(NEW YORK, NY) -- A former chief executive officer
of investment banking firm Keefe, Bruyette & Woods Inc. pleaded
innocent on Thursday to insider trading charges alleging that he gave tips about potential bank mergers to a porno actress who had been his mistress.

James McDermott Jr., 48, of Briarcliff Manor, N.Y., who resigned unexpectedly in June as chairman and CEO of Keefe, Bruyette, a private Wall Street firm, entered his plea of innocent in Manhattan federal court. He was charged last week in an eight-count indictment.

Adult film actress Kathryn Gannon and Anthony Pomponio, another man with whom she was involved, also were indicted for their role in the alleged two-year insider trading scheme. Gannon, 30, is living in Canada and did not appear in court. Pomponio, 45, of North Caldwell, N.J., also pleaded innocent to the charges.

The grand jury indictment is an expansion of a three-count complaint filed against the three defendants by federal prosecutors last month.

The charges are based on allegations that McDermott stole confidential information about six upcoming mergers involving regional banks and gave it to Gannon. She, in turn, allegedly passed the tips to Pomponio. Prosecutors alleged Gannon and Pomponio made more than $170,000 in illegal profits based on the non-public information.

Gannon, a Canadian citizen who had lived in Miami, has worked as an actress in adult films and as an escort, exotic dancer and model, according to court papers. She uses the name Marylin Star in adult films and in a sexually graphic Internet Web site, court papers said.

Keefe, Bruyette is an investment banking firm that advises companies in connection with mergers and acquisitions and specializes in the banking and financial services industries. From January 1994 through December 1998, Keefe, Bruyette acted as the financial advisor in 116 announced mergers and acquisitions of banks and thrifts.

As president of Keefe, Bruyette during 1997 and chairman and CEO from Jan. 1, 1998 until his resignation, McDermott had access to non-public information about the firm's clients.