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Banker Convicted of Tipping Off Porn Star
Woman's Other Lover Also Convicted
April 27, 2000
By Carol Huang
James J. McDermott Jr.
NEW YORK (APBnews.com) -- The former chairman of a prominent Wall Street investment bank was found guilty today of giving insider-trading tips to his porn star mistress.
The jury of seven women and five men deliberated for less than two days before finding James McDermott guilty of conspiracy and five out of six counts of insider trading. The jury also found porn star Kathryn Gannon's other lover, Anthony Pomponio, a New Jersey businessman, guilty of the same charges plus a count of perjury for lying to investigators who began probing the case last year.
The verdicts came after a two-week trial in which McDermott, 48, and Pomponio, 45, accompanied by their wives, listened as prosecutors detailed each man's affair with Gannon, who has performed in more than 100 pornographic movies under the name Marilyn Star.
At trial, prosecutors accused McDermott of leading a double life. As head of a boutique investment bank, he worked on multimillion-dollar bank mergers, but as Gannon's lover, they said, he divulged the secrets of these deals, allowing her to reap close to $90,000 in illegal profits by trading the stocks of banks involved in potential mergers.
Forfeited multimillion-dollar job
They said Gannon shared the information with Pomponio, whom she began dating after meeting him at a baccarat table in Atlantic City, N.J., during a porn industry convention. They accused Pomponio of earning more than $80,000 by trading the same bank stocks within days and sometimes minutes of Gannon's trades.
McDermott, who forfeited a $4 million-a-year salary when he was forced to resign in June as chairman of Keefe, Bruyette & Woods, joked with a reporter before the proceedings but looked at the ceiling when the verdict was read. Afterward, he left the courtroom in silence, accompanied by his wife, Darian, and his attorney, Denis McInerney.
Pomponio left court without comment with his attorney, Thomas Dunn. His wife, Bonnie Clark, wept during the verdict. She had testified at trial that Xanax, a prescribed anti-anxiety drug, affected her husband's memory, making him forgetful rather than untruthful when he lied to investigators last year.
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The trial brought in testimony from brokers, bankers and former colleagues of McDermott, including John Duffy, who took over as chief executive of Keefe, Bruyette & Woods after McDermott's departure.
Trades too lucky for novice
Upon hearing the verdict, Duffy, who worked with McDermott for 20 years, said: "We view this as a personal tragedy for him and his family. We're very sorry for the individual."
Prosecutors said McDermott called Gannon 800 times during an affair that lasted more than a year. Using bank, phone and computer records, prosecutors proved McDermott shared confidential information with Gannon from May 1997 to September 1998 involving his firm's clients.
Prosecutors said McDermott's information helped Gannon trade on six banks and financial institutions.
In one instance, prosecutors said McDermott spoke with Gannon for 93 minutes after learning that merger talks between Central Fidelity Banks Inc. and Wachovia Corp. had gone well. Thirteen minutes after they hung up, Gannon ordered 390 shares of Central Fidelity, which was trading above $32 a share. The stock rose to $50 after Wachovia purchased Central Fidelity, netting Gannon a profit of close to $6,700, prosecutors said.
"Not bad for a brand-new investor who had been in the stock market for all of eight days," Assistant U.S. Attorney James Benjamin said.
Jury not told of porn career
Defense attorneys declined to say whether they would seek an appeal.
Each man faces up to five years in prison on charges of conspiracy and 10 years in prison for each count of insider trading. Each also faces a fine of up to $1.25 million. For the perjury charge, Pomponio faces a prison sentence of up to five years and a maximum fine of $250,000.
Sentencing is scheduled for July 17.
Before the trial started, federal District Court Judge Kimba Wood ruled that descriptions of Gannon's profession would be limited to "dancer," "model" and "actress" and disallowed references to her work in the porn industry.
Gannon 'not the Queen of England'
Jurors declined to comment afterward, but one indicated that descriptions of Gannon as an actress, dancer and model did little to give them a favorable impression of her.
"We didn't think she was the Queen of England," he said.
A civil case brought against the trio by the U.S. Securities and Exchange Commission (SEC) is still pending. Kenneth Miller, assistant chief litigation counsel for the SEC, said a guilty verdict resolves certain factual issues in the civil case. A federal judge is to hear a status report from SEC attorneys April 28.
The SEC investigation into the charges forced McDermott's firm to scratch a planned public offering of Keefe, Bruyette & Woods stock last year that would have netted the firm $85 million and added an estimated $6 million in value to shares of the company that McDermott held before he was forced to sell them upon resigning.
"This verdict is important because insider trading undermines the public's trust and the integrity and the fairness of the markets, especially when committed by persons holding high-level positions of trust," said Robert Khuzami, chief of the Securities and Commodities Fraud Unit for the U.S. attorney's office in Manhattan.
Gannon, 30, whose attorneys were present for much of the trial, has been a fugitive since authorities issued a warrant for her arrest in December on charges of insider trading. Authorities believe she is in Vancouver but have remained quiet about whether she plans to surrender.
"She got snowballed into this thing," said Danny Carrelli, who produced and directed three of Gannon's films at Fleshtone Productions. "She didn't have a clue. She's just a girl that just got caught up in something. All she wanted to do was get married and have a baby." |
