Attorneys delivered closing arguments Monday in a two-week trial that focused on whether former chief executive officer James McDermott violated the separation between Keefe, Bruyette & Woods’ investment advisory business and its bank merger and acquisition practice.

The government said Mr. McDermott, 48, passed confidential and material information about bank mergers to his mistress within minutes of receiving information about them from the firm’s M&A division. His attorneys, from Davis Polk Wardell, said the information was not confidential at all; they said Mr. McDermott’s tips were based on information easily available from Keefe and other investment firms.

Observers said the case illustrated the challenge of keeping such businesses separate.

In the case of a CEO “firewalls can’t help,” said John P.C. Duncan, a partner in Duncan & Associates, Chicago. “There isn’t a whole lot a firm can do to prevent this kind of thing from happening,” he said. “As a deal gets bigger and more complicated, the risk of information slipping out is growing. Banks have to be very careful who they’re dealing with and how.”

But that doesn’t mean banks should not use M&A advisors. “It bespeaks more caution. It doesn’t bespeak not using an outside firm,” Mr. Duncan said.

Mr. McDermott is the first Wall Street investment bank chief charged with insider trading. He was ousted from the firm after he disclosed that a Securities and Exchange Commission was probing trades by a friend of his.

The prosecution argued that Mr. McDermott leaked confidential information to that friend — Kathryn Gannon, his mistress in 1997 and 1998 — about mergers involving Advanta Corp. of Spring House, Pa., whose credit card portfolio was bought by FleetBoston; Central Fidelity Banks Inc., which was bought by Wachovia Corp. of Winston-Salem, N.C.; Barnett Banks, which was bought by Charlotte, N.C., based NationsBank, now Bank of America Corp.; First Commerce Corp. of New Orleans, which was bought by Bank One Corp. of Columbus, Ohio; First Commercial Corp. of Little Rock; and California State Bank, which was bought by First Security Corp. of Salt Lake City.

Ms. Gannon traded in all six bank stocks while Keefe, Bruyette & Woods was representing them in merger talks, the U.S. Attorney’s office said.

Ms. Gannon, who did not appear at the trial and is said to be in Canada, reportedly made $88,000 on the information. She allegedly passed that information to Anthony P. Pomponio, a New Jersey businessman, who at one time had had an affair with her. Mr. Pomponio is also accused of insider trading.

Ms. Gannon’s success rate was phenomenal, said Assistant U.S. Attorney James Benjamin Jr. Her stock picks were “right six out of six times,” said Mr. Benjamin. “She did not have special knowledge of the banking industry,” he said, and “blind luck can not explain” her exceptional results.

Even David Berry, managing director of research at Keefe, Bruyette & Woods, admitted in testimony that “when it comes to takeovers he got it wrong as many times as he got it right,” Mr. Benjamin said.

Mr. McDermott’s defense team argued that the market was already speculating about stocks that Ms. Gannon invested in, and that Mr. McDermott was recommending stocks based on public information. They cited numerous news stories, analyst reports, and takeover lists to support their argument.

But the prosecution said that Ms. Gannon, an actress in pornographic films, could not possibly have negotiated through the “blizzard of information” to be so accurate with her stock picks.

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