James J. McDermott Jr., the former chairman and chief executive officer of Keefe, Bruyette & Woods Inc., pleaded not guilty to insider trading charges Thursday, possibly setting the stage for a sensational trial.

A grim-faced Mr. McDermott, dressed in a blue pin-striped suit, appeared in a New York federal courtroom with his attorney Denis A. McInerney of Davis, Polk & Wardell, as courtroom artists furiously sketched his face.

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