Keefe Bruyette Ex-CEO Accused of Insider Trades
James J. McDermott, former chief executive of investment bank Keefe, Bruyette & Woods Inc., leaked confidential bank merger information to a Miami porn star who says she “fraternized” with other “high-powered” Wall Streeters, federal prosecutors charged Tuesday.
In a criminal complaint filed in federal court in Manhattan, the government said that McDermott, who resigned from Keefe in July, citing “personal reasons,” had “an intimate relationship” with porn star Kathryn “Marylin Star” Gannon.
According to the complaint and a related civil complaint by the U.S. Securities and Exchange Commission, McDermott, 48, leaked confidential information concerning at least six mergers to Gannon, 30, during their 14-month relationship.
While the complaint says McDermott now works at investment house Allen & Co., a spokesman there said he was only seeking employment and had not been hired.
The complaint says McDermott admitted to Keefe’s board that he “recommended certain stocks to his friend--including the stocks of KBW’s clients--but denied that these recommendations violated any policies or confidentiality rules.”
McDermott told the board that “the profits from the friend’s trades were fairly small, possibly in the $20,000 or $30,000 range,” the complaint said.
Prosecutors said Gannon made at least $88,000 through her trading.
In a statement, McDermott’s lawyers, Denis McInerney and Gary Lynch of law firm Davis Polk & Wardwell, said McDermott was “shocked” by his arrest. “We regret that the government chose to proceed in this fashion without having the benefit of hearing from Mr. McDermott,” the statement said.
John Duffy, one of two men chosen to succeed McDermott as CEO at Keefe, said the firm was unaware of the investigation until it received a subpoena from the SEC last week, and had not known the identity of the alleged recipient of McDermott’s tips.
The SEC complaint says McDermott in 1997 and 1998 passed on confidential information about proposed mergers posted on the firm’s “Watch List” of companies that had retained Keefe for advice.
Gannon is alleged to have purchased stocks of “obscure, small, regional banks” such as First Commerce Corp. and California State Bank, around the time they were placed on Keefe’s Watch List or soon before a merger announcement, prosecutors said.
McDermott is charged with securities fraud and conspiracy to commit securities fraud.
Gannon, who faces the same charges, allegedly passed on the information to a third defendant, New Jersey businessman Anthony Pomponio, who is accused of making $86,378 in illegal profits.
Pomponio was cited for the same charges as McDermott and Gannon and is also accused of perjury.
The complaint says Gannon “frequently bragged to Pomponio that she fraternized with individuals who worked on Wall Street and that her clientele included high-powered investment bankers and lawyers.”
