Another head rolls at Kidder as Jett supervisor is axed: Report crticises brokerage firm for lax oversight, poor judgement and missed opportunities

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The Independent Online
KIDDER PEABODY, the Wall Street brokerage, has fired yet another senior executive as a result of its internally commissioned investigation into a trading scandal on its fixed income desk. The findings were released yesterday. The head to roll was that of Melvin Mullin, in charge of fixed income derivatives and former supervisor of Joseph Jett.

Mr Jett was a star trader at Kidder, who stands accused of creating dollars 350m worth of phoney profits from a complex scheme that exploited reporting and accounting loopholes in the market for treasury bond strips - the separated principal and interest components of bonds issued by the United States Treasury.

Mr Mullin's dismissal follows the earlier firings of Michael Carpenter, Kidder chief executive, and Edward Cerullo, head of the firm's fixed income division.

Kidder also demoted and reassigned two employees who had been temporarliy reassigned in April when the scandal broke.

The report was prepared by Gary Lynch, a lawyer and former head of enforcement at the Securities and Exchange Commission. He concluded that Mr Jett knowingly manipulated Kidder's trading and accounting system to generate false profits, but added that no other person acted in concert with him to create false profits. However Mr Lynch's report was highly critical of Kidder management, saying that 'the failure to identify the growing false profits for a period of over two years resulted primarily from lax oversight as well as poor judgements and missed opportunities'.

The report drew a sharp response from Mr Jett's lawyer, Kenneth Warner, who said: 'We find the report to be predictable, one-sided and incomplete. Had Mr Jett's account of what really happened been considered the conclusions of this report would necessarily have been dramatically different. We are confident that when the documents we have demanded are produced - so far, not one of them has been - and when a truly independent investigation is completed, my client will be fully vindicated.'

Mr Jett and his ex-firm are embroiled in a legal battle over dollars 8m worth of bonus payments.

The scandal has been an embarrassment for General Electric, the conglomerate that owns Kidder and prides itself on its strong management. Mr Lynch's report does little to dispel the impression of a freewheeling environment during Mr Jett's time, with management failing in its duties and being dazzled by the profits generated by the fixed income desk.