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Inside trade by porn star?
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December 21, 1999: 3:36 p.m. ET
Federal agents accuse investment banker of passing merger info to adult actress
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NEW YORK (CNNfn) - James McDermott Jr., the former chairman and CEO of Keefe, Bruyette & Woods Inc., was arrested Tuesday and charged with insider trading by federal authorities who allege he passed inside investment tips to a porn actress he was seeing.
McDermott, who resigned unexpectedly from the Wall Street investment bank in June, was arrested by federal authorities Tuesday after the U.S. Securities and Exchange Commission charged him with securities fraud and perjury.
According to the complaint filed in Manhattan federal court, McDermott allegedly provided material, non-public information pertaining to at least six merger transactions to Kathryn B. Gannon, a porn actress better known as "Marylin Star,” with whom he had a relationship.
Federal authorities allege Gannon used the information to purchase securities in advance of those transactions, making at least $88,135. Gannon also is accused of passing the insider information to a friend, Anthony P. Pomponio, whom federal authorities believe reaped profits of at least $86,378.
Federal officials do not believe McDermott profited from the scheme.
Pomponio was also arrested by federal agents Tuesday while a warrant remains outstanding for Gannon’s arrest.
If convicted of the SEC’s charges, McDermott, Gannon and Pomponio could be liable for whatever profits they reaped in addition to a penalty three times the sum of the profits, according to Tom Newkirk, a spokesman for the SEC.
The U.S. Attorney’s Office also filed a criminal complaint against each of the accused, charging them with two felony counts each for violations of securities laws, as well as a felony count against Pomponio for perjury.
McDermott served as Keefe’s chairman and chief executive officer from Jan. 1, 1998, until June 30, 1999, when he unexpectedly left the company after 22 years for "personal reasons.”
Federal officials believe he and Gannon, an exotic dancer, escort and actress in adult films, had a relationship for at least 14 months, ending in September 1998.
During that time, authorities believe McDermott passed along advanced information about at least five pending mergers being conducted by his company, as well as an additional merger with which he had knowledge, to Gannon.
Gannon, whom authorities claim had "minimal investment experience,” opened up a brokerage account at Charles Schwab & Co. Inc. on June 13, 1997, and began to trade in some of these companies -- predominantly relatively unknown regional banks including Advanta Corp. (ADVNA) and First Commercial Corp.
Pomponio allegedly opened a Schwab account just one month later and began trading in the same stocks. Pomponio, a New Jersey resident, is a majority owner of an industrial diamond wheel manufacturing company called Pomponio Industries.
McDermott has been out of work since leaving Keefe, but had recently completed an application to work at Allen & Co., a privately held New York investment bank, according to a spokesman there.
A Keefe spokesman was not immediately available for comment, although a press release was expected sometime late Tuesday afternoon. 
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