Playing the Market
On Jan. 20 both Gannon, 30, and McDermott, 48, were indicted in a New York City federal court on multiple counts of securities fraud. If convicted, they could each be sentenced to up to 15 years in prison. Though it was the first time anyone could remember a CEO's being nabbed for insider trading, what really set tongues wagging was the improbable pairing of a master of the universe with a porn-screen queen. McDermott was one of Wall Street's most visible and influential banking industry spokesmen, appearing routinely on financial news shows. "He is a man of strong convictions, an honorable individual," says financial consultant and longtime friend Frank Harwell, who was shocked by the accusations of insider trading. "I just can't believe he would do it." In tony Briarciiff Manor, the New York City suburb where McDermott lives quietly on a $3 million estate with his wife, Darian, and two teenage daughters, neighbors seemed equally stunned.
To those who know Gannon, however, the alleged affair, at least, seems much less a mystery. During her decade on the strip-joint and porn circuits, the chesty 4'11" blonde, described by one porn video producer as a "Barbie doll on steroids," was known for her drive and ambition. "She had an affinity for wealthy and powerful men," says Gene Ross, a vice president at Adult Video News, a porn trade paper. "She once told me men were meant to carry her luggage."
Still, Gannon's fall on insider trading tips that allegedly had netted her $88,000 left her friends baffled. "She was probably making $200,000 a year," says Danny Carrelli, who directed Gannon's last three films before she retired from the screen last year. Marc Medoff, a close friend and president of a wire service covering the adult entertainment business, says, "She was in love with McDermott and would have married him had he been available." According to Gannon's friends, when it became clear that he wasn't, the pair parted ways in late 1998. "She had to move on with her life," says Medoff.
In fact, she has been on the move almost since her childhood in Edmonton, Alta. After her parents, teachers William and Barbara, divorced when she was around 12, Gannon, who has two younger brothers, shuttled between her mother in Prince George, B.C., and her grandmother in Vermilion, Alta. As a child, she studied ballet and was among the girls picked to pirouette for Prince Charles at Expo '86 in Vancouver.
In the late '80s she entered the premed program at the University of Alberta and subsidized her education by working as a tree planter in rural northern Alberta. But after winning an amateur erotic-dance contest, Gannon turned from studying to stripping. She started by dancing at bachelor parties, then made her way to the Showgirls strip club in Edmonton, where dancers are paid about $55 for an 18-minute show. Club manager Dale Duchesne remembers Gannon as an average dancer but says she was intelligent, hardworking and among the first wave of strippers who weren't "drunks or cokeheads."
An owner of hundreds of Barbie dolls, Gannon often dressed like the object of her obsession. "She even looked like Barbie, but a smaller version with D-cups," says director Carrelli. Onstage she had enormous energy. "She just rocked," says porn reporter Medoff. "I never saw a stripper who was so focused."
Surely what Gannon wanted, she went after with a vengeance. In December 1993, at a strip joint in Calgary, Alta., she met Bruce Akahoshi, a California produce broker. "We had drinks, she came to my room, the rest is history," says Akahoshi, 52. After three months she moved into his Salinas home; a month later they wed. She filed for divorce in '97. "She married me for her green card," says her ex, "and divorced me two months after she got it."
It was during their marriage that Gannon got into porn. Though she was earning up to $5,000 a week by then, she hoped a screen career would boost her stripping fees. "Once the girls start doing the porno movies," says Duchesne, "their prices go through the roof." She gave herself the screen name of Marylin Star (the unusual spelling resulted from a misprint) and negotiated a $52,000, 12-film deal with Video Team Productions in Los Angeles. Her producer Christian Mann says she had "poofy hair, silicone boobs, high heels and makeup—your typical porno-actress stereotype."
As her career grew, Gannon developed a hunger for wealth and cultivated extravagant tastes—Prada bags, Gucci shoes, BMW convertibles, pet shih tzus. But friends insist there was always another side to her. "Kathryn was totally different from Marylin Star," says Carrelli. "She wanted to be married and loved."
That, seemingly, is where McDermott came in. "I believe she was in love with him totally," says Carrelli. In her only interview since the scandal erupted, Gannon told Medoff that McDermott had provided emotional support after her father's death from lung cancer in 1996. Gannon maintained she didn't know she was breaking the law when she traded stocks after getting advice from McDermott. Prosecutors say, however, that she got tips about six potential bank mergers and acquisitions and that she passed the information along to another lover, New Jersey businessman Anthony Pomponio, 45, who was also charged with securities fraud. "I trusted older, more experienced, powerful, wealthy people," she said. "For God's sake, I'm an adult-movie actress, not a professor of economics."
Neither is McDermott, but he certainly knew the SEC's stringent rules on insider trading. While his friend Frank Harwell concedes an extramarital affair is not beyond the realm of possibility—"He likes to look at pretty girls," says Harwell—he thinks that McDermott is simply too smart and too ethical to commit securities fraud. "No one I know believes he would ever do anything illegal," says Harwell. McDermott, who is not accused of making any insider trades for his own benefit, has not yet been able to replace the $4 million salary he forfeited when he resigned from Keefe, Bruyette; and he may yet be barred from working in securities ever again. The day after his arrest and release on a $1 million bond, he told Eileen Weber, 81, a Briarcliff Manor friend, "I've blown it." But his wife, Darian, told Weber she plans to stand by her man. "We've got an investment in this marriage," Weber says Darian told her.
Gannon, meanwhile, is in Canada, waiting to see if the U.S. will press for extradition. "She didn't flee as a result of these charges," says her attorney Howard Shapiro. "She's been living there since last summer." Recently, Gannon told Carrelli she plans to marry Canadian businessman Michael Gilley, 43, on Valentine's Day at a castle in Ireland. Despite her protestations of financial naivete, she said that he has promised her a lucrative job in business. "As far as she is concerned," says Murray Diamond, a stripping booker and an ex-boyfriend, "Marylin Star is dead." And if she has to do time? Says producer Mann: "She'll probably end up captain of her cell block."
Fannie Weinstein in New York City, Lorenzo Benet in Los Angeles and Vivian Smith in Victoria, B.C.