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March 29, 2001 04:37pm
Court Overturns Insider Conviction
Source: AP
by: Larry Neumeister

(NEW YORK, NY) -- An appeals court on Thursday overturned the conviction of a former top Wall Street executive alleged to have given inside information on bank stocks to an X-rated movie actress.

The 2nd U.S. Circuit Court of Appeals (news - web sites) in Manhattan ordered a new trial for James McDermott Jr., finding insufficient evidence to convict him of conspiracy but sufficient evidence for other charges.

McDermott, 49, of Briarcliff Manor, N.Y., was sentenced to eight months in prison after a jury concluded the married executive had given inside information to porn star Kathryn Gannon during an affair. He was released from prison in the middle of serving his term on Feb. 14 after arguments before the appeals court made it seem possible the conviction would be overturned, said his lawyer, Robert Anello.

``Mr. McDermott, who has maintained his innocence through these proceedings, as well as his family, has been through an agonizing ordeal,'' Anello said. ``He's gratified by this appellate court decision, which reinforces his confidence in the judicial system.''

Marvin Smilon, a spokesman for U.S. Attorney Mary Jo White, said: ``We are reviewing the opinion.''

Until May 1999, McDermott was president and chief executive officer of Keefe Bruyette & Woods, a New York-based investment bank specializing in mergers and acquisitions in the banking industry.

Gannon, 32, known in the adult film industry as Marylin Star, allegedly passed tips from McDermott to another lover, businessman Anthony Pomponio, 46, of North Caldwell, N.J.

The appeals court concluded McDermott, who began an affair with Gannon in 1996, could not be held liable for insider trades made by Pomponio. Pomponio and Gannon allegedly made $170,000 in illegal profits.

``We decline to hold as a matter of law that a cheating heart must foresee a cheating heart,'' a three-judge panel wrote.

From the start, the case had attracted attention because of Gannon's profession and because McDermott, a $4 million-a-year executive, had achieved fame from appearances on television investment programs.

To limit prejudice, Judge Kimba Wood let lawyers say only that Gannon worked as a dancer, model and actress under the stage name Marylin Star. She also let prosecutors show that Pomponio believed she ``knew a clientele of lawyers, stockbrokers, and such, high-level people'' and that she got her stock trading tips from a ``client'' or a ``boyfriend client.''

The appeals court said the judge went too far in allowing references to Gannon's ``clients,'' saying any rational juror would be likely to speculate that she worked as a prostitute or paid escort.

The appeals court also concluded that McDermott was unfairly prejudiced because he was tried alongside Pomponio, who was sentenced last year to one year and nine months in prison.

At his sentencing, McDermott apologized and said he was misunderstood.

``I was called a stud stock picker, a master of the universe,'' McDermott said. ``Those things couldn't be further from the truth. I'm just an average person who tried to work hard and give back.''

Gannon was arrested last year at her Vancouver, British Columbia, residence and is free on $50,000 bail. She also has a home in Miami.

Extradition proceedings are under way to bring Gannon to the United States.

Gannon starred in more than 60 X-rated movies, including ``Babe Watch 3,'' ``Coming of Age,'' ``Eye Candy,'' ``Passion Potion'' and ``S.M.U.T. 6.''

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