The fact that Marylin Star wasn't there, didn't prevent a trial from starting without her. Closing arguments were heard yesterday in the case to determine whether Star received insider trading tips from James McDermott, once heralded Wall Street's Big Mac of big cheeses. McDermott has been on trial the last two weeks for providing insider trading tips to Star, who's been referred to as his mistress. McDermott allegedly tipped off Star the morning of June 16, 1997 to the first of six potential mergers involving his firm's clients, prosecutors said.
In closing arguments, prosecutors questioned how Star who had no experience in the stock market before she met McDermott, was able to earn close to $90,000 by trading the stocks of relatively unknown regional banks through an account at Charles Schwab as the banks prepared to merge with bigger financial companies.
"Kathryn Gannon's [Star] success rate at trading on mergers is simply phenomenal," Assistant U.S. Attorney General James Benjamin said. "The reason Gannon got it right so often was because she had inside information. She was sleeping with McDermott, the CEO of the company involved."
The closing arguments were heard as McDermott, 48, and Anthony Pompano, 45, stood together in court with their wives as prosecutors detailed each man's romance with Star who's been a fugitive since U.S. authorities issued a warrant for her arrest in December on charges of insider trading.
Prosecutors said McDermott, the former CEO of Keefe, Bruyette & Woods Inc., called Gannon 800 times during the course of an affair that lasted more than a year and gave her confidential information from bank clients who had hired his firm to advise them on potential mergers.
Prosecutors charge that McDermott's information helped Star trade on six banks and financial institutions: Central Fidelity Banks Inc., which was acquired by Wachovia Corp.; Barnett Banks Inc., which was acquired by NationsBank; First Commerce Corp., which was acquired by Banc One; First Commercial Corp., which was acquired by Regions Financial Corp.; California State Bank, which was acquired by First Security Corp.; and Advanta Corp., the proposed acquisition of which by National Australia Bank fell through.
According to federeal prosecutors, Star passed the tips she acquired from McDermott on to Pomponio, the chief executive of a New Jersey company whom she had met in Atlantic City during the East Coast Video Show several years ago. Besides charges of conspiracy and insider trading, Pomponio also is accused of perjury for lying to investigators for the Securities and Exchange Commission when they began probing the pair's trades last year.
Prosecutors said Pomponio earned more than $80,000 by trading the same stocks within days and sometimes minutes of Star's trades. Using bank records, phone records and computer tapes, as well as testimony from financial experts and bank executives, prosecutors explained how Gannon's and Pomponio's trades followed calls from McDermott and preceded acquisitions that caused the stocks of the banks to rise.
McDermott's attorneys argued that he provided Star with stock recommendations rather than inside tips, and that the information he gave her was similar to the sort of public information he provided as a banking expert on investment talk shows.
McDermott's attorney, Denis McInerney, said his client recommended other bank stocks to Star, but in some instances she sold too late or too early to make money.
McInerney also said Star and Pomponio bought stocks of banks that were known as potential takeover targets and that these stocks were publicly recommended by Wall Street analysts outside McDermott's firm.
Barnett was the No. 1 bank in Florida, First Commerce was the No. 1 bank in New Orleans, First Commercial was No. 1 in Arkansas, Central Fidelity was the second-largest bank in Virginia and California State was a large independent bank around Los Angeles, McInerney said.
"If ever there was a bank expert in the court in the 1990s and 1980s, it is Mr. McDermott. There's a reason why he's on TV all the time," McInerney argued. "Is it surprising that McDermott felt the same way as all these other analysts?"
Pomponio's attorney, Thomas Dunn, said his client is "an innocent man" facing an unproven accusation. He asked the jury to acquit Pomponio and to "stand between the awesome power of the U.S. government and Anthony Pomponio."
