STOCK MARKET FRAUD
Insider Trading Scheme Unraveled
05/20/09
After a two-week trial, former Ernst & Young partner James Gansman has been found guilty of six counts relating to insider trading based on confidential information he obtained from his company
As a partner at Ernst & Young, the 48-year-old Gansman had access to confidential firm information about several merger and acquisition transactions involving the firm’s clients. Gansman passed the inside information to another person—investment banker Donna Murdoch—who traded on the information, gaining more than $300,000 in profits. (Murdoch previously pleaded guilty in this matter and testified during Gansman’s jury trial recently.)
In particular, from May 2006 through July 2007, Ernst & Young advised various entities in connection with mergers and acquisitions involving publicly traded companies, including Freescale Semiconductor, Portal Player, Spectralink, K2, and Dade Behring. Gansman, an attorney, was the partner in charge of the human resource consulting services that Ernst & Young provided for the transactions. As such, he obtained confidential inside information about the transactions which he regularly leaked to Murdoch.
After getting the confidential information, Murdoch purchased securities of the targets of those acquisitions, and, following public disclosure of the acquisitions, sold the previously purchased securities for a substantial profit.
The jury found Gansman guilty of six counts of securities fraud. Each of those counts carries a maximum prison term of 20 years and a maximum fine of the greater of $5 million or twice the gross pecuniary gain or loss from the offense. Gansman was acquitted of one count of conspiracy to commit securities fraud and three other counts of securities fraud.
Gansman, who resides in New York, is scheduled to be sentenced by on October 1, 2009.
Acting United States Attorney for the Southern District of New York Lev L. Dassin, who prosecuted the case, praised the investigative work of the FBI and thanked the United States Securities and Exchange Commission for its assistance. He added that the investigation is continuing.
