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Carpenter v. United States

Supreme Court of United States
484 U.S. 19 (1987)
ELI5:

Rule of Law:

Confidential business information is considered "property" for the purposes of the federal mail and wire fraud statutes. A scheme by an employee to misappropriate such information for personal profit constitutes a fraudulent deprivation of the employer's property rights.


Facts:

  • R. Foster Winans was a reporter for the Wall Street Journal (the Journal) and co-authored the influential "Heard on the Street" column.
  • The Journal had an official policy, of which Winans was aware, stating that the contents of the column were the Journal's confidential information prior to publication.
  • The column's content had the potential to affect the market price of the stocks it discussed.
  • In 1983, Winans entered into a secret scheme with Peter Brant and Kenneth Felis, who were stockbrokers, to provide them with advance information about the timing and contents of his columns.
  • Based on this leaked information, the brokers and their clients traded stocks before the columns were published, earning net profits of approximately $690,000.
  • The conspirators agreed to share the profits from the trades.
  • The scheme did not involve altering the journalistic content of the columns to enhance the profit potential.
  • Winans' roommate, David Carpenter, acted as a messenger between Winans and the other conspirators.

Procedural Posture:

  • Petitioners Winans, Felis, and Carpenter were indicted by the United States government.
  • Following a bench trial in the U.S. District Court for the Southern District of New York, all three were convicted of federal mail and wire fraud, securities fraud, and conspiracy.
  • The petitioners appealed their convictions to the U.S. Court of Appeals for the Second Circuit.
  • The Court of Appeals affirmed the convictions.
  • The petitioners then sought and were granted a writ of certiorari from the U.S. Supreme Court.

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Issue:

Does a company's confidential, pre-publication business information constitute "property" within the meaning of the federal mail and wire fraud statutes, making an employee's scheme to misappropriate it for personal financial gain a prosecutable fraud?


Opinions:

Majority - Justice White

Yes. A company's confidential, pre-publication business information is property under the mail and wire fraud statutes, and a scheme to misappropriate it is fraud. The Court reasoned that these statutes are intended to protect property rights, which are not limited to tangible assets. Citing precedent, the Court affirmed that confidential business information, acquired through enterprise and labor, is a valuable intangible property right. The Journal's right to the exclusive use of its information—specifically, the schedule and content of the "Heard" column before publication—was the property interest defrauded by the scheme. Winans' actions constituted a fraud, not merely a breach of workplace rules, because he embezzled information entrusted to him while pretending to be a loyal employee, thereby depriving the Journal of its right to control its property. The use of mail and wires to distribute the Journal was an essential part of executing the scheme, as the column's publication was necessary to move stock prices and realize profits.



Analysis:

This decision significantly broadened the definition of "property" under the federal mail and wire fraud statutes to include intangible assets like confidential business information. It clarified that the Court's prior ruling in McNally v. United States did not shield schemes that deprived victims of intangible property rights, as opposed to the more abstract "right to honest services." This ruling provided federal prosecutors with a powerful tool to combat white-collar crime involving the misappropriation of proprietary information, establishing that theft of valuable information is legally equivalent to theft of money or physical goods. The case solidifies the principle that an employee has a fiduciary duty to protect an employer's confidential information and that a breach of this duty for financial gain can be prosecuted as federal fraud.

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