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March 31, 1989


Marvin E. Aspen, United States District Judge.

The opinion of the court was delivered by: ASPEN


 The defendant Alfred Elliott has moved to strike and dismiss certain parts of the indictment against him. For the reasons set forth below, that motion is denied.

 I. Background

 The seventy-count indictment charges that Elliott, a former partner in the law firm of Schiff, Hardin & Waite ("Schiff"), misused "confidential client information" for his personal benefit in nine separate transactions involving Schiff clients. According to the indictment, when Elliott would learn confidential information about the planned acquisition of a large block of stock, he used this "nonpublic information" and purchased stock in the target company, in the expectation that the price would rise when the planned acquisition became public. The stock purchases purportedly were made through the Chicago office of Charles Schwab & Co., which communicated the orders by wire to a central computer in San Francisco. The indictment charges that by purchasing these stocks, Elliott defrauded both Schiff, see Indictment Ct. 1, para. 2(a), and its clients, see id. para. 2(b), of property, namely, the confidential client information. Since the purchases were made by wire, the indictment charges Elliott with thirty-four counts of wire fraud, 18 U.S.C. § 1343 (1982), for each of the separate wire communications. In addition, because the fraud was in connection with the purchase of securities, the indictment charges Elliott with thirty-four counts of securities fraud, 15 U.S.C. §§ 78j(b), 78ff (1982 & Supp. IV 1986), for the same transactions. Count 69 of the indictment charges Elliott with a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(c), 1963(a) (1982 & Supp. IV 1986), and Count 70 charges Elliott with filing a false income tax return, 26 U.S.C. § 7206(1) (1982). The tax count is not at issue in this motion.

 II. Wire Fraud

 A. Was the Confidential Client Information "Property" in the Hands of Schiff?

 Paragraph 2(a) of Count 1, adopted by reference in every other count but number 70, alleges that Elliott defrauded Schiff "of property, namely, confidential information which defendant ALFRED ELLIOTT misappropriated and used for his own private benefit." Elliott contends that paragraph 2(a) is a non sequitur and will not support a charge under the wire fraud statute. His argument goes like this: (1) The wire fraud statute protects only property rights. See Carpenter v. United States, 484 U.S. 19, 108 S. Ct. 316, 98 L. Ed. 2d 275 (1987); McNally v. United States, 483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292 (1987). (2) An essential ingredient of property is the ability to exploit it. (3) It is the government's theory that the Illinois Code of Professional Responsibility as well as Schiff's own policies prohibit a lawyer from using confidential client information for personal gain, without the client's consent. (4) Therefore, Schiff could not exploit the client confidences. (5) Therefore, Schiff had no property interest in the confidential client information. (6) Therefore, even if Elliott defrauded Schiff of confidential client information, he did not defraud them of property. (7) Therefore, paragraph 2(a) does not state a violation of the wire fraud statute.

 Elliott relies heavily on certain language from Carpenter v. United States, 484 U.S. 19, 108 S. Ct. 316, 98 L. Ed. 2d 275 (1987), in support of his argument. In Carpenter, one of the defendants, a reporter for The Wall Street Journal's "Heard on the Street" column, used his knowledge of what would be published in the column to buy or sell stock, in the expectation that the stock's price would go up or down when the column was published. The Supreme Court held that this prepublication information, even though intangible, was property for purposes of the mail and wire fraud statutes. The Court stated:

The Journal had a property right in keeping confidential and making exclusive use, prior to publication, of the schedule and contents of the "Heard" columns. . . . The confidential information was generated from the business and the business had a right to decide how to use it prior to disclosing it to the public. . . . It is sufficient that the Journal has been deprived of its right to exclusive use of the information, for exclusivity is an important aspect of confidential business information and most private property for that matter.

 Id. 108 S. Ct. at 320-21. Elliott argues that since Schiff did not have a right to decide how to use the client confidences or a right to exclusive use of these confidences, they were not property interests in the hands of Schiff.

First, Grossman distorts Carpenter. In context, the language which he cites merely describes the confidential information in that case; it does not require that all confidential information must be of the same nature to be considered "property." Carpenter actually holds generally that, even though "confidential business information" is intangible, it "has long been recognized as property." Thus, the information in this case regarding the. . . recapitalization clearly falls within the definition of property under Carpenter. Second, the fact that [the law firm] could not commercially exploit the information by trading on it does not mean the confidentiality of the information had no commercial value to the firm. As several partners of the firm testified, maintaining the confidentiality of the information was of commercial value because, by maintaining confidentiality, the firm would protect or enhance the firm's reputation, with the result that it would not lose its clients and perhaps would gain more clients.

 Id. at 86.

 Elliott contends that Grossman is wrongly decided; in his view, the Second Circuit, by looking to the firm's reputation, readopted the intangible rights theory rejected in McNally. However, we believe that the Seventh Circuit implicitly endorsed the Grossman decision in FMC Corp. v. Boesky, 852 F.2d 981 (7th Cir. 1988). In that case, FMC alleged that Boesky, the famed arbitrageur gone bad, purchased a large block of FMC stock after learning inside information about FMC's recapitalization, and thus raised the cost of recapitalization substantially. The narrow issue on appeal was whether FMC had been injured for purposes of standing under Article III of the Constitution. Reversing the district court, the majority held that FMC had suffered an injury to its property. Judge Manion, dissenting, disagreed. Judge Manion suggested that an injury to reputation would suffice, but there was no such injury alleged. To illustrate his point, Judge Manion cited to Grossman with a " Cf." In responding to Judge Manion's contention, the majority also cited Grossman, but argued that Judge Manion's citation of the case was anomalous.

On the one hand, he argues that under Carpenter, FMC's confidential business information was so ethereal to be "property" for purposes of federal mail fraud and could not be the subject of an Article III injury because it was not the company's stock-in-trade and lacked commercial value. On the other hand, his reading of Grossman suggests that the same confidential information in the hands of FMC's law firm or Goldman was "property" for purposes of mail fraud and, because it would have commercial value -- certainly both FMC's law firm and Goldman also had a reputational interest in keeping the information confidential -- its misappropriation would suffice for purposes of an Article III inquiry. ...

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