UNITED STATES V. McDERMOTT
245 F.3d 133 (2nd Cir. 2001)
NATURE OF THE CASE: McDermott (D) appealed from a judgment entered against him following
a jury trial convicting him of conspiracy to commit insider trading in violation of 18
U.S.C.S. 371 and of insider trading in violation of 15 U.S.C.S. 78(j)(b), 78ff, and 17
C.F.R. 240.10b-5.
FACTS: D was the president, CEO and Chairman of Keefe Bruyette & Woods ('KBW'), an
investment bank headquartered in New York City that specializes in mergers and acquisitions
in the banking industry. Around 1996, D began having an extramarital affair with Kathryn
Gannon, an adult film star. D made numerous stock recommendations to Gannon. Unbeknownst to
McDermott, Gannon was simultaneously having an affair with Anthony Pomponio and passing
these recommendations to him. Neither Gannon nor Pomponio had extensive training or
expertise in securities trading, together they earned around $170,000 in profits during the
period relevant to this case. The government indicted D, Gannon and Pomponio for conspiracy
to commit insider trading and for insider trading on the theory that D's recommendations to
Gannon were based on non-public, material information. Telephone records revealed that D and
Gannon engaged in approximately 800 telephone calls during the charged period, including up
to 29 calls in one day. Trading records revealed correlations between the telephone calls
and stock trades. D was sentenced to eight months' imprisonment, to be followed by a
two-year term of supervised release, a $25,000 fine and $600 in special assessments. D
appealed on legal insufficiency.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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