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April 10, 2000 01:23pm
X-Rated Insider Trading Trial Opens
Source: AP
by: Larry Neumeister

(NEW YORK, NY) -- A former top Wall Street executive shared secret stock tips with his lover, who then shared the information with another man with whom she was having an affair, a prosecutor alleged Monday in opening statements in the insider-trading trial of James McDermott Jr.

But a lawyer for McDermott said the former chief executive officer at Keefe, Bruyette & Woods was humiliated by the affair but innocent of the securities fraud charges.

Kathryn Gannon, the X-rated actress at the center of the case, was not in the federal courtroom as the trial began. And in accordance with the judge's order, no mention was made of the woman's profession.

Alex Young K. Oh, the assistant U.S. attorney prosecuting the case, described Gannon only as a ''28-year-old blonde, an attractive woman who was also a dancer and model'' and sometimes performed under the stage name ``Marylin Star.''

The United States is seeking the extradition of Gannon from Canada, where she is a citizen.

The limits on her resume were ordered by U.S. District Judge Kimba Wood, who rejected government arguments that her career explained why McDermott wanted to impress her with his stock-knowledge prowess.

The wife of McDermott sat behind him in court as Oh accused the $4 million-a-year executive of living a dual life between 1997 and 1999 by engaging in the affair while seeming ``to be the master of his universe.''

Oh said McDermott supplemented Gannon's annual income of between $50,000 and $100,000 with $80,000 in checks along with secret information about six companies that allowed her to make large profits.

Gannon then allegedly gave inside information to another man with whom she was having an affair, Anthony P. Pomponio, who made trades as well. Gannon and Pomponio made $170,000 on the illegal stock trades over eight months, Oh said.

Scott Muller, a lawyer for McDermott, told the jury that the charges against his client were false while acknowledging the affair which he said began in 1996 and has ``humiliated him over time.''

``It is that relationship that has brought him to this courtroom today,'' he said.

He said his client's innocence would be clear if the jury scrutinized what McDermott said to Gannon and when he said it.

He predicted they would conclude McDermott recommended companies to Gannon that were well-known merger candidates because 1997 and 1998 were years when bank stocks were undergoing ``merger mania'' after deregulation by Congress.

Muller said McDermott made the recommendations to Gannon during ``thousands of opportunities, face to face or on the phone'' before the stocks joined a list at McDermott's company that must be kept secret.

The defense lawyer revealed how close McDermott had become to Gannon when he said there were more than 500 telephone calls between them and more than 300 beeper pages in a single year.

It would be absurd to think McDermott would risk his lucrative job, his 26-year marriage and his relationship with his two teen-age daughters to feed her inside stock tips that she made only $15,000 on, he said.

Thomas Dunn, a lawyer for Pomponio, said his client did not belong in court on criminal charges, especially after he revealed everything he knew to the Securities and Exchange Commission and volunteered to help investigators.

McDermott, 48, of Briarcliff Manor, Pomponio, 45, of North Caldwell, N.J., and Gannon, 30, who has a home in Miami, Fla., are all charged with conspiracy and securities fraud.

McDermott and Pomponio remain free on bail.

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