NEW YORK (Reuters) - A former partner at Ernst & Young LLP <ERNY.UL> was charged with insider trading on Thursday, accused of tipping off a friend about pending deals involving the firm's clients, including the $17.6 billion buyout of Freescale Semiconductor led by Blackstone Group<BX.N>.
By Martha Graybow
NEW YORK (Reuters) - A former partner at Ernst & Young LLP <ERNY.UL> was charged with insider trading on Thursday, accused of tipping off a friend about pending deals involving the firm's clients, including the $17.6 billion buyout of Freescale Semiconductor led by Blackstone Group<BX.N>.
James Gansman, 48, who worked at Ernst & Young in New York until October 2007, was charged with 11 counts of securities fraud and one count of conspiracy in an indictment unsealed in U.S. District Court in Manhattan.
Donna Murdoch, 44, of Malvern, Pennsylvania, who worked as an investment banker at an unnamed firm in Philadelphia, was also charged with the same offenses. She and Gansman had a personal relationship, the indictment said.
!ADVERTISEMENT!Gansman regularly leaked inside information to Murdoch about pending deals involving Ernst & Young clients that had not yet been made public, and Murdoch used the tips to generate more than $390,000 in trading profits, according to the indictment.
The U.S. Securities and Exchange Commission also filed civil charges against Gansman and Murdoch, along with charges against Murdoch's father, who it said also traded on the tips and made illegal profits of about $63,000.
The SEC said that two other people, which it did not identify, allegedly traded for profits of more than $140,000 based on the inside information, bringing the total illicit profits in the case to nearly $600,000.
Attorneys for Gansman and Murdoch said their clients did not engage in insider trading and would plead not guilty.
"Mr. Gansman did not participate in any wrongful conduct whatsoever," said his attorney, Barry Bohrer. "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."
Murdoch's attorney, Barry Pollack, said his client "did not trade on any inside information." He said he and Murdoch have presented "substantial evidence" to authorities "that she did not trade on inside information and (we) are very disappointed that they have chosen to ignore that evidence and proceed with their case."
Ernst & Young said in a statement that it has cooperated fully with the government throughout the investigation.
According to the U.S. Attorney's Office in Manhattan and the FBI, which investigated the criminal case, the scheme lasted from about May 2006 to December 2007 and involved illegal trading around seven publicly traded companies -- Freescale, ATI Technologies, Portal Player, SpectraLink, K2, Dade Behring and Activision Inc <ATVI.O>.
Ernst & Young was hired to advise various parties in connection with transactions involving these companies. Gansman was the partner in charge of the human resource consulting services that the auditing firm provided for the deals, the indictment said.
Among Ernst & Young's clients was Blackstone, the private equity firm that led the leveraged buyout of Freescale, which was announced in September 2006 and completed in December 2006. Murdoch earned more than $158,000 in profits from her illegal trades in Freescale options, prosecutors and the FBI said.
Gansman learned on June 23, 2006 that Blackstone had retained Ernst & Young in relation to a possible Freescale buyout. Gansman and Murdoch communicated more than 400 times by telephone and text message from the time Gansman learned of the possible deal to the time, less than four weeks later, when Murdoch began buying the Freescale options, prosecutors and the FBI said.
Murdoch continued to buy options until September 8, 2006, the indictment said. A media report about the pending deal appeared on September 11, and Murdoch sold her options on September 11 and September 12, it said. The buyout deal was publicly announced on September 15.
Gansman was arrested in New York on Thursday, while Murdoch was expected to surrender to authorities.
If convicted of the criminal charges, they would face as much as 20 years in prison and a $5 million fine for each count of securities fraud and five years in prison and a $250,000 fine for conspiracy.
(Reporting by Martha Graybow; Additional reporting by Emily Chasan; editing by Gerald E. McCormick and Richard Chang)
