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May 12, 2000


The opinion of the court was delivered by: Platt, District Judge.



The relevant facts adduced at trial are as follows. The McGraw-Hill Company publishes a weekly article in its Business Week magazine authored by Gene Marcial entitled "Inside Wall Street." (Tr. at 67-68). The column generally evaluates three companies with the intention of giving "readers sort of an inside look at certain stocks that trade on Wall Street." (Id. at 68). Marcial accomplishes this task by "talk[ing] to CEOs, . . . money managers, people who manage money for mutual funds or hedge funds . . . [and] top analysts." (Id.).*fn2

The Inside Wall Street article is available on newsstands on Friday and is released on the Internet approximately 5:00 p.m. E.S.T. on Thursday's. (Id. at 134). To ensure that the release times are adhered to, Business Week follows stringent security procedures. Testimony was established that at the Business Week headquarters in Manhattan the column is placed in a queue and "[o]nly certain people on the magazine have access to that queue." (Id. at 75-76). Moreover, when the article is written, the names of the relevant stock are not inserted until Wednesday at 5:00 p.m. (Id. at 77). In its final version, a single copy of the column is placed in a red folder and "[i]t is sequestered and locked in [the] copy editor's desk." (Id. at 78).

In addition to these procedures, it is Business Week's policy that no writer, editor or reporter is permitted to buy or sell stock on a subject matter that he has worked on until two weeks after the information has been divulged to the public. (Id. at 127). Furthermore, if an employee reports on a particular stock with regularity, the individual is barred indefinitely from purchasing such stock. (Id).*fn3

After the article is completed, numerous intermediaries are in possession of the information before it reaches the general public. From Business Week the column is transmitted electronically to Applied Graphics Technology ("AGT"). This facility has also implemented security measures regarding the article in that an individual can only have access to the file after inserting a series of passwords. (Tr. at 135-136). From AGT the information is then electronically transmitted to three printing plants, namely, R.R. Donnelly Printing Plant in Torrence, California, R.R. Donnelly Printing Plant in Old Saybrook, Connecticut and Perry Printing in Waterloo, Wisconsin. (Id. at 136).

As with Business Week, exacting security procedures are enforced at the printing plants. For instance, testimony was elicited noting that the excess paper is shredded in a bailing room "[b]ecause no one in the printing plant is supposed to have access to any of the contents of Business Week unless it is strictly job related." (Id. at 138). Concomitantly, the plant personnel are informed that during the binding process employees are prohibited from perusing the material. (Id. at 139).

Testimony also established that in 1995 and 1996, Thomas Tully, the General Manager of Postal Affairs and Compliance for McGraw-Hill, distributed reminder letters to the printing plants detailing the security procedures.*fn4 Such letters were circulated on an annual basis. (Id. at 142). In addition, plant personnel were to place notices on the premises detailing Business Week's concern for confidentiality. (Id.).

After the printing process, Business Week was next disseminated to a national distributor of magazines, Curtis Circulation Company ("Curtis") in West Milford, New Jersey. (Id. at 160-161). Curtis, in turn, sold Business Week to various wholesalers. One such wholesaler was Hudson News ("Hudson"). (Id. at 161-162). To enforce the mandate of the McGraw-Hill Company, Curtis issued a policy statement to the wholesalers, including Hudson, noting that Business Week should not be distributed until after 5:00 p.m. on Thursday's. (Id. at 162-163). It was also established at trial that during the 1990's, Curtis sent representatives to Hudson to conduct an inventory of the Business Week magazine to ensure that this policy was adhered to. (Id. at 179-181).

Evidence was further presented concerning the policies of Hudson with regard to the magazine. Business Week arrived at Hudson between 10:00 a.m. and 1:30 p.m. on Thursday's. (Id. at 170). For security purposes and because "the information in that magazine is held very closely" it was company policy that employees were not allowed to take the magazine from the delivery department. (Id. at 170-172). It was further established that "[u]nder the company policy posted in the work rooms, employees who took magazines from the delivery department . . . were discharged." (Id. at 172).*fn5 A Hudson employee testified that the underlying reason for this rule was that the magazines were "a product entrusted to Hudson News that didn't belong to us. It belonged to the publisher. They entrusted it to us." (Id. at 184).*fn6

Business Week ensured that the aforementioned security procedures were adhered to by following the performance of the stocks discussed in the "Inside Wall Street" article. (Id. at 94-95). In 1995, Seymour Zucker, the Senior Editor of Business Week (id. at 66), noticed an abnormal trading pattern among the stocks mentioned in the column and concluded that individuals were obtaining information discussed in the article prior to release to the general public. (Id. at 102-103). As a result, in January 1996 an article entitled "Is Someone Sneaking a Peek at Business Week?" was written in the magazine in an effort to curb this practice and promote a "level playing field." (Id. at 105-107) (Gov't Exh. 17D). In addition, Business Week alerted the S.E.C. of their suspicion. (Id. at 106). Interestingly, after the article was written, the abnormality ceased. (Id. at 108).

It was subsequently discovered that the rise of stock price prior to the article's release was due in part to the following scheme. Gregory Salvage was a foreman at Hudson and had been employed by the company for twenty-two years (Id. at 194-195). Thus, he was fully apprised of Hudson's policy with regard to the Business Week magazine. (Id. at 197-198). Nevertheless, out of the prompting of a neighborhood friend and broker, Larry Smath (id. at 199), Salvage arranged for Smath to receive the "Inside Wall Street" article before it was made available to the general public so that he could trade on the stock and thereby realize a significant profit. (Id. at 205).

To facilitate in this process, Salvage contacted one of his subordinates in the day shift, Ryan Mohammed, and requested him to fax the "Inside Wall Street" article to Smath, primarily at his workplace, prior to the close of the market on Thursday's. (Id. at 206-8). For his efforts, Salvage was paid two-hundred dollars ($200) for each article that Smath received. (Id. at 208). In all, the transactions occurred approximately ...

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