July 28, 2009
Another Lesson for Young M&A Lawyers
I’ve told students in my Acquisitions Workshop repeatedly
that insider trading is no way to start a long and fruitful career. Of
course, none of them think that they’ll be so stupid as to do anything like
that. But I remind them, it doesn’t
always happen like in the movie Wall
Street. Dennis Berman’s column in
the WSJ (Insider
Affair) gives us yet another example of how easy it is to make the kind of
poor decisions that can end up in jail time.
Last May, the SEC charged James Gansman, a former partner at E&Y, and his mistress, Donna Murdoch with insider trading. Here’s the civil complaint. The DOJ also filed criminal charges in the matter. Gansman bragged to Murdoch about deals he was working on, likely to impress her and win her affections, who knows. In one case he tipped to Murdoch “news of a coming takeover to be used in one of Murdoch’s children's stock-market simulation games at school.” It appears that Gansman was rather indiscrete with information that his clients wanted treated “super strictconfidential” [sic].
Of course, Gansman never actually traded or made any money himself. He may have even believed that Murdoch was loyal to him and would keep his confidences. Unfortunately for him, that wasn’t the case. Murdoch traded on much of the information that she got from Gansman and made more than $500,000 in profits. She even shared tips with her father who also apparently traded on the information. The fact that Gansman didn’t profit financially as you’ll remember from law school is not enough to shield one from liability in tipper/tippee cases. Gansman is now going to jail, convicted on six counts of securities fraud.
Lesson for young M&A lawyers: If you’re working on a deal, don’t talk in elevators, don’t brag to friends or significant others. Oh, and even if they did pay for your legal education, your parents don’t really need to know what deal your working on.
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Brian/Mike - Great job with the blog, I am glad it's up and running...
Can anyone hazard a guess as to why Gansman would have taken this all the way to trial? It seems a clear case of misappropriation. Maybe the plea deal on offer was not sufficiently attractive, but now he's going to get the book thrown at him, and he's suffered the public indignities brought out at trial...
Posted by: Frank | Jul 29, 2009 1:50:33 PM
Reports about the case have made it sound very much as if he was just talking ("bragging") to his mistress about his daily life and had no idea at all that she was trading on the information. If that's true, in what sense was he "misappropriating" information? It seems bizarre to me (again, assuming that the newspaper reports are correct), to send him to prison for what he reasonably believed was "just talking," while his mistress walks free for betraying his trust and engaging in what she well knew was illegal insider trading. Would he still have been guilty of "misappropriation" if he had said the same things to his wife or to his psychiatrist or priest rather than to his mistress? Is it really true that the law requires M&A professionals, on pain of imprisonment, to remain entirely silent about their work, outside the small priesthood of other M&A professionals?
Posted by: Greg | Jul 30, 2009 11:55:48 AM