A former Ernst & Young partner and an investment banker were indicted for participating in a scheme to trade on inside information about seven separate, potential merger-and-acquisition transactions involving clients of the Big Four accounting firm.
James Gansman, the former E&Y partner, and Donna Murdoch, described as a friend and a registered representative and managing director of a Philadelphia-based broker-dealer and investment banking firm, which the government did not name, each were charged with one count of conspiracy to commit securities fraud and 11 counts of securities fraud.
The conspiracy charge carries a maximum prison term of five years and a maximum fine of the greater of $250,000, or twice the gross pecuniary gain or loss from the offense. Each of the securities fraud 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.
Separately, the Securities and Exchange Commission charged the pair, as well as Murdoch’s father, in the alleged insider trading scheme.
According to prosecutors, Gansman, involved with human resource consulting services at E&Y, obtained confidential nonpublic information about the potential transactions and passed the inside information to Murdoch, who in turn traded on the information, gaining more than $390,000 in profits.
From May 2006 through December 2007, E&Y was hired to advise various entities in connection with mergers and acquisitions that involved seven publicly traded companies: ATI Technologies, Freescale Semiconductor, Portal Player, Spectralink, K2, Dade Behring, and Activision. Gansman allegedly obtained confidential, inside information about the transactions, and regularly leaked the information to Murdoch, who then purchased securities of the counterparties.
In one case, Gansman learned that E&Y had been retained by Blackstone Group in connection with a possible acquisition of Freescale Semiconductor by an investment consortium led by Blackstone, according to prosecutors. At that time, Gansman was informed that Blackstone wanted the transaction to be “treated superconfidential,” and was told in an internal E&Y E-mail message, “[d]o not breathe the name of the target outside of team.” Nonetheless, he provided Murdoch with inside information about the impending transaction, according to the government.
The pair communicated over 400 times via telephone and text message from the time that Gansman learned of the acquisition to the time, less than four weeks later, when Murdoch began buying options to purchase Freescale stock, according to a press release. It said that Murdoch made about $158,000 from her trades.
According to the SEC complaint, Murdoch used the nonpublic information to trade in the securities of the target companies; to tip her father, Gerald Brodsky, who also traded; and to make recommendations to two others, who traded as well.
The SEC is seeking injunctions against future violations of the federal securities laws, disgorgement of unlawful trading profits with prejudgment interest, and civil monetary penalties.
The commission pointed out that on October 22, 1993, Brodsky pleaded guilty to one count of securities fraud in an unrelated matter.
According to the SEC, Murdoch is also a founding partner of an affiliated consulting firm. It noted that according to the broker-dealer’s website, Murdoch “focuses on mergers and acquisitions along with capitalization strategies for technology companies, with special emphasis on energy, emerging growth and information technology.” Until recently, she carried the title of President of Glycology Inc., a nutritional-supplement company whose securities were quoted on the Pink Sheets, under the ticker symbol GLYC.
An attorney for Gansman, Barry Bohrer, issued a statement that said, “Mr. Gansman did not participate in any wrongful conduct whatsoever. He did not trade a single share nor make a penny on the basis of inside information, and was not aware that anyone had done so.” A statement from Barry Pollack, an attorney representating Donna Murdoch, said, “Ms. Murdoch did not trade on inside information. We are disappointed the government is proceeding with its case.”
Charlie Perkins, director of public relations for the Americas for E&Y, said in a statement: “The government alleges that Mr. Gansman misappropriated confidential information from Ernst & Young about our clients. We have cooperated fully with the government throughout its investigation. As the SEC complaint states, Mr. Gansman resigned from the firm on October 19, 2007.”