NEW YORK -- A porn star is accused of illegally profiting from inside information gained from an allegedly intimate relationship with an influential Wall Street executive.
James McDermott Jr., the former chief executive at Keefe, Bruyette and Woods, surrendered Tuesday to face charges that he committed insider trading with Kathryn Gannon, 30, known as "Marylin Star" in the X-rated film industry.
McDermott was intimately involved with Gannon, according to the criminal complaint signed by Federal Bureau of Investigation Special Agent Robert Foy. Federal prosecutors and the Securities and Exchange Commission alleged that the insider trading occurred at that time.
The New York investment bank chief was accused of tipping off Gannon about companies that were about to be involved in mergers dramatically affecting their stock prices. Gannon then allegedly shared the information with a friend, Anthony Pomponio.
All three were charged by U.S. Attorney Mary Jo White with conspiracy to commit securities fraud and securities fraud. Pomponio was also charged with perjury. A separate civil complaint was brought by the Securities and Exchange Commission.
According to court papers unsealed in U.S. District Court in Manhattan, Pomponio told investigators that Gannon not only worked in adult films but was also a prostitute.
Pomponio told authorities she boasted that she had escort clients in New York City who were "well connected Wall Street types" such as lawyers, stockbrokers and others in top jobs, the SECsaid in its complaint.
On her web page, Gannon challenges viewers to join her club and win a chance at appearing in her next episode of "Marylin Does Miami."
"Think of it as a VIP pass to experience firsthand my extraordinary sex skills," she writes.
Pomponio and Gannon became the targets of an investigation by the SEC after each of them opened brokerage accounts at Charles Schwab in mid-1997 and began purchasing the stocks of obscure, small, regional banks.
The trading activity was deemed suspicious because the bank stocks being purchased had just been placed on a watch list of potential acquisition targets by Keefe, Bruyette and Woods, the New York investment bank specializing in bank mergers.
McDermott, 48, resigned from the bank in June, the FBI complaint said.
McDermott was released on $1 million bail after an appearance Tuesday before U.S. Magistrate Judge Theodore Katz. Pomponio was released on $50,000 bail. Neither commented as they left court.
As the top executive at Keefe, Bruyette and Woods, McDermott had access to confidential information about potential corporate mergers and acquisition transactions and provided Gannon with such information about at least six mergers, authorities said.
Pomponio of North Caldwell, New Jersey, is the majority owner of Pomponio Industries, an industrial diamond-wheel manufacturer, the SEC said. He too was believed to have had a relationship with Gannon, the court papers alleged.
The SEC filed civil insider trading charges against all three individuals, seeking to prevent them from violating securities laws and forcing them to surrender profits and pay civil penalties.
The SEC said that a review of Gannon's bank records indicated that McDermott, of Briarcliff Manor, New York, had deposited about $37,000 into her Miami bank account.
Keefe, Bruyette and Woods is not facing any charges.
Gannon was subpoenaed in April in connection with the insider-trading investigation and asserted her Fifth Amendment privilege, the complaint said. It alleged that Gannon, a Canadian citizen living in Miami, made at least $88,000 from illegal trades. Pomponio allegedly made about $86,000.
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