 656 F.2d 951, 957 (4th Cir.  1981), cert. denied, 455 U.S.
939 (1982);  United States v. Von Barta, 635 F.2d at 1007;  United
States v. Bohonus, 628 F.2d 1167, 1172 (9th Cir.), cert. denied, 447
U.S. 928 (1980);  United States v. Reece, 614 F.2d 1259, 1261 (10th
Cir. 1980);  United States v. Bryza, 522 F.2d 414, 422 (7th Cir.
1975), cert. denied, 426 U.S. 912 (1976);  Post, 407 F.2d at 329.  Cf.
Abott v. United States, 239 F.2d 310, 314 (5th Cir. 1956).  In
addition, the courts of appeals have uniformly held that a public
official commits fraud when he corruptly breaches his duties to the
public.  See, e.g., United States v. Silvano, 812 F.2d 754, 758-759
(1st Cir. 1987);  United States v. Lovett, 811 F.2d 979 (7th Cir.
1987);  United States v. Margiotta, 688 F.2d 108, 120 (2d Cir. 1982),
cert. denied, 461 U.S. 913 (1983);  United States v. Mandel, 491 F.2d
1347, 1357-1364, aff'd in relevant part, 602 F.2d 653 (4th Cir. 1979)
(en banc), cert. denied, 445 U.S. 961 (1980);  United States v.
Isaacs, 493 F.2d 1124, 1149 (7th Cir.), cert. denied, 417 U.S. 976
(1974);  United States v. States, 488 F.2d 761, 763- 767 (8th Cir.
1973), cert. denied, 417 U.S. 909 (1974);  United States v. Edwards,
458 F.2d 875, 880-881 (5th Cir.), cert. denied, 409 U.S. 891 (1972).
For earlier cases involving both public and private fiduciaries, see
page 26 and note 23, infra.

   /17/ See, e.g., United States v. Conner, 752 F.2d 566, 572 (11th
Cir. 1985), cert denied, 474 U.S. 821 (1985);  United states v.
Ballard, 663 F.2d at 541;  United States v. Von Barta, 635 F.2d at
1007;  United States v. Reece, 614 F.2d at 1261;  United States v.
Bryza, 522 F.2d at 422.

   /18/ The relation of principal and agent in particular was
understood at the time to be one of trust and confidence.  See, e.g.,
M. Bigelow, The Law of Fraud 222 (1877);  T. Cooley, A Treatise on the
Law of Torts 595 (2d ed. 1888);  F. Tiffany, Handbook of the Law of
Principal and Agent 415 (1903).

   /19/ The rationale for this principal was plain:  in cases where
the interests of a principal and agent are adverse, "(t)he employers
are, thus, thrown off their guard;  they are led to suppose they have
an agent acting solely with a view toward their interest * * * while,
in fact, the agent is conferring with himself." 1 J. Hovenden, A
General Treatise on the Principles and Practice by Which the Courts of
Equity are Guided as to the Prevention or Remedial Correction of Fraud
145 (1832).

   /20/ Virtually the only legislative history of the 1872 legislation
-- which, like the current version of the mail fraud statute,
prohibited "any scheme or artifice to defraud" -- is the statement by
one of the sponsors that the act was directed at "frauds which are
mostly gotten up in large cities * * * by thieves, forgers, and
rapscallions generally, for the purposes of deceiving and fleecing the
innocent people in the country." Cong. Globe, 41st Cong., 3d Sess. 35
(1870) (remarks of Rep. Farnswourth).  Although the statute has since
been amended on several occasions, none of the modifications has
affected (or has shed light on the meaning of) the "scheme or artifice
to defraud" language.  See generally Rakoff, The Federal Mail Fraud
Statute (Part I), 18 Dug. L. Rev. 771, 779-780 (1980).

   /21/ Compare 1 J. Bishop, Commentaries on the Criminal Law Sections
565-590 (7th ed. 1882) (setting out technical requirements for
property crimes such as embezzlement and false pretenses);  2 W.
LaFave & A. Scott, Substantive Criminal Law 327-409 (1986) (same);
Pearce, Theft by False Promises, 101 U. Pa. L. Rev. 967 (1953) (same);
 T. Cooley, A Treatise on the Law of Torts 555-556 (2d ed. 1888)
(setting out requirements for common law action of deceit).  Indeed,
decisions and treatises of the time referred to the common law action
for misrepresentation not as "fraud" but as "deceit." See, e.g., J.
Bishop, Commentaries on the Non-Contract Law 132-144 (1889);  T.
Cooley, supra, at 555-556;  1 E. Jaggard, Hand-Book of the Law of
Torts 558-602 (1895);  F. Pollock, A Treatise on the Law of Torts
348-388 (1894).  In contrast, the term "fraud," when used alone,
signfied a range of overreaching conduct, including both
misrepresentation and breach of trust.  See 1 J. Hovenden, supra, at
145-177;  M. Bigelow, The Law of Fraud (1877);  T. Cooley, supra, at
554-555, 595-621;  2 F. Hilliard, The Law of Torts 74 (1874).  See
also 1 Bouvier's Law Distionary 530 (1897) ("(t)o defraud is to
withhold from another that which is justly due him, or to deprive him
of a right by deception and artifice";  W. Anderson, A Dictionary of
Law 474 (1893);  2 J. Stephen, A History of the Criminal Law of
England 121 (1883) (hallmark of fraud is "deceit or intention to
deceive or in some cases mere secrecy").  Because fiduciary
self-dealing was presumed to involve overreaching, such breaches of
duty were often labeled "constructive frauds" and were treated as
improper even where the trustee acted in good faith.  See generally 1
J. Hovenden, supra, at 145-177;  M. Bigelow, supra, at 190-318.  Where
the fiduciary acted with an intention to take advantage of his
position of trust, however, his actions were understood to be not only
"constructively" but "actually" improper.  See M. Bigelow, supra, at
lviii (1877) ("In all cases of constructive fraud, there may also be
actual fraud.").  The term "fraud," when understood to signify a
dishonest intent, was seen as "one of the elements of (the) specific
tort called Deceit." M. Bigelow, Elements of the Law of Torts 15 (7th
ed. 1901).

   /22/ See Haas v. Henkel, 216 U.S. 462, 476-477 (1910);  Glasser v.
United States, 315 U.S. 60, 66 (1942);  Coffee, From Tort to Crime:
Some Reflections on the Criminalization of Fiduciary Breaches and the
Problematic Line Between Law and Ethics, 19 Am. Crim. L. Rev. 117, 123
n.32 (1981).  Originally enacted in 1867 (Act of Mar. 2, 1867, ch.
169, Section 30, 14 Stat. 484), Section 371 was understood even before
the passage of Section 1341 to be "more comprehensive" than the common
law.  United States v. Whalan, 28 F. Cas. 531, 532 (D. Mass. 1868)
(No. 16609).

   /23/ Shushan, 117 F.2d at 115.  See United States v. Groves, 122
F.2d 87, 90 (2d Cir.), cert. denied, 314 U.S. 670 (1941);  Bradford v.
United States, 129 F.2d 274, 275 (5th Cir.), cert. denied, 317 U.S.
683 (1942);  Steiner v. United States, 134 F.2d 931, 933 (5th Cir.),
cert. denied, 319 U.S. 774 (1943);  United States v. Classic, 35 F.
Supp. 457, 458 (D. La. 1940), aff'd on other grounds, 313 U.S. 299
(1941).  See generally Epstein v. United States, 174 F.2d 754, 766-768
(6th Cir. 1949);  Procter & gamble Co., 47 F. Supp. at 678.  These
cases have a special significance for the interpretation of the wire
fraud statute, Section 1343.  That statute, which is obviously modeled
on Section 1341, was enacted in 1952.  Communications Act Amendments,
ch. 879, Section 18(a), 66 Stat. 722.  While the legislative history
of Section 1343 is not extensive (see S. Rep. 44, 82d Cong., 1st Sess.
14 (1951)), Congress passed the wire fraud statute against the
background of the series of successful breach of trust prosecutions
under Section 1341, including a number of prosecutions involving
public officials and prominent private parties.  The drafters of
Section 1343 can be presumed to have been familiar with this use of
Section 1341 -- which had been repeatedly affirmed by the courts of
appeals -- and to have endorsed it when they borrowed the language of
Section 1341 in writing the wire fraud statute.  See, e.g., Herman &
Maclean v. Huddleston, 459 U.S. 375, 385-386 (1983);  Merrill Lynch,
Pierce, Fenner & Smith v. Curran, 456 U.S. 353, 381-382 (1982);
Lorillard v. Pons, 434 U.S. 575, 580-581 (1978).

   /24/ Petitioners suggest (Pet. Br. 34 n.77) that Winans was not
obligated to comply with this requirement because he himself was the
one responsible for the improper disclosure of the information.  But
it is hardly likely that Winans' simultaneous violation of two duties
-- his improper use of confidential information and his failure to
disclose the misuse of that information -- insulates him from
liability for both violations.

   /25/ The misconduct here was hardly trivial.  Compliance with the
Dow Jones rules breached by Winans was understood to be important to
the preservation of the Journal's reputation.  While petitioners
assert (Pet. Br. 6, 35 & n.81) that most newspapers do not have rules
like the Journal's, the single newspaper story upon which petitioners
rely for this surprising proposition was not admitted into evidence on
the point by the district judge (see Gov't C.A. Br. 63 n.**);  the
government pointed to other accounts indicating that most newspapers
and magazines do in fact have a policy similar to that of Dow Jones.
Indeed, even the article upon which petitioners rely indicates that
newspapers that lack such a formal policy nevertheless expect their
employees not to trade on confidential pre-publication information.

   /26/ Petitioners' other complaints -- that the Journal's rules were
imposed unilaterally (Pet. Br. 33), that the decisions below give
"every employer the power to decide what acts are indictable as
felonies" (id. at 36), and that the approach taken by the lower courts
creates a federal law of fiduciary obligations (ibid.) -- are
rhetorical exercises rather than substantial arguments.  Petitioners
were prosecuted not for traversing a work rule, but for a scheme that
induced the Journal to give them access to information that they used
to its detriment.  See also notes 12, 13, supra.

   /27/ Injury to the Journal need not have been a goal of the scheme
so long as it was a likely consequence of petitioners' activities.
See 2 J. Stephen, supra, at 121-122.

   /28/ See, e.g., United States v. Louderman, 576 F.2d 1383, 1387
(9th Cir.), cert. denied, 439 U.S. 896 (1978);  United States v. Reid,
533 F.2d 1255, 1261 & n.24 (D.C. Cir. 1976) (citing cases);  United
States v. Lowe, 115 F.2d 596, 597 (7th Cir.), cert. denied, 311 U.S.
717 (1940).  See generally Coffee, supra, 19 Am. Crim. L. Rev. at 127.
 The courts have reached this conclusion because Sections 1341 and
1343 make the "scheme" itself criminal, once a mailing or wiring in
furtherance of the fraud has taken place.  Petitioners disregard this
point in asserting that "the prosecution was unable to firmly
establish that Winans' breaches caused any harm, economic or
otherwise, to the Journal" (Pet. Br. 41 (footnote omitted)).  In fact,
as the district court noted (Pet. App. 63a-65a), the government
introduced considerable evidence to establish that the Journal had
suffered an injury;  the court made no findings on the point because
it found it sufficient that the scheme contemplated harm to the
Journal (id. at 64a-65a).

   /29/ Legal dictionaries of the late nineteenth century, for
example, defined "defraud" as meaning, among other things, "(t)o
withhold from another what is justly due him, or to deprive him of a
right, by deception or artifice" (W. Anderson, supra, at 474);  the
term "right" was in turn defined as "an enforceable claim or title to
any subject matter whatever:  either to possess or enjoy a tangible
thing, or to do some act, pursue a course, enjoy a means of happiness,
or to be exempt from any cause of annoyance" (id. at 905).  See 1
Bouvier, supra, at 927.  See also 2 J. Stephen, A History of the
Criminal Law of England 121-122 (1883) (fraud involves "injury" to
another).

   /30/ See e.g., United States v. Alexander, 741 F.2d 962 (7th Cir.
1984);  United States v. Frankel, 721 F.2d 917, 920 (3d Cir. 1983)
(dictum);  United States v. Boffa, 688 F.2d 919, 925 (3d Cir. 1982)
(citing cases), cert. denied, 460 U.S. 1022 (1983);  United States v.
Curry, 681 F.2d 406, 410-411 (5th Cir. 1982) (dictum);  United States
v. Ballard, 663 F.2d 534, 540 (1981) (dictum), modified on reh'g, 680
F.2d 352 (5th Cir. 1982);  United States v. Bohonus, 628 F.2d 1167,
1171 (9th Cir.), cert. denied, 447 U.S. 928 (1980);  United States v.
Reece, 614 F.2d at 1261;  United States v. Condolon, 600 F.2d 7, 8-9
(4th Cir. 1979);  United States v. Louderman, 576 F.2d at 1387;
United States v. Castor, 558 F.2d 379, 383 (7th Cir. 1977), cert.
denied, 434 U.S. 1010 (1978);  United States v. Bryza, 522 F.2d at
421-422.  In a series of other decisions, the courts similarly have
held that the corruption of a public official defrauds the citizenry
by depriving it of the loyal services of the official.  See, e.g.,
United States v. Silvano, 812 F.2d 754, 758-759 (1st Cir. 1987);
United States v. Lovett, 811 F.2d 979 (7th Cir. 1987);  United States
v. Margiotta, 688 F.2d 108 (2d Cir. 1982), cert. denied, 461 U.S. 913
(1983);  United States v. Mandel, 591 F.2d 1347, 1357-1364 (4th Cir.
1979), aff'd in relevant part, 602 F.2d 653 (en banc), cert. denied,
445 U.S. 961 (1980);  United States v. Rabbitt, 583 F.2d 1014, 1026
(8th Cir. 1978), cert. denied, 439 U.S. 1116 (1979);  United States v.
Brown, 540 F.2d 364, 374 (10th Cir. 1976);  Dixon, 536 F.2d at 1400
(Friendly, J.) (dictum);  United States v. Keane, 522 F.2d 534, 546
(7th Cir. 1975), cert. denied, 424 U.S. 976 (1975);  United States v.
Isaacs, 493 F.2d 1124, 1149-1150 (7th Cir.), cert. denied, 417 U.S.
976 (1974);  United States v. States, 488 F.2d 761, 766 (8th Cir.
1973), cert. denied, 417 U.S. 909 (1974);  United States v. Edwards,
458 F.2d 875, 880-881 (5th Cir.), cert. denied, 409 U.S. 891 (1972);
Bradford v. United States, 129 F.2d 274, 276 (5th Cir.), cert. denied,
317 U.S. 683 (1942).  Whether the deprivation of a public official's
loyal services may support a conviction under the mail and wire fraud
statutes currently is before the Court in McNally v. United States,
No. 86-234, and Gray v. United States, No. 86-286.

   /31/ Petitioners appear to suggest (Pet. Br. 41) that the Court
rejected reputation as an interest protected by the mail fraud statute
when it indicated in Fasulo that a blackmail threat sent through the
mails does not amount to a scheme to defraud.  In fact, however, the
Court merely suggested in that case that the scheme involved a simple
threat rather than trickery or deceit;  the significance of potential
injury to reputation was never addressed.  See 272 U.S. at 628-629.

   /32/ As we note above (note 30, supra), for example, the courts of
appeals have held that the fraudulent deprivation of an employee's
loyal and honest services will support a conviction under the mail and
wire fraud statutes.  Petitioners attack these holdings with
particular vigor (see Pet. Br. 39,40).  But petitioners' argument on
this point, whatever its merits as a theoretical matter, is simply
irrelevant here.  Contrary to petitioners' assertion, the harm alleged
by the government and found by both courts below was the threat posed
by the scheme to the Journal's reputation, not the loss of Winans'
loyal services (although it is manifest, of course, that the scheme
did in fact deprive the Journal of Winans' loyalty).

   /33/ Quite apart from the question whether Winans altered the
timing or contents of specific columns to suit the scheme, as to which
see not 4, supra, there is no reason to assume that the contents of
the wirings and mailings would have been the same absent the scheme.
Petitioners are not entitled to have Winans' profession as stock
market profiteer treated as wholly incidental to his profession as
journalist.

   /34/ Petitioners rely primarily on Parr v. United States, 363 U.S.
370 (1960) (Pet. Br. 45-46).  In that case, however, the Court simply
rejected the proposition that "mailings made under the imperative
command of duty imposed by state law are criminal under the mail fraud
statute" (363 U.S. at 391).  See also United States v. Curry, 681 F.2d
at 412;  United States v. Boyd, 606 F.2d 792, 794 (8th Cir. 1979)
(cited at Pet. Br. 46).  See generally United States v. Sampson, 371
U.S. at 80.  Winans, who produced his columns with the expectation of
using them to commit a fraud, and who knew that his columns would not
be published if he disclosed his breach of duty, plainly does not fall
within this rule.  The other cases relied upon by petitioners (see
Pet. Br. 43 n.117, 45 n.120, 46) for the proposition that their
actions failed to satisfy the mailing and wiring requirements of
Sections 1341 and 1343 are simply inapposite.  Those decisions held
only that, on the particular facts involved, "there was not a
sufficient connection between the mailing and the execution of the
defendants' scheme." United States v. Maze, 414 U.S. 395, 401 (1974);
Kann v. United States, 323 U.S. 88, 94 (1944);  United States v.
Castile, 795 F.2d 1273, 1278-1281 (6th Cir. 1986);  United States v.
Taylor, 789 F.2d 618, 622-623 (8th Cir. 1986);  United States v.
Tarnopol, 561 F.2d 466, 471-472 (3d Cir. 1977).

   /35/ In the report accompanying the Insider Trading Sanctions Act
of 1984, Pub. L. No. 98-376, 98 Stat. 1264, the House explained that
"(i)nother areas of the law, deceitful misappropriation of
confidential information by a fiduciary * * * has consistently been
held to be unlawful;" it added that Congress "has not sanctioned a
less rigorous code of conduct under the federal securities laws." H.R.
Rep 98-355, 98th Cong., 1st Sess. 5 (1983).  Indeed, the idea that
misappropriation of confidential information constitutes a fraud has
particular force in the securities area.  See Materia, 745 F.2d at
198-199.  See generally Bateman Eichler, Hill Richards, Inc. v.
Berner, 472 U.S. 299, 310 (1985);  Huddleston, 459 U.S. at 388-389.

   /36/ At various points, petitioners suggest that the victim of a
violation of Section 10(b) and Rule 10b-5 must be an "investor( ) or
person( ) engaged in the process of buying or selling stock" (Pet. Br.
14);  a person with a role in "the underlying securities transaction"
(ibid.);  a "market participant" (id. at 15);  or someone "involve(d)
in the purchase or sale of securities" (id. at 17).  But petitioners
also evidently realize that the victim of the fraud need not be a
purchaser or seller of securities (Pet. Br. 15-16 n.24).  That
proposition was established by the Court's holding in United States v.
Naftalin, supra, that Section 17(z)(1) of the Securities Act -- which
contains language nearly identical to that of Rule 10b-5 -- does not
"create( ) a requirement that injury occur to a purchaser." 441 U.S.
at 773.

   /37/ Not surprisingly, petitioners mention the language of Section
10(b) and Rule 10b-5 only in passing.  Their only discussion of the
statutory language is the irrelevant suggestion that "manipulation"
(which was not alleged in this case) refers to the artifical
stimulation of market activity for the purpose of misleading
investors.  Pet. Br. 14 n.22.  See generally Santa Fe Industries, 430
U.S. at 475-476.

   /38/ Quoting Dirks and Hochfelder, petitioners assert that this
Court has held that "'a violation (of Section 10(b)) may be found only
where there is "intentional or willful conduct designed to deceive or
defraud investors by controlling or artifically affecting the price of
securities."'" Pet. Br. 14 (quoting Dirks, 463 U.S. at 663 n.23, in
turn quoting Hochfelder, 425 U.S. at 199) (emphasis added by
petitioners).  This assertion is highly misleading.  The Court in
Hochfelder made the quoted remark in a discussion of the meaning of
the term "manipulation," and nowhere suggested that Section 10(b) does
not reach frauds on third parties in connection with securities
trading.  The Court in Dirks, in turn, used the quoted statement while
discussing the necessity of scienter in cases involving insider
trading.  In full, the Court's statement reads:  "It is not enough
that an insider's conduct results in harm to investors;  rather, a
violation may be found only where there is 'intentional or willful
conduct designed to deceive or defraud investors by controlling or
artifically affecting the price of securities.'" 463 U.S. at 663 n.23.
 Because the fraud in such cases is committed on the insider's trading
partners, the Court obviously directed its remarks at fraud on
investors.

   /39/ Other cases cited by petitioners (Pet. Br. 15-16) either
involved the classic insider trading theory or involved limitations,
irrelevant here, on private suits brought by injured parties under
Rule 10b-5.  See page 48, infra.

   /40/ See 445 U.S. at 240 (Burger, C.J., dissenting) ("a person who
has misappropriated nonpublic information has an absolute duty to
disclose that information or to refrain from trading");  id. at
245-246 (Blackmun, J., joined by Marshall, J., dissenting) (expressing
general agreement with Chief Justice Burger's views and noting that
Chiarella's conversion of confidential information "certainly is the
most dramatic evidence that petitioner (is) guilty of fraud").  The
majority found it inappropriate to address the validity of the
misappropriation theory in Chiarella because the theory had not been
submitted to the jury.  See id. at 235-237;  id. at 238 (Stevens, J.,
concurring).  In Chief Justice Burger's view, an exception to the
usual principles of caveat emptor should apply "when an informational
advantage is obtained (by one party to a transaction), not be superior
experience, foresight, or industry, but by some unlawful means";  in
such a case, he would require the party who obtains the information
unlawfully to disclose the information or to refrain from trading.
Id. at 240 (citing Keeton, supra, 15 Tex. L. Rev. at 25-26).  But cf.
Moss v. Morgan Stanley, Inc., 719 F.2d 5 (2d Cir. 1983), cert. denied,
465 U.S. 1025 (1984) (dismissing a private action for damages, by
investors trading in the market, against persons who traded on
misappropriated information).

   Chief Justice Burger's legal theory was that trading on
misappropriated information is a wrong not only to the owner of the
information but also to the person on the other side of the
transaction.  Petitioners repeatedly stress that the government did
not here allege injury to any trading partner, as if that defeated
prosecution.  But Chief Justice Burger's theory suggests no such
pleading requirement:  the relevant point of disagreement in Chiarella
was whether there was an adequate jury charge of fraudulent
misappropriation of information.  Believing that there was, Chief
Justice Burger would have affirmed the conviction under the securities
laws on the ground that Chiarella "'used that information when he knew
other people trading in the securities market did not have access to
the same information that he had at a time when he knew that the
information was material to the value of the stock'" (Chiarella, 445
U.S. at 243-244 (quoting jury charge)).  Here, the government plainly
alleged and proved fraudulent misappropriation of confidential,
market-affecting information, and trading on that information without
disclosure.  It was not necessary for the indictment to explicate the
legal theory that such conduct violates the securities laws because of
its effect on other investors and the integrity of the market.

   /41/ The report accompanying the Insider Trading Sanctions Act of
1984, Pub. L. No. 98-376, 98 Stat. 1264, emphasizes that "the abuses
sought to be remedied (by Section 10(b)) were not limited to action of
corporate insiders" (H.R. Rep. 98-355, 98th Cong., 1st Sess. 5
(1983)), and expressly endorses both the misappropriation theory (see
id. at 4-5) and decisions applying the theory (see id. at 13 n.20).
The Court has previously found this report relevant in construing
Section 10(b) and Rule 10b-5.  See Bateman Eichler, 462 U.S. at 313
n.23.

   /42/ See, e.g., SEC v. Materia, supra;  United States v. Newman,
supra;  SEC v. Gaspar, (1984-1985) Fed. Sec. L. Rep. (CCH) Paragraph
92,004 (S.D.N.Y. Apr. 15, 1985);  SEC v. Musella, 578 F. Supp. 425
(S.D.N.Y. 1984).

   /43/ For recent cases based at least in part on the
misappropriation theory, see, e.g., SEC v. Siegel, No. 87 Civ. 0963
(S.D.N.Y. Feb. 13, 1987) (disgorgement of $4.3 million in illegal
profits and other assets);  SEC v. Boesky, No. 86 Civ. 8767 (S.D.N.Y.
Nov. 14, 1986) (disgorgement of of $50 million in illegal profits and
$50 million penalty);  SEC v. Tome, 638 F. supp. 596 (S.D.N.Y 1986),
appeal pending No. 86-6192(L) (2d Cir.) (disgorgement of $2.7 million
in illegal profits);  SEC v. Levine, No. 86 Civ. 3726 (S.D.N.Y. June
5, 1986) (disgorgement of $11.6 million in illegal profits).

   /44/ In certain situations, Rule 14e-3, 17 C.F.R 240.14e-3,
promulgated under Section 14(e) of the Exchange Act, 15 U.S.C. 78n(e),
prohibits trading while in possession of material nonpublic
information relating to a tender offer that has been acquired from the
offeror, the target, or any agent or employee of either party.  In
such situations, trading may violate both Rule 10b-5 and Rule 14e-3.
But Rule 14e-3 does not reach cases where the information does not
concern a tender offer (but instead, for example, a merger), or where
the source of the information is not a party to a tender offer.
Noting the limits of Rule 14e-3, one commentator has suggested the
example of "a judicial clerk (who sells) shares of a particular
company on the basis of his knowledge that a huge judgment would soon
be rendered against it." Aldave, Misappropriation:  A General Theory
of Liability for Trading on Nonpublic Information, 13 Hofstra L. Rev.
101, 106 n.33 (1984).

   /45/ As the House Committee explained in connection with the major
amendments to the Exchange Act in 1975:  "The basic goals of the
Exhange Act remain saluta()ry and unchallenged:  To provide fair and
honest mechanisms for the pricing of securities, to assure that
dealing in securities is fair and without undue preference or
advantages among investors * * * and to provide, to the maximum degree
practicable, markets that are open and orderly." H.R. Conf. Rep.
94-229, 94th Cong., 1st Sess. 91-92 (1975).

   /46/ See ABA Committee on Federal Regulation of Securities, supra,
41 Bus. Law. at 227;  Brudney, Insiders, Outsiders, and Informational
Advantages Under the Federal Securities Laws, 93 Harv. L. Rev. 322,
346 (1979);  Aldave, supra, 13 Hofstra L. Rev. at 122-123.

   /47/ As the Insider Trading Task Force of the ABA Committee on
Federal Regulation of Securities observed, "people will not entrust
their resources to a marketplace they don't believe is fair, any more
than a card player will put his chips on the table in a poker game
that may be fixed.  Although the task force knows of no empirical
research that directly demonstrates that concerns about integrity
affect market activity, both authoritative commentators and common
sense tell us that if investors do not anticipate fair treatment, they
will avoid investing in securities.  As a result, capital formation
through securities offerings will become less attractive and more
difficult." 41 Bus. Law. at 227-228 (footnote omitted).

   /48/ Relying on the dissenting opinion below, petitioners do argue
that the misappropriated information here did not involve "'special
securities-related knowledge'" (Pet. Br. 21 (quoting Pet. App. 29a)).
As the court of appeals noted, however, the information taken by
petitioners unquestionably was material;  the Heard column had
immediate effects on the market prices of the securities that it
discussed (Pet. App. 19a n.9).  See TSC Industries, Inc. v. Northway,
Inc., 426 U.S. 438, 449 (1976).  Petitioners themselves obviously
believed that their advance knowledge of the Journal's publication
plans was significant, for their entire scheme was premised on their
ability to trade securities prior to publication and then to profit
from the market's response.

   /49/ See, e.g., Bohannon v. Wachovia Bank & Trust Co., 210 N.C.
679, 188 S.E. 390 (1936) (testator deceived into disinheriting
plaintiff);  Mitchell v. Langley, 143 Ga. 827, 85 S.E. 1050 (1915)
(holder of life insurance policy fraudulently induced to change
beneficiaries).  See generally Aldave, supra, 13 Hofstra L. Rev. at
120.

   /50/ Petitioners place considerable reliance (Pet. Br. 15) on
then-Judge Stevens' opinion for the Seventh Circuit in Eason v.
General Motors Acceptance Corp., 490 F.2d 654, 659 (1973), cert.
denied, 416 U.S. 960 (1974), for the proposition that a violation of
Rule 10b-5 occurs only when the injured party is an "investor."
Because the injured party in that case was in fact an investor,
however, and because the action was a private suit for damages, there
was no reason for the court of appeals in Eason to determine whether,
in a government enforcement action, the victim of the fraud must have
been an investor.  Indeed, Justice Stevens has explained more recently
that "the limitation on the right to recover pecuniary damages in a
private action (under Rule 10b-5) * * * is not necessarily coextensive
with the limits of the rule itself." Chiarella, 445 U.S. at 238
(Stevens, J., concurring).  And the Court's decision in United States
v. Naftalin, supra, makes clear that a securities fraud need not be
directed at a purchaser or seller -- or, for that matter, at an
investor.  See note 36, supra.

   /51/ In fact, the court of appeals expressly left open the question
whether that pre-publication trading by a financial newspaper would
work a fraud under a different legal theory than the one involved in
this case (Pet. App. 20a n.10).  Cf. Zweig v. Hearst Corp., 594 F.2d
1261 (9th Cir. 1979) (scalping theory of liability under Rule 10b-5);
SEC v. Blavin, 557 F. Supp. 1304 (E.D. Mich. 1983), aff'd, 760 F.2d
706 (6th Cir. 1985) (scalping) (both cited with apparent approval in
Lowe v. SEC, 472 U.S. 181, 209-210 n.56 (1985)).

   /52/ As the court of appeals explained, the misappropriation theory
does not at all suggest a "parity of information" rule (Pet. App.
15a-16a).  To the contrary, prohibiting trading on misappropriated
information encourages lawful competition for superior knowledge and
insight, which is essential to the market's functioning.  See Dirks,
463 U.S. at 658-659.  While someone may trade on superior information
gained in any number of legal ways, it is improper to obtain such an
informational advantage by "misappropriating material nonpublic
information in breach of an employer-imposed fiduciary duty of
confidentiality" (Pet. App. 16a).

   If the Journal had expressly permitted its employees to trade on
confidential information, Winans' actions obviously would not have
amounted to a fraud on his employer (although a publication that
allowed its employees to engage in such conduct would soon lose the
reputation for reliability and integrity that makes the information
valuable in a scheme such as the one here).  We note, however, that
the simple absence of an express policy like the Journal's would not
justify employee trading, since, as the court below recognized (Pet.
App. 10a n.5), the common law itself imposes duties on employees not
to use their employer's confidential information to the employer's
detriment.  See note 13, supra.

   /53/ Indeed, a congressional report on trading abuses issued
shortly before petitioners began to trade on the Journal's information
cited the Second Circuit's decision in United States v. Newman, supra,
as having helped "clarif(y) the legal principles governing * * * cases
that involve trading on information that originates from sources other
than the company (whose shares are being traded)." H.R. Rep. 98-355,
supra, at 13 n.20.

   /54/ Finally, we note that the suggestion of amici Reporters
Committee for Freedom of the Press, et al., that the prosecution here
somehow raises First Amendment concerns (Br. 19-25) is preposterous.
A generally applicable criminal law can constitutionally be applied to
a criminal whose nominal profession is journalism.  A newspaper might
be "chilled" (see Br. 22) in deciding whether to publish a given
article because publication would reveal that its reporter committed
burglary to obtain the information on which the article is based, but
that hardly makes burglary laws unconstitional as applied to members
of the press.  Section 10(b) and Rule 10b-5 similarly create a general
prohibition against the fraudulent use of an employer's confidential
information in connection with the purchase or sale of securities, and
there is no reason to exempt reporters from this requirement.
Affirmance of the decision below will discourage reporters from doing
only one thing:  committing securities fraud.  We also note that
amici's wildly unrealistic hypothetical (Br. 20-21) has nothing to do
with the issues in this case;  the only editorial decision affected by
Winans' fraud was Winans' quick departure from the Journal.

   APPENDIX