September 9, 2011 / 3:40 PM / 6 years ago

Ex-E&Y partner's insider trading conviction upheld

* James Gansman convicted on 6 counts, got 1 year prison

* Flawed jury charge didn’t prejudice defense

By Jonathan Stempel

NEW YORK, Sept 9 (Reuters) - A U.S. court upheld an insider trading conviction of a former partner at accounting firm Ernst & Young LLP, even though the trial judge failed to instruct jurors on a valid defense he had to securities fraud charges.

The 2nd U.S. Circuit Court of Appeals in New York on Friday said the defendant James Gansman did not deserve a new trial because he was not prejudiced by the slightly different jury charge given by his trial judge. It also turned aside several other issues raised in the appeal.

Gansman had been appealing his May 2009 conviction on six securities fraud counts, for which he later served one year and one day in prison. The 50-year-old Gansman was released in March, federal prison records show.

Prosecutors said Gansman tipped Donna Murdoch, with whom he was having an affair, between 2005 and 2007 about potential mergers and acquisitions involving clients at Ernst & Young, where he worked in New York until October 2007, and that she made about $390,000 of illegal trading profit from the tips.

Murdoch pleaded guilty in December 2008 to 17 criminal counts and cooperated with the government against Gansman.

In his appeal, Gansman said trial judge Miriam Goldman Cedarbaum should have instructed jurors that if he had shared any material non-public information with Murdoch, it was as part of a long “relationship of trust and confidence,” and that he never expected her to trade on the information.

The proposed charge was intended to closely mirror a U.S. Securities and Exchange Commission insider trading rule.

Writing for the 2nd Circuit, Judge Jose Cabranes said Gansman “had the right” to invoke the rule’s language, and “could have been properly acquitted” had jurors agreed with his theory. But he said the actual jury charge was “legally sufficient,” despite making no reference to any duty of trust.

“The theory of the defense was adequately conveyed to the jury and defendant suffered no prejudice as a result of the district court’s instruction, even though the instruction did not use the exact words Gansman preferred,” he wrote.

Barry Bohrer, a partner at Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer representing Gansman, said: “We are gratified that we were able to clarify the law of insider trading, but are disappointed we could not get the benefit in the charge to the jury. We won the battle, but not the war.”

Murdoch was sentenced on July 27 to two years probation, including six months of home confinement, court records show.

The case is U.S. v. Gansman et al, 2nd U.S. Circuit Court of Appeals, No. 10-0731. (Editing by Steve Orlofsky)

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