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January 05, 2000 08:00pm
Authorities Hope Porn Star Will Surrender
Source: APBnews.com
by: Carol Huang

(NEW YORK) -- Federal authorities are continuing to seek the surrender of an adult film star indicted on charges that she used insider tips from the chairman of a Wall Street investment banking firm to make $88,000 in profits.

Kathryn Gannon, 30, who bills herself in X-rated films as Marilyn Star, is believed to be biding her time in the Vancouver home of her boyfriend, Canadian businessman Michael Gilley.

She has been on the lam since Dec. 21, when U.S. authorities issued a warrant for her arrest. James J. McDermott Jr., 48, the former chairman of Keefe, Bruyette & Woods Inc. (KBW), a New York investment bank specializing in mergers and acquisitions of regional banks, surrendered that day. McDermott was released after he paid 10 percent of a $1 million bond. A preliminary hearing has been scheduled for Jan. 20.

Authorities say McDermott and Gannon engaged in an "intimate relationship" for 14 months in 1998 and 1999, during which McDermott fed her tips related to upcoming mergers by his bank's clients, which included Sun Trust, First Commerce Corp. and National Australia Bank.

She hired Washington law firm

U.S. authorities hope Gannon will surrender.

"We'd like her to come to New York and go to court and answer those charges," said Herbert Hadad, a spokesman for the U.S. Attorney's Office for the Southern District of New York.

The stripper-turned-porn actress has retained Washington law firm Wilmer, Cutler and Pickering to represent her. Her attorney, Howard Shapiro, declined to comment. "She's not providing interviews, and we're not talking to the press," Shapiro said.

Spokesmen for the Royal Canadian Mounted Police and Vancouver police said Tuesday that their agencies have not been contacted by U.S. authorities to assist in Gannon's arrest.

'My son goes to Harvard Law School'

Before the charges were filed, Gannon, a Canadian national, was in Miami to film her last movie, Marilyn Does Miami. Al Goldstein, publisher of Screw magazine, said he appeared with Gannon in the movie but did not get to know the 4-foot-11-inch actress very well.

"I had sex with her in a movie, and I had dinner with her with a reporter. She was of no interest to me," Goldstein said during a telephone interview from one of his homes in Florida. "I'm in the dramatic world of porno, but it's not my life. It's my job. I don't hang out with porno people. My son goes to Harvard Law School."

Authorities: Money was transferred

Authorities say Gannon, who had never traded stocks before, used information that McDermott gave her during their 14-month affair to buy stock in companies that had hired KBW to advise them in potential mergers and acquisitions. Some of the clients included Central Fidelity Banks Inc., Barnett Banks Inc., First Commerce Corp. and California State Bank (West Covina).

They say not only did McDermott give Gannon information, but he also transferred $37,000 to her, including $20,000 from a joint account he shared with his wife.

According to the criminal complaint against McDermott and Gannon, Gannon shared the information she got from McDermott with Anthony Pomponio, a New Jersey businessman who met Gannon during an adult-film trade show in Atlantic City. Pomponio, who was also charged with insider trading in the complaint, was released after posting $50,000 bond.

Scandal followed SEC probe

The scandal followed an investigation by the Securities and Exchange Commission that caused McDermott's firm to scrap an initial public offering (IPO) of stock planned last year that was expected to raise about $85 million for the company.

McDermott, who joined KBW in 1977 as a research analyst and became its chairman in January 1998, resigned from the firm in June last year, after learning that the SEC was investigating Gannon's stock trades.

John Duffy, KBW president and the company's co-chief executive officer, said the KBW board canceled the IPO in May after McDermott told them that he had provided stock tips to a "friend" and that his friend was under investigation by the SEC. He said McDermott did not tell the board that he himself was under investigation, and "[the board] had no proof to the contrary."

If the firm had proceeded with its IPO, it could have been accused of withholding potentially damaging information from investors, Duffy said, whether or not McDermott was under SEC investigation at the time. "Under either scenario, it made sense for us to cancel the offering," Duffy said.

He confirmed that McDermott had about 12 million shares in KBW that would have been worth roughly $18 million had there been a public offering of KBW stock, which was expected to trade at 1 1/2 times book value, which would have equaled a $6 million gain for McDermott.

'Cashed out and walked away'

While McDermott "cashed out and walked away" when he resigned, other KBW employees lost money they would have gained from the IPO, Duffy said.

"There were a great many people who were severely disappointed. Angry is not too strong a word," Duffy said.

Duffy, who said he worked with McDermott for 20 years, said the reaction within KBW since McDermott's arrest has been "shock and disbelief."

"I wouldn't assume I knew a whole lot about his personal life, but I assumed it was like everybody else's," he said, adding that the firm's clients and its 170 employees have not been able to understand how McDermott would get himself "in that kind of predicament."

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