SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16395/ December 21, 1999
Securities and Exchange Commission v. James J. McDermott, Jr., Kathryn B. Gannon a/k/a Marylin Star and Anthony P. Pomonio, Civil Action No. 99 Civ. 12256 (S.D.N.Y.) (MBM) (filed December 21, 1999)
SEC Sues Former Chairman and CEO of Investment Banking Firm for Illegally Providing Insider Information on Six Deals
On December 21, 1999, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York, against James J. McDermott, Jr., the former Chairman and Chief Executive Officer of Keefe, Bruyette & Woods, Inc., an investment banking firm, and two other individuals for insider trading. The complaint alleges that McDermott provided material nonpublic information concerning at least six merger transactions to Kathryn B. Gannon, who in turn tipped a friend, Anthony P. Pomponio.
The complaint alleges that from at least June 1997 through April 1998, McDermott, as Chairman and CEO of Keefe, Bruyette, obtained material nonpublic information in advance of merger transactions. During that time, McDermott and Gannon were involved in a relationship. According to the complaint, McDermott provided to Gannon the inside information he obtained at Keefe. Gannon then purchased securities in relatively unknown regional banks. Gannon purchased stock in Central Fidelity Banks, Inc., First Commerce Corp., California State Bank (West Covina), First Commercial Corp., Advanta Corporation, and Barnett Banks, Inc. Each of the banks whose stock Gannon traded was either involved in merger negotiations with potential suitors or actually consummated a merger transaction contemporaneously with her trading. In addition, with respect to all but one of Gannon's bank stock purchases, Keefe, Bruyette represented the target in the merger transaction or was otherwise associated in some way with one of the parties to the transaction. As a result of her illegal trading, Gannon made profits of at least $88,135. In addition, during the period September 3, 1997 through September 23, 1998, McDermott transferred at least $37,000 to Gannon in the form of certified checks and wire transfers.
The complaint also alleges that Gannon tipped Pomponio, to whom she boasted that she had escort clients in New York City who were "well connected Wall Street types," including lawyers, stockbrokers and other "high level people." Pomponio, with knowledge of the reliability of the material nonpublic information concerning pending mergers obtained from Gannon, traded in advance of five of the merger transactions, reaping profits of at least $86,378.
The Commission's complaint seeks to permanently restrain and enjoin McDermott, Gannon and Pomponio from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, the complaint seeks disgorgement of all ill-gotten gains, prejudgment interest and civil monetary penalties pursuant to the Insider Trading Sanctions Act, Section 21A of the Exchange Act.
Also on December 21, 1999, the United States Attorney for the Southern District of New York announced the filing of a complaint against James J. McDermott, Jr., Kathryn B. Gannon and Anthony P. Pomponio for two felony counts each, for violations of the federal securities laws, as well as a felony count against Pomponio for perjury. In addition, the U.S. Attorney announced that on the same day, McDermott and Pomponio were arrested, and an arrest warrant was issued for Gannon. The Commission wishes to thank the United States Attorney's office for its cooperation in this matter.
The Commission is continuing its investigation in this matter.