The new financial strength of Kidder with its comprehension of the investment bank industry should create a very powerful institution.
In October 1986 problems for Kidder Peabody started, Ivan Boesky was arrested for insider trading and he implicated Mr. Siegel who had been head of Kidder M&A department. After that between December and February they decided a profound restructuring in Kidders management structure and organization. The reorganization counted the three main departments:
1) investment and merchant bank, asset finance and fixed income
2) equity operation
3) municipal security
During this period many profitable brokers and managers lest the company because they were unhappy for the decision taken by the parent company (GE) and the cost cutting, which reduced their bonuses. Following Mr. Wigton and Mr. Tabor a manager and a former employee of Kidder Peabody were arrested for insider trading. At that time the firm had $90 million profit in 1986; it made a deal with the authorities and the New York Stock Exchange (NYSE) fined Kidder Peabody $300.000 for alleged violations of capital and other rules. Also Mr. Roche, president of Kidder Peabody, was fined $25.000 to not have controlled what was happening in his company. Furthermore in May 1987 the management was fully replaced and Mr. Cathar, a GEFS man, became the new CEO. In 1989 GEFS acquired the remaining 20% of Kidder Peabody. It had to close risk arbitrage department because of legal problem with Sec and NYSE. It reported $53 and $54 million losses in 1989 and 1990.
Since 1991 the firm started to recover making good profit but in 1994 the US authorities discovered a problem with the book keeping. Jospeh Jett was head of the bond department and was found guilty for the $350 million of false profit that Kidder Peabody had r View More »