Wall Street Rogues - Page 7 of 9

Wall Street Rogues

found that the agency failed to prove he committed securities fraud because the transactions did not involve buying or selling bonds on an exchange.

Kidder and the SEC accused Jett of concealing a computer accounting glitch that allowed him to report unearned profits — to the tune of $339 million. Jett accused Kidder and its parent, General Electric Co., of racism, asserting that he was merely a scapegoat for an already financially troubled trading firm. GE recorded a $210 million charge to net earnings based on what it described in its Aug. 15, 1994, 10-Q filing with the SEC as false trading profits. This would prove to be the final straw for the brokerage firm that had already racked up a series of disappointing financial results. Before the end of that year, GE dismantled Kidder and sold its assets to PaineWebber Group for $670 million.

“There was race involved,” Jett told BE in an exclusive interview. “The media’s fascination with a black man managing that amount of money, in that position, on Wall Street, just kept the focus on me. So a story that would have died in two weeks ended up having a lifetime of five years, even 10 years. People still discuss it today.”

Jett, who has an M.B.A. from Harvard and a chemical engineering degree from MIT, arrived at Kidder in 1991 eager to prove himself. During that time, he made few friends. “I was at Kidder, marching through that company, saying to everyone, ‘I’m not here to be liked. I’m here because I’m more effective than you are, I’m smarter than you are, and I can prove it with the numbers I present,'” says Jett.

At the end of his first year, he earned a $5,000 bonus — meager by Wall Street standards. After that, his profits began to rise dramatically. In 1992, he earned a $2.1 million bonus, and by 1993, his bonus skyrocketed to $9.3 million, earning him a promotion to head of the department. “It was unbelievable that someone could trade as much as I did,” Jett says. “I handled a $37 billion portfolio. The amounts of the trades I did were numbered $2.2 trillion.”

Jett and his team were trading not only the full bond issued by the government, but also separating these bonds into their separate interest payments, or strips, and trading those as well. These complicated transactions were made even more complex when Jett and his team reportedly began trading these securities on a forward basis, booking into their computers trades that were due to take place at some future date rather than on that date. Even though the transaction hadn’t taken place, the Kidder computers immediately calculated the transaction as being profitable. This led to Jett’s huge bonuses — and legal woes. Kidder’s profits swelled, but its management team discovered what amounted to a shortfall of approximately $350 million. Its response was to launch an investigation into the way Jett was stripping and reconstituting bonds.

This investigation led to arbitration proceedings with Jett and his attorney against