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August 03, 2000 03:00pm
Ex-Investment Bank Head Jailed for Insider Trading
Source: Reuters
by: Mary Kelleher

(NEW YORK, NY) -- James McDermott Jr., the former head of investment bank Keefe, Bruyette & Woods, on Thursday was sentenced to eight months in prison for passing on inside tips about merger deals to his porn star mistress Marilyn Star.

McDermott, 49, is the first head of a U.S. investment bank to be convicted of and sentenced to jail for insider trading.

Federal Judge Kimba Wood also fined McDermott $25,000 and ordered him to perform 300 hours of community service after he was convicted in April of conspiracy and fraud for insider trading.

Prosecutors had charged him with giving his X-rated movie star girlfriend, Kathryn Gannon, 31, confidential information about regional bank takeover deals.

``Insider trading undermines investor confidence in the integrity of the stock market,'' Wood told a packed Manhattan federal court, saying McDermott was ``keenly aware of the prohibitions against it.''

McDermott wore a dark suit and was silent and composed throughout the sentencing. Before his sentence was read, he publicly apologized to his two teenage daughters and his wife, who has stood by him through the ordeal.

``They are fantastic people -- bright, loyal...Some of the things I was not,'' McDermott told the court of his family, in even, clear tones. ``It is my wife's attempt to keep us together that has allowed us to continue to be together as a family.''

McDermott, Gannon, and Anthony Pomponio, 45, a New Jersey businessman with whom Gannon was involved, were indicted in January for an alleged two-year insider trading scheme. Prosecutors alleged Gannon passed McDermott's trading tips on to Pomponio and the two reaped more than $170,000 off them.

The sentence, which also includes a 2-year supervisory period, was not as harsh as it might have been.

McDermott -- who was not charged with making any money off the insider trading -- had faced a maximum of five years in prison on the conspiracy count and 10 years on each of the fraud charges, as well as much $5 million in fines.

The former banker, who lives in Briarcliff Manor, N.Y. and used alcoholism and depression as part of his defense, said he planned to dedicate the rest of his life to rebuilding his reputation and making a greater contribution to his family.

Before this case, McDermott was convicted of drunk driving two times in the past 10 years, although he has stopped drinking. Wood also ordered him to attend an alcoholism treatment program.

Calling himself an ordinary person, McDermott said, ''Throughout this trial I have been described as a stud stock-picker and a master of the universe. That couldn't be further from the truth.''

His lawyer, Denis McInerney, read excerpts from scores of letters to the court testifying to McDermott's character -- including ones from his wife, several priests, a regional bank CEO, the head of his high school, and an electrician.

``My client is extremely remorseful,'' McInerney told the court, in arguing for a light sentence. ``He has been publicly stripped of his job, his livelihood, his reputation and his dignity...This case has already sent a very loud message.''

McDermott's charitable donations and community involvement -- including work for the mentally handicapped and those with cystic fibrosis -- were also stressed, in an effort to mitigate his sentence.

But while Judge Wood lauded his charitable work as rare for someone in his high position, she said McDermott should go to jail in part to deter other would-be white collar criminals.

``A non-incarceration sentence would fail to reflect the seriousness of the offense,'' Wood said. ``The prospect of time in prison has a strong deterrent value for white collar crime.''

A common thread ran through both his drunk driving and insider trading convictions -- ``a recklessness that disregards the public interest,'' Wood said.

McDermott was president of Keefe, Bruyette, an investment bank specializing in bank deals, in 1997 and chairman and chief executive from Jan. 1, 1998 until he resigned last June. His job gave him access to market-sensitive information about takeover deals. He earned about $4 million a year.

Gannon, an X-rated film actress and exotic dancer with a pornographic Internet Web site, was arrested in Canada but freed on bail. Pomponio was convicted of securities fraud and perjury.

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