By Jessica Dye

NEW YORK, Dec 20 (Reuters) - A New York appeals court on Wednesday stood by a suspension it previously gave to a matrimonial lawyer whose brother stole more than $4 million from his law firm's escrow accounts.

In a brief order, the Appellate Division, Second Department, said the suspension was the appropriate punishment for Peter Galasso, founding partner of Galasso Langione Catterson & Lofrumento in Garden City, Long Island.

"The most fundamental obligation of attorneys entrusted with client funds is the duty to safeguard those funds," the court wrote in an unsigned decision.

Between 2004 and 2007, Peter Galasso's brother, Anthony, who worked as a bookkeeper for the firm, diverted more than $4 million in escrow money and took elaborate steps to cover his tracks, according to court papers.

Anthony Galasso confessed to the thefts in 2007 and was sentenced to 2-1/2 years to 7-1/2 years in prison on charges including grand larceny, falsifying business records and criminal possession of a forged instrument.

The Grievance Committee for the 9th Judicial District brought 10 charges of professional misconduct against Peter Galasso, saying he had failed to safeguard his clients' money. The Second Department in February sustained all 10 charges and suspended him from practicing law for two years.

Galasso appealed.

In October, the Court of Appeals affirmed nine of the charges, including failure to safeguard client funds and failure to supervise a non-lawyer employee. It vacated one charge, that Galasso did not cooperate in a timely manner with requests for information by the disciplinary committee.

The case was remanded to the Second Department for further proceedings, including a determination on whether the two-year suspension was still an appropriate sanction.

Galasso argued that at most he should be publicly censured. Among other things, he cited his lack of venality, the lengths to which he went to bring his brother to justice and the measures he took to compensate clients as mitigating factors.

But the Second Department stood by the suspension.

"We reiterate that the respondent failed to maintain appropriate vigilance over his firm's bank accounts, resulting in actual and substantial harm to clients," the court wrote.

A lawyer representing Galasso, Jeffrey Catterson, said his client was "understandably deflated" by the court's decision. Galasso intends to seek leave to appeal to the Court of Appeals, he said.

"Our hope is that the court will ultimately demarcate the treatment of non-venal offenders and the unscrupulous and hold that the former should be remedially and not punitively reprimanded," Catterson said in a statement.

The case is In the Matter of Galasso, New York State Supreme Court, Appellate Division, Second Department, No. 2010-01047

For Galasso: Jeffrey Catterson of Galasso Langione Catterson & Lofrumento.

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