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December 21, 1999 08:16pm
Banker, Porn Star Accused of Insider Trading
Source: APBnews.com

(NEW YORK, NY) -- The former chairman of a Wall Street investment banking firm was arrested today on charges of conspiracy and insider trading for giving confidential information to porn actress Marilyn Star.

James J. McDermott, 48, turned himself in to the FBI this morning. He was the target of an investigation initiated by the Securities and Exchange Commission (SEC) in April.

The former chairman and chief executive officer of Keefe, Bruyette & Woods Inc. is accused of stealing confidential information from clients relating to six mergers and passing it on to Kathryn B. Gannon, a 30-year-old adult film actress and exotic dancer.

Gannon, whose popularity as a porn star led to a "Marilyn Star" doll, has been charged with insider trading for using the information to earn at least $88,135 on trades related to the deals, according to a complaint filed by the U.S. Attorney's Office for the Southern District of New York.

Prosecutors believe Gannon, a Canadian national whose last known address was in Miami, has fled to Canada. A warrant has been issued for her arrest.

Shared information with third man

The SEC complaint charges that Gannon shared the information with Anthony Pomponio, the owner of a New Jersey diamond-wheel manufacturing company who met Gannon during an adult film trade show in Atlantic City.

SEC officials say Pomponio, 45, earned at least $86,378 using insider information he obtained from Gannon. He was arrested at his home in New Jersey this morning. He faces charges of conspiracy, insider trading and perjury.

Assistant U.S. Attorney Alex Young K. Oh said McDermott was released after a magistrate's hearing in New York when he posted 10 percent of a $1 million bond. Pomponio was released on $50,000 bond.

Both men were also ordered to surrender their passports, said a spokesman for the U.S. attorney's office.

Broker rose to chairman of firm

McDermott, who joined Keefe, Bruyette & Woods as a research analyst in 1977, became chairman in January 1998. The firm specializes in mergers and acquisitions involving banks and thrifts and worked on 116 bank- and thrift-related deals worth $31.1 billion from 1994 to 1998, according to the SEC.

He resigned in June this year after learning that the SEC had started its investigation and had subpoenaed Gannon.

According to federal prosecutors, McDermott's company was forced to cancel a planned offering of stock expected to raise about $85 million once he informed the board of the SEC probe.

Prosecutors say McDermott engaged in an intimate relationship with Gannon for 14 months in 1997 and 1998, when his company worked on pending merger deals involving Sun Trust, National Australia Bank, Central Fidelity Banks Inc., First Commerce Corp., First Commercial Corp. and California State Bank (West Covina).

'Well-connected Wall Street Types'

Prosecutors say that McDermott transferred at least $37,000 to Gannon in certified checks and wire transfers between September 1997 and September 1998, including $20,000 from a joint account he shared with his wife. McDermott is not accused of using the information he gave Gannon to earn profits for himself.

They said Gannon opened an account at Charles Schwab & Co. Inc in 1997 and began trading in the securities of some of the regional banks that had hired McDermott's firm as an adviser for pending deals.

They also said she boasted to Pomponio that she had "escort clients" that included "well-connected Wall Street types" and tipped him off to information she got from McDermott.

SEC looked at trading accounts

The SEC, which began its investigation after seeing trading similarities in the accounts of Gannon and Pomponio, said that in one instance, Gannon bought 1,800 shares in Barnett Banks Inc. a day after SunTrust Banks Inc. told McDermott's firm that Barnett Banks was in play and hired the firm to help it prepare a bid.

The SEC said Gannon shared the information with Pomponio, who bought 1,370 shares of Barnett.

Three days later, on Aug. 29, 1997, when Barnett was bought by NationsBank Corp., Barnett stock rose 24 percent, and Gannon earned a profit of $30,400 while Pomponio earned nearly $27,000, the SEC said.

McDermott's attorney, Denis McInerney, said his client has never been contacted by federal investigators and indicated that they would consider fighting the charges.

"Mr. McDermott is shocked by the government's action today," McInerney said. "The government has never asked to speak to Mr. McDermott or reached out to his attorneys. In fact, the first time we even heard about the U.S. attorney's investigation was last night. We will respond to the allegations in due course and are confident that Mr. McDermott will be exonerated when the facts are known."

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