Wall Street 'dictator' held sway in false trades scandal: The dealer at the centre of the derivatives scam was a domineering martinet, colleagues say. What might complicate the case is the fact that he is black. Larry Black reports

JOSEPH JETT was a special sort of Wall Street star. The US bond dealer whose derivatives scheme has cost Kidder Peabody, the investment bank owned by General Electric, more than dollars 350m, was widely held to be a domineering martinet who routinely threatened those who resisted his will.

On Monday, when word of his dismissal scrolled across the overhead ticker display in Morgan Stanley's trading room, where he had worked three years earlier, a spontaneous cheer rose up from the ranks of his former colleagues.

At Kidder teamwork is supposed to have replaced the egotism and selfishness that bred 1980s villains like the insider-dealer Martin Siegal.

Yet Mr Jett, 36, was known for admonishing colleagues over the 'hoot and holler' - the firm's internal public address system - and preaching the virtues of greed and 'doing anything to win'.

Salesmen who handled important clients were told they were not 'worthy' of such accounts.

The articulate Mr Jett, a Mahler- loving aesthete who also let it be known on the floor that he was a Kung Fu master, would read account numbers aloud, and warn he would 'personally take accounts away from the under-performers' who failed to move 'his' bonds.

Mr Jett, who joined the bank in 1991 and whose paper profits entitled him to a dollars 9m pay package last year, had no difficulty carrying out such threats.

His confrontational approach seems to have intimidated even his superiors, and on several occasions lucrative accounts were transferred to Jett loyalists.

'There is no question in a system of performance-based compensation, stars end up with a disproportionate amount of power,' conceded Jack Welch, General Electric's chief executive, and the American manager most identified with flattening corporate hierarchies.

But complicating the case of Mr Jett, who in January received Kidder's 'chairman's award' as its most valued employee, is the fact that he is black.

Kidder, which lost an important discrimination suit several years ago involving a female investment banker, has avoided any discussion of race, and the mainstream US business press - wary of any suggestion of bias in its coverage - has gingerly side-stepped the issue.

Needless to say, however, it has been the talk of the trading rooms.

Only the tabloid press has run pictures of Mr Jett, reporting that he was 'one of the most senior African Americans at the firm'.

The Wall Street Journal got around the problem by running a line drawing of Mr Jett with its profile of him earlier this week. It also played down its reporter's discovery that his resume claims a masters degree in business administration from Harvard that he apparently never received.

'The fact that this guy is black has absolutely nothing to do with him losing the firm dollars 350m,' said one Kidder salesman who tangled with Mr Jett on several occasions. 'But Kidder has got to be aware of how delicate this issue is.'

Like many Wall Street firms, Kidder has made an institutional effort in recent years to hire more minority professionals and give them a chance to compete for senior management positions. It requires all new employees to take three hours of 'sensitivity training'

on discrimination issues.

But while such official affirmative-action programmes have gone a long way towards increasing the recruitment and promotion of black Americans by securities firms, racial inequality clearly persists on Wall Street.

Firms can show a large increase in the percentage of senior traders and managing directors who are black, but their numbers are often heavily skewed towards the municipal bond department. They typically deal with professionals who manage the debt of American cities, whose administrations tend to be far more racially integrated than most market participants.

Although not the only African- American managing director at Kidder, Mr Jett was one of the few to have reached prominence in Treasury bond derivatives trading.

Professional associations promoting equal employment opportunity are worried that the scandal will hurt other minority professionals rising through the ranks of US securities firms and corporations.

There is astonishment at the way in which Mr Jett managed to get away with booking more than dollars 10m in phoney strips trades for so long. His activities appear to have gone unnoticed for three years, although Kidder maintains the amounts involved do not appear to have been large until 1993.

Executives from rival firms have suggested it is astounding that Kidder's auditors and finance staff did not detect the problem sooner, particularly given new reports that Mr Jett's trading scheme may have begun in 1991, two years earlier than previously believed.

But associates at Kidder say Mr Jett's ability to disguise his scheme can be explained by his personality, without suggesting he benefited from any special forbearance because of his race.

'He was not the kind of guy who would have given information to anyone about what he was doing,' one colleague said.

'He was a general, a dictator, and he acted as though it was beneath him to explain anything to his subordinates, let alone reveal his strategies.'

The people who worked with him did not have to know what Mr Jett was doing, and did not expect to be told, he argued. 'Why would he want to tell anybody about something that looked like a weakness?'

HOW KIDDER TORE dollars 210M STRIP OFF PROFITS

Only in the past year has Kidder Peabody - the Wall Street investment bank General Electric acquired for dollars 602m in 1986 - begun to look a decent investment, finally bringing a significant contribution of dollars 439m to the conglomerate's bottom line last year.

But it turns out that dollars 350m, before taxes, did not exist. Yesterday, General Electric was obliged to take a dollars 210m charge against first-quarter earnings to cover the cost of reversing profits reported on non-existent US government securities trades.

The charge at Kidder, equal to about 25 cents a share, broke a long string of successively higher earnings for GE, America's biggest and most profitable company, which reported a profit of dollars 1.068bn on sales of dollars 14.1bn - about dollars 1.25 a share - compared with dollars 1.085bn on sales of dollars 12.9bn in the first three months of 1993.

Joseph Jett, the chief US Treasuries trader who executed the scheme, generated the profits on the derivative bonds by exploiting an anomaly in the computer program that tracks the value of Kidder's securities holdings. Mr Jett discovered that by entering contracts for forward sales of bond 'strips' - the interest portion of a note that has temporarily been divorced from the bond's principal - the accounting system credited Kidder immediately with the eventual value of the strip when it was reconsolidated with the rest of the bond.

Normally, the value of the strip would gradually approach its face value as that maturity neared. But Mr Jett never settled the contracts, choosing instead to roll the positions over again and again in ever larger amounts and longer maturities.

(Photograph omitted)