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The former chairman and chief executive officer of Keefe, Bruyette & Woods Inc., a New York-based investment banking boutique, was sentenced Thursday to eight months in prison and hit with a $25,000 fine for passing inside information to his adult-film-star mistress. James J. McDermott Jr., 49, is the first chief executive of a well-known Wall Street firm to be convicted of insider trading, according to the Securities and Exchange Commission. He could have faced more than two years in prison for his conviction last April on securities fraud and conspiracy charges. McDermott was found guilty of stealing confidential information from his firm about five merger deals and passing it on to Kathryn B. Gannon, an exotic dancer and X-rated-video star. The scandal forced Keefe Bruyette to withdraw its initial public offering, which had been set for May 1999 and was expected to generate about $85 million. The derailing of that IPO caused one of the three founders of the investment bank, Harry Keefe, to write a letter to U.S. District Judge Kimba Wood asking that she not show McDermott any mercy. “McDermott is a well-informed man of considerable intelligence,” Keefe said in the July 18 letter. “It would not be fair that he be shown leniency when he knowingly not only broke the law but also caused injury to so many others.” He further wrote that the “McDermott mess” was “extremely embarrassing to me and Gene Bruyette [another founder].” He added that even though he wasn’t hurt financially, “one fellow director and an employee for 30 years suffered an $18 million loss when KBW was forced to withdraw its public offering.” At the sentencing, McDermott faced a packed courtroom and apologized to his wife and two daughters for his conduct. He said media reports calling him the “stud stock-picker” and “master of the universe” mischaracterized him. “Those things couldn’t be further from the truth. I’m just an average person who tried to work hard and give back,” he said. Denis McInerney, McDermott’s lawyer, portrayed his client as a defendant who didn’t profit financially from his crime and as a civic-minded leader and devoted father whose eldest daughter is facing unspecified emotional difficulties. Nevertheless, Judge Wood found that prison time was mandatory because McDermott abused his position of trust as head of Keefe Bruyette. She also took into account the $71,000 in profits that Gannon and another defendant in the case earned and McDermott’s prior convictions for drunk driving. Those infractions plus the insider-trading charges show “a recklessness toward the public interest,” she said. McDermott was also ordered to complete 300 hours of community service, attend an alcoholism treatment program and to surrender Sept. 12. A related SEC civil case against him is pending. Gannon, a Canadian citizen, is fighting extradition to the U.S. from Canada. Copyright �2000 TDD, LLC. All rights reserved.

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