Tuesday, March 23, 2010

Absence Of Profit No Impediment To Bar Sanction

A former Ernst & Young partner was disbarred by the New York Appellate Division for the First Judicial Department as a result of a criminal conviction:

On July 26, 2009, respondent, along with another person was charged in a 12-count indictment in the United States District Court for the Southern District of New York. The indictment alleged that between November 2005 and December 2007, respondent and another conspired to and did in fact commit securities fraud, namely insider trading. Specifically, it is alleged that respondent was a partner at Ernst and Young, LLP (E & Y), a professional services partnership providing assurance, tax, transaction and advisory services worldwide. While employed at E & Y, and by virtue of his position, respondent obtained non-public "Inside Information" regarding E & Y's clients' upcoming "business combination transactions," which he then unlawfully conveyed to another, who then, based on the information, bought securities, thereby deriving a profit. Specifically, respondent was charged with one count of conspiracy to commit securities fraud, in violation of 18 USC § 371, § 78j(b), § 78ff, 17 CFR § 240.10b-5 and § 240.10b5-2, a felony, and eleven counts of securities fraud in violation of 15 USC § 78j(b), § 78ff, 17 CFR § 240.10b-5 and § 240.10b5-2, also a felony. On May 15, 2009, following a jury trial, respondent was convicted of six counts of securities fraud.

The Departmental Disciplinary Committee (Committee) now petitions this Court for an order pursuant to Judiciary Law § 90(4)(b) striking respondent's name from the roll of attorneys on grounds that respondent's conviction for securities fraud, in violation of 15 USC § 78j(b) and § 78ff triggered respondent's automatic disbarment pursuant to Judiciary Law § 90(4)(a) and § 90(4)(e) inasmuch as securities fraud is a federal felony and is essentially similar to New York General Business Law § 352-c(5) and (6), which proscribe and criminalizes fraud in the sale of securities in this state, E felonies. We agree.

An attorney convicted of a felony as defined by Judiciary Law § 90(4)(e), is automatically disbarred (Judiciary Law § 90[4][a]). A felony is defined as any criminal offense deemed a felony under the laws of this State or any criminal offense committed elsewhere, classified as a felony where committed and which if committed in this State would constitute a felony (Judiciary Law § 90[4][e]). For purposes of this determination a felony committed in another jurisdiction need not be a mirror image of its New York State analog and need not correspond in every detail, instead must bear only an essential similarity. Thus, a conviction of a federal felony does not trigger automatic disbarment unless the offense would also constitute a felony under New York law.

We have repeatedly held that the federal statute proscribing securities fraud, as defined by 15 USC § 78j(b) and § 78ff is essentially similar to this State's statute, GBL § 352-c(5) and (6), which proscribe fraud in the sale of securities. Thus, a conviction pursuant to 15 USC § 78j and § 78ff, triggers automatic disbarment pursuant to Judiciary Law § 90(4)(a) and (e) (id.). We note that this is especially true, where as here, the conviction results from a violation 15 USC § 78j(b) and § 78ff by virtue of violating 17 CFR § 240.10b-5, the federal insider trading statute.

While upon a review of the indictment it is unclear whether respondent profited from the conduct giving rise to his federal conviction, the absence of profit, does not preclude a finding that respondent violated GBL § 352-c(5) and (6), since in this context it is enough that respondent, as alleged in the Indictment, engaged in "acts which constitute intent to defraud," for which he was convicted. (citations omitted)

(Mike Frisch)


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