Keefe, Bruyette & Woods Inc. has launched an aggressive campaign to reclaim its good name in the wake of the scandal involving James J. McDermott Jr., its former chief executive officer and chairman, said co-CEO John G. Duffy on Friday.

As a part of that effort, Keefe Bruyette sent out 11,000 letters to clients immediately after the scandal broke reassuring them the company had been unaware of Mr. McDermott's alleged activities, and managers held a number of meetings with staff members to shore up morale, Mr. Duffy told American Banker.

Mr. Duffy's comments came a day after Mr. McDermott was indicted on charged brought by the U.S. Attorney's Office in the Southern District of New York for his alleged role in an insider trading scheme involving bank mergers and a porn star.

The allegations, which came to light in April, caused the ouster of Mr. McDermott from Keefe Bruyette and scuttled the investment bank's initial public offering.

When news broke in late December that the U.S Attorney's Office and the Securities and Exchange Commission were investigating Mr. McDermott, some industry experts said the damage to Keefe Bruyette would be "incalculable" even though the board dismissed Mr. McDermott from the company.

Mr. Duffy himself was worried about the damage that could occur. "I'm a realist," he said. "I know that our competitors will use this against us."

In the letter, Mr. Duffy and co-chairman Joseph J. Berry sought to remind clients of the firm's nearly four decades of service.

"For the 37 years we have been doing business there had never been a single allegation or investigation into the misuse of confidential information by KBW or any of its employees," the letter said. "KBW has always prided itself as having the highest ethical standards, and we have long had strict policies in place regarding the handling of confidential information."

In the weeks that followed, "We got many calls from clients who called in to reassure us," Mr. Duffy said. "They told us not to worry. That we would get through. Not one has said that they would stop doing business with us because of this incident."

He said clients such as John Adams Kanas, chairman of North Fork Bancorp in Melville, New York; Leslie M. Baker of Wachovia Corp., whose company was allegedly the subject of one of Mr. McDermott's insider tips; Eugene McQuade, chief financial officer of FleetBoston Financial Corp.; and H. Rodgin Cohen, a partner at Sullivan & Cromwell called in to support the company.

The scandal, however, could continue to do damage, acknowledged Mr. Duffy. "Some clients were more morally outraged by the behavior," he said.

"People will be able to use this against us until the McDermott scandal fades away, which could take weeks, months, or years," he said. "The sooner it disappears the better."

Mr. McDermott is to be arraigned this week on charges of insider trading. If convicted, Mr. McDermott could go to prison for as long as 65 years and be fined up to $1.25 million.

Mr. McDermott, 48, who lives in the gated community of Briarcliff Manor, N.Y., will be arraigned before a U.S. magistrate judge this Thursday at 9:30 a.m.

"Mr. McDermott essentially will be given the opportunity to hear the full charges against him and have the opportunity to plead not guilty," said Herbert Hadad, a spokesman for the U.S. Attorney's Office. "A judge will be selected for his case and then there will be a trial."

Mr. McDermott is expected to enter a plea of not guilty if there is a trial. His attorney, Denis McInerney, did not return phone calls.

As a defendant, he will also have the option of plea bargaining between the arraignment and the trial, Mr. Hadad said.

Mr. McDermott is charged with passing insider trading tips about bank mergers to pornography actress Kathryn B. Gannon, 30, better known as Marylin Star. Ms. Gannon allegedly made at least $88,135 on the tips. She in turn passed the information to a friend, Anthony P. Pomponio, a self-employed New Jersey businessman.

Initial charges against the three defendants were unveiled last month by the U.S. Attorney's Office and the SEC.

According to the indictment, Mr. McDermott was having an affair with Ms. Gannon and "misappropriated and stole inside information" from Keefe Bruyette about banks that were either merger targets or acquirers between May 1997 and September 1998.

Using tips from Mr. McDermott, the indictment says, Ms. Gannon purchased shares in six institutions, including Advanta Corp. in Springhouse, Pa.; Barnett Banks Inc. in Jacksonville, Fla.; First Commerce Corp. in New Orleans; First Commercial Corp. in Little Rock; and California State Bank in West Corvina.

She made her biggest gains, according to the indictment, by buying 4,860 shares of California State Bank at prices ranging from $38.125 to $42 between Dec. 8, 1997 to Feb. 13, 1998, based on a tip from Mr. McDermott that First Security Corp. of Salt Lake City was interested in buying it.

First Security announced on Feb. 19, 1998, that it was acquiring California State. Ms. Gannon allegedly netted a profit of $34,150.

She allegedly made another large gain after buying 1,800 shares of Barnett at about $52.12 per share on Aug. 27, 1997 based on a tip from Mr. McDermott that SunTrust Inc. in Atlanta was interested in merging with the company, the indictment says.

Two days later, NationsBank Corp. of North Carolina, which is now Bank of America Corp. announced that it would buy Barnett. Barnett's shares rose $12.6875 on the day, hitting an all-time high of $67.50. Ms. Gannon allegedly netted profits of $30,400 in that deal.

Ms. Gannon allegedly made $15,791 by buying 1,903 shares of First Commercial Corp. for prices ranging from to $60.75 per share from $58.50 based on a tip from Mr. McDermott that Regions Financial Corp. in Birmingham, Ala., would buy it.

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