Bloomberg News
NEW YORK - James McDermott, the former chief executive of the investment bank Keefe, Bruyette, & Woods Inc., was convicted Thursday of charges that he leaked inside information about pending bank mergers to his porn-star mistress.
A federal court jury convicted Mr. McDermott, once one of the top bank stock analysts in the country, of six counts of stock fraud.
He faces up to 10 years in prison. Prosecutors convinced jurors that Mr. McDermott - the first CEO of a Wall Street investment bank to be charged with insider trading - passed confidential information about five pending mergers in late 1997 and early 1998 to his Canadian girlfriend, Kathryn Gannon, an actress in pornographic films. She was also a defendant in the case but did not appear in Manhattan federal court to stand trial. Prosecutors say they believe Ms. Gannon is in hiding in Vancouver.
Prosecutors claimed that Mr. McDermott, who earned $10 million from 1996 to 1998 as chief of Keefe Bruyette, gave Ms. Gannon stock tips to impress her. Ms. Gannon, 30, earned $88,000 from illegal trades, prosecutors said. Among the stocks Ms. Gannon bought were Central Fidelity Banks Inc. and Advanta Corp. McDermott, 48, did not profit financially.
A third defendant, New Jersey businessman Anthony Pomponio, with whom Ms. Gannon allegedly shared Mr. McDermott's stock tips, was also found guilty of six counts of stock fraud and one count of perjury. Mr. Pomponio was said to have made $86,000 from the inside information.
The case has been fodder for the tabloids ever since prosecutors announced the charges four days before Christmas. Yet the trial was anything but racy. U.S. District Judge Kimba Wood barred prosecutors from identifying Gannon as a porn star, to avoid prejudicing the jury. Ms. Gannon appeared in films under the stage name Marylin Star.
During the trial Keefe Bruyette's top managers testified for hours about the investment bank's internal procedures, especially the way it shields confidential information from public exposure.
Last year the firm canceled a planned stock offering after Mr. McDermott told the board that a "friend" was under investigation by the Securities and Exchange Commission. The SEC's civil suit against Mr. McDermott, Ms. Gannon, and Mr. Pomponio is pending.
