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.

Mr. McDermott is accused of disclosing confidential information on bank mergers to Kathryn B. Gannon, a porn actress with whom he is said to have had an affair.

U.S. District Court Judge Kevin Fox set a pretrial conference for Feb. 2.

If Mr. McDermott decides not to negotiate a lesser charge and is convicted, he could go to prison for as long as 65 years and pay a fine of $1.25 million.

He also faces a civil lawsuit brought by the Securities and Exchange Commission in which his license to trade securities is at stake.

Also being arraigned was Anthony P. Pomponio, a New Jersey businessman, who the indictment says earned $86,377 from trading on insider information supplied by Ms. Gannon. An arrest warrant has been issued for Ms. Gannon, who is reportedly in Canada and trying to negotiate a deal with prosecutors.

Ms. Gannon allegedly made at least $88,135 by trading on insider information about six bank mergers supplied by Mr. McDermott.


In other Wall Street news, Nancy A. Bush, senior vice president at Ryan Beck & Co., Livingston, N.J., resigned Wednesday and will join Prudential Securities today as its bank analyst, reporting to head of research Michael Shea.Her departure from Ryan Beck will split up two of the most outspoken analysts on Wall Street.

She was a critic of big mergers before they began to fall apart and also a critic of the Wachovia Corp., a sacred cow of the banking industry. Lawrence W. Cohn, a veteran bank analyst there, questioned the valuation of bank stocks as they surged in 1997 and 1998.

Ms. Bush was at Ryan Beck for less than two years, focusing on midsized banks. She was at Brown Brothers Harriman for nine years, Dean Witter for three, and before that at Butcher & Singer.

Prudential has been without a senior analyst for eight months, since Joel Silverstein left to become an analyst at Chase Manhattan Corp.'s asset management unit. Jennifer Scutti covers credit card companies for Prudential.

In trading Thursday, the American Banker index of the 50 largest banks rose 1.37% and its index of 225 banks, 1.17%. Gainers included Unionbancal Corp., up $2.25, or 6.74% to $35.625; Wells Fargo & Co., up $1.3125, or 3.45%, to $35.3125 and Chase Manhattan Corp., up $2.25, or 2.87%, to $80.6875.

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