Nov 15

New York Appeals Court Rules Man Can Be Financially Punished During Divorce For Conviction

A New York appeals court has ruled that James E. Gansman’s share of marital property during his divorce must be reduced because his family was negatively impacted by his conviction for insider trading that he insists he was innocent of committing.

James Gansman (Robert Miller)

James Gansman (Robert Miller)

Gansman married his wife Linda in 1989. They had two sons, one born in 1996 and the other born in 2001.

After their older son was born the Gansman’s purchased and moved into a cooperative apartment on Park Avenue in Manhattan.

Linda left her job at JP Morgan Chase in 2000 to be a stay-at-home mom. At the time she was making about $700,000 per year ($200k salary and $500k annual bonuses).

Gansman was an attorney and partner at Ernst & Young earning $1.25 million a year when he resigned in October 2007.

In 2005 he had begun an affair with Donna B. Murdoch. She was a broker and they met on the AshleyMadison.com website.

He resigned because the the Securities and Exchange Commission was investigating allegations he gave Murdoch tips about potential mergers and acquisitions involving clients at Ernst & Young. It was alleged she made more than $230,000 of illegal trading profit from the insider tips.

James Gansman and Donna Murdoch were indicted in 2008 by a federal grand jury in Manhattan.[1]

Murdoch pled guilty in December 2008 to securities fraud and other charges, and she agreed to be a witness against Gansman.

During his jury trial Gansman insisted he was innocent. His defense was two-fold:

First, he didn’t have any intent to violate the law because he had shared material non-public information with Murdoch only “as part of a relationship of trust and confidence, in which they had a history and practice of sharing work and personal confidences.” Consequently, Gansman “reasonably expected that Murdoch would keep any confidences he shared with her confidential [] and would not use those confidences to buy or sell securities.”

Second, that Murdoch “stole his BlackBerry and used the information to engage in insider trading.”

Gansman was convicted in May 2009 in federal court of six counts of securities fraud. In February 2010 he was sentenced to one year and one day in federal prison, and six months of supervised release. He began serving his sentence in May 2010, and he was released in March 2011.

As a convicted felon the New York State Bar stripped him of his law license.

Murdoch was sentenced in July 2011 to two years probation and six months of home confinement.

In September 2011 the U.S. Second Circuit Court of Appeals affirmed Gansman’s convictions. It ruled the trial judge erred by not giving the proper ‘lack of criminal intent’ jury instruction. However, the court ruled it was a harmless error and Gansman wasn’t entitled to a new trial because the modified instruction the judge gave was legally sufficient.

Linda filed for divorce on January 26, 2010 — just before Gansman’s sentencing.

Linda returned to work at JP Morgan in February of 2010, and by 2013 she was making about $500,000 per year ($300k salary and $200k in annual bonuses).

After his release from prison Gansman went to work for Sherwood Partners, and by 2013 he was making $226,000.

The Gansman’s divorce proceeded to trial because they were unable to resolve their differences about the division of the marital property, her financial responsibility for legal fees owed for his defense, and child support.

After the trial the judge made the following key rulings:
1) Linda should receive 75% of the estimated $4.75 million value of the apartment: Gansman wasn’t entitled to a 50%-50% split because of his “adulterous and criminal behavior.”
2) Linda was entitled to a 50% credit (i.e., Gansman was 100% responsible) for all legal fees owed as a result of the investigation, prosecution and imprisonment of Gansman, because she wasn’t involved as a party.
3) Linda was to be paid $1,884.17 per month in child support for their youngest child, since she was the custodial parent. (Their oldest son had been in Gansman’s custody until he was legally emancipated.)

Gansman appealed.

On November 14, 2017 the New York Supreme Court’s Appellate Division affirmed the trial judge’s rulings that Linda was not responsible for any bills related to Gansman’s investigation and prosecution, and she was entitled to $1,884.17 per month in child support.

The Court also affirmed the trial judge’s ruling that because of Gansman’s behavior he wasn’t entitled to 50% of the profits from selling the apartment. However, they did increase his share to 40% from 25% because the trial judge had improperly taken into account his adulterous behavior — when only his criminal conduct should have been considered. The Court’s ruling stated: “The husband’s adulterous conduct is not sufficiently egregious and shocking to the conscience to justify making an unequal distribution of the marital home. However, we hold that the impact of the husband’s criminal conduct on the family may be considered in making an unequal distribution.”

Neither the trial court nor the appeals court took into consideration that Gansman was the family’s sole financial support for ten years from 2000 to 2010, or that since his release from prison Linda earns more than double what he makes.

Under the Court’s ruling Gansman’s marital property penalty will be $475,000 for the trouble he caused his wife by being criminally prosecuted for crimes he still insists he is innocent of committing. He is now 56.

Click here to read the ruling in Linda G. v. James G., 2017 NY Slip Op 07968, New York Supreme Court, Appellate Division, First Department (November 14, 2017).

Endnote: [1] James Gansman and Donna Murdoch also had civil charges filed in May 2008 against them by the SEC. Gansman was assessed a total penalty of $250,000, and Murdoch was assessed a total penalty of $404,053.52. However, because of her inability to pay,the SEC waived payment of her penalty.

November 15, 2017
By Hans Sherrer
Justice Denied

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