James McDermott, former chief executive officer of investment bank Keefe, Bruyette, & Woods Inc., has been convicted 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 girlfriend, Canadian adult-film actress Kathryn Gannon. She was also a defendant in the case, but did not appear in Manhattan federal court to stand trial. Prosecutors believe Ms. Gannon is in hiding in Vancouver.
Prosecutors claimed 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. Mr. McDermott, 48, did not profit financially.
A third defendant, New Jersey businessman Anthony Pomponio, with whom Ms. Gannon allegedly shared Mr. McDermott's 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 Ms. Gannon as a porn star to avoid prejudicing the jury against the Mr. McDermott. Ms. Gannon appeared in films under the stage name Marylin Star.
The trial focused considerable scrutiny on Keefe Bruyette and its business practices. Top management testified for hours about the investment bank's internal procedures, especially the way it shields confidential information from public exposure.
The firm last year cancelled a planned stock offering after McDermott told the board that a "friend" was under investigation by the U.S. Securities and Exchange Commission. The SEC's civil suit against Mr. McDermott, Ms. Gannon, and Mr. Pomponio is pending. Among the stocks Ms. Gannon bought were Central Fidelity Banks Inc. and Advanta Corp.
- Bloomberg News