U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19250 / June 7, 2005
SECURITIES AND EXCHANGE COMMISSION v. JAMES J. MCDERMOTT JR., et al., Civil Action No. 99 Civ. 12256 (MBM) (S.D.N.Y.) (filed December 21, 1999)
COURT ENTERS FINAL JUDGMENT AGAINST JAMES J. MCDERMOTT AND KATHRYN B. GANNON SEC BARS MCDERMOTT FROM THE SECURITIES INDUSTRY
On May 23, 2005, the U.S. District Court for the Southern District of New York entered final judgments against James J. McDermott, Jr. ("McDermott"), the former Chairman and Chief Executive Officer of Keefe, Bruyette & Woods, Inc., and Kathryn B. Gannon (a.k.a. "Marilyn Starr"), a former actress in adult films, based upon charges of insider trading. In its Complaint filed on December 21, 1999, the Commission alleged that while he was Chairman and Chief Executive Officer of Keefe, Bruyette & Woods, Inc., McDermott provided Gannon with material nonpublic information concerning merger transactions involving Central Fidelity Banks, Inc., Advanta Corporation, Barnett Banks, Inc., First Commerce Corp., California State Bank (West Covina), and First Commercial Corp. The Complaint further alleged that Gannon made illegal profits of at least $88,135 by trading in these securities while in possession of material nonpublic information. In addition, the Complaint alleged that Gannon tipped Anthony Pomponio ("Pomponio") with material nonpublic information in advance of five of the merger transactions, that he traded on the basis of the information, and reaped illegal profits of at least $86,378. The Commission's action against Pomponio continues.
McDermott was indicted by the U.S. Attorney for the Southern District of New York, and on June 29, 2001, pled guilty to a single count of insider trading for tipping Gannon in connection with her trading in the securities of Barnett Banks, Inc., and was sentenced to five months incarceration. On June 12, 2002, Gannon pled guilty to two counts of conspiracy to commit securities fraud in connection with this matter and was sentenced to three months incarceration.
Without admitting or denying the allegations in the Commission's Complaint, McDermott and Gannon each consented to the entry of the final judgment, which permanently enjoins them from violating the antifraud provisions contained within Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Court also ordered McDermott to pay $230,464.23, comprising full disgorgement of Gannon's profits of $88,135.05 and $54,194.13 in prejudgment interest, and a one-time civil penalty of $88,135.05. While the court held Gannon liable for $141,157.75 in disgorgement and prejudgment interest, based on sworn representations in her Statement of Financial Condition dated August 4, 2004, and other documents and information submitted to the Commission, the Court waived payment of disgorgement and prejudgment interest and did not order her to pay a civil penalty.
Today, based on the entry of the Court's injunction, the Commission instituted settled administrative proceedings against McDermott. Without admitting or denying the Commission's findings, McDermott consented to the entry of the Commission's Order, which bars him from associating with any broker, dealer or investment adviser. In the Matter of James J. McDermott, Jr., Administrative Proceeding File No. 3-11943; Securities Exchange Act of 1934 Release No. 51794 (June 7, 2005). See also Litigation Release No. 16395 (December 21, 1999).