KIDDER, PEABODY CENSURED BY S.E.C.
By JAMES STERNGOLD
Published: February 11, 1986
Kidder, Peabody & Company, the Wall Street securities
firm, and its director of operations have been censured
and ordered to tighten procedures for managing
customer-owned securities because of charges that they
mishandled $145 million in customers' securities in late
1983 and 1984, the Securities and Exchange Commission
In the consent decree, Kidder, Peabody and its
operations head, Gerard A. Miller, neither admitted nor
denied the administrative charges, which were first
filed by the S.E.C. last October. But they agreed to
''findings that Kidder willfully violated and Miller
willfully aided and abetted the violations,'' Ira Lee
Sorkin, the S.E.C.'s New York regional administrator,
said in the statement.
The firm was not accused of causing any actual losses
for any customers by its actions involving the
securities. Special Reports Ordered
The decree ordered Kidder, Peabody to have an outside
accountant prepare for the S.E.C. four semiannual
reports on its compliance with the decree.
Mr. Miller was prohibited from supervising the firm's
handling of segregated customer securities until the
first of the reports confirms that procedures are
Kidder, Peabody was charged with several violations of a
rule intended to insure that securities owned by a
firm's customers but held by the firm are safely put
aside in segregated accounts.
The S.E.C. charged that Kidder, Peabody used as much as
$15 million a day of customers' securities as either
collateral for loans to the firm or in repurchase
agreements, a form of short-term loan. It was also
charged with failing to keep accurate records of its
Kidder, Peabody insisted yesterday that the violations
were technical in nature and that they did not endanger
its customers. Hugh R. Covington, a spokesman for the
firm, said that at all times Kidder, Peabody had
sufficient securities on hand to cover any customer
withdrawals of securities. He added that the firm had
not fought the complaint in court because doing so would
have been too costly and time-consuming.
''The rule says what it says,'' Mr. Sorkin responded.
''You can't use customer securities in that way.'' Mr.
Sorkin called the rules on the segregation of customers'
funds ''the heart of the customer protection rules.''
How did Joseph Jett cause Kidder, Peabody & Co. to lose
over $350 million? By Andrew Beattie
The 1980s for Kidder, Peabody & Co. ended on a very sour
note. Its star banker, Marty Siegel, was at the center
of the Ivan Boesky scandal that blew up in 1987. General
Electric (NYSE:GE), parent company to Kidder, Peabody &
Co., acquired the bank and was required to pay $26
million in fines as part of a settlement with then-U.S.
attorney Rudy Giuliani. Slowly, GE built itself back
into profitability under the management of Si Cathcart
and his successor Mike Carpenter.
Unfortunately for Kidder, Peabody & Co., the internal
problems were not over. Joseph Jett was a bond trader on
GE's government bond desk. His job was to skin a profit
from price differences in plain vanilla government bonds
and zero-coupon bonds. Jett's job involved stripping
and/or reconstituting bonds in order to take advantage
of arbitrage. Jett had discovered a glitch in Kidder's
computer system; it would record profits on a forward
reconstitution daily, even if the trades would be
worthless upon settlement.
Kidder, Peabody & Co.'s system was designed to tally
profits while allowing time for trades to settle. By
moving his trades forward again and again, Joseph Jett
was able to keep profits building while delaying the
final transaction that would necessarily cause a loss
equal to the false profits. An upgrade of the system on
the same faulty grounds allowed him to enter more false
trades, which kept them floating longer. GE noticed
Kidder's portfolio was becoming extremely heavy and
over-extended in bonds. GE told Kidder to reduce its
stake, whereupon Jett's scam was revealed.
Around $350 million in false trades were made and $8
million in performance bonuses on false trades were paid
to Jett. Jett's bonuses made him the prime target of a
SEC investigation. Interestingly, Jett denied concealing
the trades and put the blame on Kidder, Peabody & Co.
management, stating that the company knowingly engaged
in fraud in an attempt to wrest control of Kidder,
Peabody & Co. back from GE. His most serious charges
were overturned on appeal. Kidder, Peabody & Co.
untangled from GE when the parent company sold the
investment bank to Paine Webber, presumably out of anger
at having to deal with two high profile trading scandals
during the short time they owned it.
To read more about stock scams, see The Biggest Stock
Scams Of All Time.
This question was answered by Andrew Beattie.
Read more: How did Joseph Jett cause Kidder, Peabody &
Co. to lose over $350 million?
Follow us: Investopedia on Facebook
Mr. Webster was a general partner in the investment
banking firm of Kidder, Peabody and Company. He was a
director of Stone and Webster Engineering corporation.
Stone and Webster Inc., Stone and Webster Service
corporation and the Freeport Sulphur company. Stone and
Webster Inc., and Stone and Webster Engineering were
founded by his father, the late Edwin Sibley Webster Sr.
Birth: Dec. 24, 1899
Death: Nov. 19, 1957
Father: Edwin Sibley Webster
Mother: Jane De Peyster Hovey
Married Jean B. Bennett, 1942
A native of Newton, Mass., Mr. Webster was a graduate
of Harvard university (1923) and the Harvard school of
business administration (1925). Active In Clubs He was
active in a number of clubs and social organizations,
including the Bond club and the Recess club of New York,
the Somerset club of Boston, and the Brookline, Mass.,
Mr. Webster was a general partner in the investment
banking firm of Kidder, Peabody and Company
He was a director of Stone and Webster Engineering
corporation Stone and Webster Inc., Stone and Webster
Service corporation and the Freeport Sulphur company. .
Stone and Webster Inc., and Stone and Webster
Engineering were founded by his father, the late Edwin
Sibley Webster Sr.
1837 George Peabody decided to settle in London,
where he established the banking house of George Peabody
and Company, specializing in foreign exchange and
1854: Junius Spencer Morgan, J. Pierpont Morganís
father, partners with George Peabody in the English
banking house of George Peabody & Co. He succeeds
Peabody as head of the firm and changes its name to J.S.
Morgan & Co. https://www.jpmorgan.com/pages/jpmorgan/emea/uk/about/history
Peabody took Junius Spencer Morgan (father of J. P.
Morgan) into partnership in 1854 to form Peabody, Morgan
& Co., and the two financiers worked together until
Peabody's retirement in 1864;
Morgan had effective control of the business from
During the run on the banks of 1857, Peabody had to
ask the Bank of England for a loan of £800,000: although
rivals tried to force the bank out of business, it
managed to emerge with its credit intact.
Following this crisis, Peabody began to retire from
active business, and in 1864, retired fully (taking with
him much of his capital, amounting to over $10,000,000,
or £2,000,000). Peabody, Morgan & Co. then took the name
J.S. Morgan & Co.. The former UK merchant bank Morgan
Grenfell (now part of Deutsche Bank), international
universal bank JPMorgan Chase and investment bank Morgan
Stanley can all trace their roots to Peabody's bank.
1965 Kidder, Peabody & Co. was an American securities
firm, established in Massachusetts in 1865. Its
operations included investment banking, brokerage, and
The Firm was sold to the General Electric Company in
Headquarters: Boston, MA
Founder: Henry P. Kidder
Ceased operations: 1994
1869 George Peabody died in London on November 4,
Kidder,Peabody & Company was an American securities
firm,established in Mass. in 1865.Its operations
included investment,banking, brokage, and trading.
The firm was sold to the General Electric Company in
1986. Following heavy loses. it was then sold to
PaineWebber in 1994.
After the sale by WebberPaine, the Kidder,Peabody was
dropped, ending the firms 130 year present on Wall
In November 2000, PaineWebber itself was merged with
GE bought Kidder, Peabody, then a 121-year-old stately
investment house, for $600 million in 1986.
Kidder Faces Life After Siegel3 INDICTED ON INSIDER CHARGES
By WILLIAM GLABERSON
Published: February 22, 1987
IN the days when Martin A. Siegel was riding high as one of the country's top
takeover specialists, junior associates at Kidder, Peabody & Company admiringly
called him the barracuda. ''He was pretty, he was smooth and he was fast,'' one
of them explained.
He was, in short, all the things Kidder, Peabody was not. The 122-year old
investment bank was decidedly unflashy. It was plagued with uncertainty about
the role it wanted to play on Wall Street. And it moved painfully slowly in a
financial world that was racing ever faster.
For many years, the mismatch seemed to work. Mr. Siegel brought Kidder to the
forefront of the takeover business by persuading companies that they needed him
to defend against unwanted takeover bids. In the process, the young investment
banker became a star.
Mr. Siegel was a Kidder Peabody man. He arrived there at the age of 23 and did
not leave for 15 years. But he outshone his firm in public, gained extraordinary
influence in private and grew impatient with its progress.
Now, because of Mr. Siegel, Kidder has been drawn into the insider-trading
scandal. By his own account, he was routinely violating the law, supplying Ivan
Boesky, and, the government charges, Kidder's own traders, with confidential
information on corporate strategies. Kidder has not been charged with any
It may be hard to understand why a polished family man who reportedly earned
$2.5 million a year would descend into the world of passwords and bagmen (see
box). Certainly, plenty of people at other Wall Street firms joined in the
insider-trading feast over the years.
But to some extent, the tensions between Kidder and the superstar it fostered
may have contributed to pressures that helped lead both astray. As Kidder
struggled to define itself, an impatient Mr. Siegel may have come to conclude
that he did not have to answer to anyone but himself.
In any event, the scandal may well impede Kidder's hopes of becoming a top-tier
investment bank. Last April, Kidder took a major step in that direction. In
exchange for access to several hundred million dollars of desperately needed new
capital, it sold an 80 percent interest to the General Electric Corporation. But
now, Kidder's managers are likely to be preoccupied with the scandal for years,
and the effect of the scandal on current and potential customers is not yet
There was speculation on Wall Street last week that G.E. might even lean on
Kidder's partners to return some of the generous $600 million the company paid
for its stake in Kidder, now that legal expenses are likely to begin to mount.
G.E. would not comment on the rumors.
Analysts were already wondering whether Kidder, even with G.E.'s backing, could
climb up sharply in the major leagues of investment banking, which is largely
monopolized by a half-dozen firms.
''Negative publicity - and this certainly is negative - is not going to help
us,'' a firm spokesman said. ''But we are going to mount a vigorous defense and
we believe that we are going to be exonerated.''
This is not the first time in recent years that the firm has had to cope with
bad publicity. In 1984, Peter N. Brant, Kidder's $1 million-a-year stockbroker,
embarrassed the firm by testifying that he set up a scheme to trade on tips fed
to him by former Wall Street Journal reporter R. Foster Winans. Mr. Brant
pleaded guilty to criminal charges.
Despite the current scandal, Kidder says its expansion plans are still on track.
G.E. has provided a credit line of $500 million for short-term financing so that
Kidder can compete with several other top firms that are moving into merchant
banking. In merchant banking, institutions not only advise companies on
takeovers and acquisitions but provide financing as well, earning huge fees. In
1985, Kidder says, it placed $500 million of high-yield debt securities. In
1986, that was up to $2.5 billion.
The firm also scoffs at widespread suggestions on Wall Street that Kidder's
mergers and acquisitions unit was stalled when Mr. Siegel left a year ago.
''Now,'' says a spokesman, ''you no longer have one superstar, you have a group
of people who are working together.'' Internal Kidder reports indicate that the
firm's mergers and acquisitions fees continued to increase after Mr. Siegel left
No Kidder or General Electric executive would be interviewed for attribution for
this story. Both companies said it would be inappropriate to talk in the midst
of a government investigation. Kidder eventually decided to make a spokesman
available for an interview on the condition he not be identified. Current and
former employees also asked that they not be identified.
Inside Kidder Peabody last week, there was a lot of damage-assessment going on,
as lawyers and executives began to map out their response to Mr. Siegel's
charges. Mr. Siegel pleaded guilty on Feb. 13 to misusing inside information.
The government also charged that Kidder's arbitragers made millions for the
firm's own account by using illegal tips Mr. Siegel fed them. ''There seemed to
be a very real expectation that Siegel was about to go down,'' one Kidder
insider said, ''but nobody expected that he would try to take Kidder down with
Kidder Faces Life After Siegel
Published: February 22, 1987
(Page 2 of 4)
Indeed, Mr. Siegel's accusations, if true, could jeopardize embroil the firm in
countless lawsuits. Two of its arbitragers, Timothy L. Tabor, who left the firm
last year, and Richard Wigton, are facing criminal charges. Both men say they
plan to fight the charges. Federal prosecutors have subpoened Kidder's trading
One key question is likely to be whether Kidder did a proper job of preventing
its investment bankers from leaking confidential information to its traders. In
the securities business the process is known as maintaining a ''Chinese Wall.''
Government investigators are likely to examine whether Mr. Siegel and other
Kidder investment banking executives were too deeply involved in the firm's
arbitrage operation, which traded in takeover stocks. Mr. Siegel and another
Kidder executive, Max C. Chapman Jr., studied whether to move the firm into
arbitrage trading in 1979, a company spokesman said. At that time, Kidder
decided not to create a formal arbitrage department, the spokesman said.
Later, according to the government, Mr. Siegel would periodically advise the
firm's arbitragers about stock positions based on inside tips he obtained from a
source at Goldman, Sachs & Company. Mr. Siegel was held in awe throughout the
firm and Kidder sources say that, though he had no formal role in the arbitrage
operation, his frequently offered suggestions on takeover stocks were almost
always followed. According to sources familiar with the investigation, Mr.
Wigton and Mr. Tabor will say they were never told the source of Mr. Siegel's
The separation of traders and corporate advisers ''is an extremely fundamental
principle,'' said Albert I. Borowitz, a securities specialist at the law firm of
Jones Day Reavis & Pogue. ''Any firm that is responsible, that engages in
corporate finance and trading, has a Chinese Wall and other procedures to
prevent the abuse of confidential information.''
Kidder's spokesman said the firm had a strict policy that prevented investment
bankers from talking about their own deals. However, the spokesman said:
''People in the mergers and acquisitions department are going talk to people in
the trading department.''
To those who know Kidder best, there was a painful familiarity about the damage
the Siegel episode might do to Kidder's hopes. In the long tenure of the firm's
all-powerful chairman, Ralph D. DeNunzio, Kidder has not seemed able to sustain
momentum in climbing the investment banking ranks, critics say.
Mr. DeNunzio is a big block of a man who easily dominates any room he is in. He
can display, people who know him say, the charm of the salesman he was until he
began to climb the ranks of the Kidder organization. He moved from sales to head
the firm's syndication department. Ultimately, he rose in administration under
the firm's aging patriarch, Albert H. Gordon, whom he eventually replaced as
chairman. MR. DeNUNZIO may have recognized something of himself in the youthful
assurance of Mr. Siegel. Mr. DeNunzio, too, was a star at an early age. In 1971,
at the age of 39, he was appointed chairman of the New York Stock Exchange,
making him the Big Board's second youngest chairman ever. Many securities
professionals credit him with saving them from a slew of back-office and
modernization problems that threatened the industry when he took office.
Once in power at Kidder in the late 1970s, however, veterans say Mr. DeNunzio
exhibited two key weaknesses that may have kept the firm, from & becoming one of
the nation's premier investment banking houses. One concerned strategy. The
other concerned the firm's leadership.
Though he is an aggressive manager, Mr. DeNunzio's interests tend to be in the
details of running the firm and not in larger policy questions or long-term
strategy. For years, for example, he insisted that the regional managers of
Kidder's extensive retail brokerage operation report directly to him.
By about 1980, many insiders felt Kidder had to choose between two courses. It
could either remain a powerful niche firm or try to move into the top rank, as
Drexal Burnham Lambert did in the early 1980s with its strong drive into
Kidder was an old-line firm that traced its roots back to genteel Boston
investment circles in the 1820s and it lacked the style of some of its bigger
competitors. Its lower Manhattan headquarters are furnished with a blandness
that for years has been referred to as ''neo-Holiday Inn'' by staffers.
Kidder always had less capital than other investment banks. Between 1979 and
1985, for example, it increased its capital from $92.4 million to $391.9
million. Others in the industry improved their positions too, however. Kidder
ranked fifteenth in both years.
It was, however, a prestigious presence in the industry and had some major
corporate clients, including Gulf & Western Corporation. And it had solid ties
with many small and medium-size companies.
Kidder could have survived in the short term, many insiders believed; it enjoyed
a healthy 20 percent return on its equity.But many insiders felt it would not
find a place in the future unless it undertook a major expansion. Said one
former corporate finance partner: ''The firm was sick, but it didn't have a
heart attack, it had a chronic illness.''
Mr. DeNunzio would not make a decision. He was, however, against going public
and he rebuffed corporate suitors that expressed interest in acquiring Kidder.
The result was confusion. ''We'd have management meetings and it would be like a
split personality,'' said one former partner. ''Half the group wanted to be
junk-bond kings and the other half wanted to be white-shoe bankers.''
Mr. Siegel and others believed the only choice was to try to push revenues up in
order to increase the firm's financial base. Some of the firm's key people
thought speculation in takeover stocks would be a good way to increase Kidder's
revenues. ''At the highest levels of the firm,'' says one long time Kidder
veteran, ''they were quite envious of the money being made in other firms in
risk arbitrage. I heard it said by top people that we weren't making money the
way some people were.'' In their eagerness for profits, government charges
suggest, some of Kidder's executives broke the law.
While the firm was debating its future, Mr. DeNunzio, then in his mid-50s,
refused to annoint a successor. Mr. Siegel was especially frustrated by this,
people who worked with him said. He was bringing in huge billings and emerging
as a major star outside of the firm. But inside, he was not getting the
recognition or compensation he felt he was entitled to, according to associates
at the time. Eventually, Mr. DeNunzio seemed to settle on three possible new
leaders: Mr. Siegel, Mr. Chapman, who had led the firm into highly complex,
lucrative trading in financial futures, and Michael Hernandez, who headed the
successful municipal finance division. But that recognition for Mr. Siegel was
extremely tentative. Mr. DeNunzio had been known to change his mind before.
Some in the office believed he would never allow anyone to move into power as
long as he was around. ''As you grew,'' said one man who worked with Mr.
DeNunzio, ''he became less comfortable with you.'' Last year, Mr. Siegel left to
join Drexel Burnham and Mr. Hernandez went to First Boston. Mr. Chapman, a tough
former marine and University of North Carolina football player, was named
Kidder's president this fall.
One young investment banker says Mr. DeNunzio would sometimes undermine the
firm's rising stars. One afternoon in the summer of 1985, long before Mr. Siegel
had been implicated in insider trading, the young investment banker ran into Mr.
DeNunzio. The chairman mentioned a story in a trade paper that said Mr. Siegel
was losing some of his hold on the rich takeover business.
It was bad news for Kidder, but Mr. DeNunzio, the young banker remembers,
appeared oddly satisfied. That, the investment banker said, ''seemed to me to be
strange for the head of the firm, since Marty was its star.''
''Marty,'' as everyone in the first-name-basis acquisition game came to call
him, had not always been a star. A bright, slightly overweight, kid from a
lower- middle class family, he had arrived at Kidder by way of Harvard. He had
two sharkskin suits, a friend from those days remembers.
But within a few years, Siegel drastically changed - as though he had decided he
needed an image that would carry him beyond the slightly frumpy surroundings of
Kidder's 10 Hanover Square offices. ''All of a sudden he really started taking
care of himself,'' the friend remembers. He lost about 50 pounds and bought
expensive three-piece suits.
About the same time, he started to get more aggressive around the office. Though
he never headed the merger department at Kidder, he would sometimes have as many
as fifty young corporate finance associates researching companies and analyzing
deals for him. He put together what was essentially a sales pitch for boards of
directors and he took it on the road. He would speak, sometime for hours, about
the risks of hostile tender offers, which were just coming into favor as a tool
to take control of public companies.
He had command of the subject and he won the trust of the board members. ''It
was a tremendous show,'' said one of the people who worked with him at the time,
''Implicitly, it told the C.E.O.: 'you worked your whole life to get here, don't
lose it.' '' In some years, Kidder had 80 or more companies paying in $100,000
annual retainers in the ''tender defense program'' alone.
His entrepreneurial style set him apart at Kidder, where he was, a company
spokesman was eager to point out last week, ''always a little bit of a lone
wolf.'' He was a star at a house that had few stars and he often told people
that he thought he deserved more from Kidder.
THOUGH he would sometimes go off to Mr. DeNunzio's weekend ski house in Vermont
and the two were profesionally close, few at Kidder knew how close the
relationship was beyond that. Outside the firm, too, Mr. Siegel was a bit apart.
Kidder was not known for its aggressiveness, yet Mr. Siegel was in the cutthroat
merger world, which allowed little room for gentility.
He socialized little with the takeover chiefs at the other firms - a group that
is quite social. Unlike his colleagues, who spent much of their time planning
strategy at their home offices in New York, Mr. Siegel was always taking his
presentation from board room to board room. One investment banker remembers him
as ''the man in the airplane.''
Kidder Faces Life After Siegel
Published: February 22, 1987
(Page 4 of 4)
Kidder insiders say they can see how Mr. Siegel's star status and Kidder's
informal structure could have created an atmosphere in which the rules were not
strictly observed. If the firm had hired a top-notch arbitrger, there might have
been less need for communication between the traders and Mr. Siegel. Said one
employee, ''it's a firm that's lean and that doesn't like to hire expensive
stars from the outside. Marty, because of his mergers and acquisition experience
probably knew more about the arbs than anybody.''
In many of the insider trading cases that have come to light this year, managers
may be to blame for staying too far out of sight, said William R. Dill,
president of Babson College and former dean of the New York University Graduate
School of Business. ''I suspect that part of the problem is that some of the
sager old hands probably looked at this and said, 'It's going well, why
interfere with their entrepreneurial drive? And if I wanted to delve into it,
I'm not sure I would be able to understand what they're up to anyway.''
Even extremely rigorous controls probably would not have stopped Mr. Siegel from
trafficking illegally in confidential information, and firms very different from
Kidder face similar situations. Nonetheless, as it ponders its future, Kidder
will undoubtedly be asking itself whether it contributed to its own problems.
EXPLAINING THE GREED
The insider trading scandal prompts psychologists to attempt an explanation of
the reckless drive for wealth of some on Wall Street.
Why would prominent investment bankers and lawyers risk jail and the destruction
of exemplary careers by flouting the rules of the financial game? Is the
amassing of ever-greater wealth enough to justify illegally taking advantage of
While no one can pretend to analyze the deep inner motives of the dozen or so
businessmen against whom the S.E.C. has brought charges, psychologists draw on
their familiarity with similar clinical cases to offer some insights.
''In people with a maniacal acquisitive drive, the money itself is just a way of
keeping score in a psychological game,'' said Steven Berglass, a clinical
psychologist at Boston University, who wrote ''The Success Syndrome.'' According
to Mr. Berglass and other psychologists, many of those who are driven to success
at any cost have had experiences in childhood that led them to a deep fear of
failure, a fear that underlies their struggles to succeed. Sometimes a feeling
of having been unloved or rejected in childhood leaves an emotional hunger in
which money becomes a concrete symbol of personal worth, and the accumulation of
vast sums a proof to themselves that they are lovable.
Often it is a failed father, or one who was once successful but then faltered,
that causes the anxiety about success. ''The son, as a grown man, harbors a deep
fear that he, too, will fail,'' said Dr. Berglass. ''He overcompensates, pinning
his emotional well-being and self-esteem on his ability to sustain ever-greater
But success, by its very nature, makes that an almost impossible goal to
sustain, Dr. Berglass points out. ''Each success sets a new, higher mark in an
inexorable process that pushes you, finally, to gain the edge that only bending
the rules will give you,'' said Dr. Berglass. ''It is not criminal intent so
much as the dread of failing.''
Success, too, both requires and breeds a sense of specialness, a feeling of
capability greater than most. That, psychologists say, is healthy, even
essential, to a point. But the sense of being special can shade over into what
psychoanalysts call ''narcissistic entitlement,'' the feeling that one is so
special that the rules and laws do not apply to oneself.
Apart from personal motives, being part of a group of people who are all
involved in the same endeavors can also make one more likely to take risks.
Social psychologists have long known about a phenomenon called the ''risky
shift,'' in which people who would normally be conservative in their actions are
cajoled into taking risks when they become part of a group. And an atmosphere
such as that of Wall Street, where risk is in the air, can make the actions of
an investment banker all the bolder. - DANIEL GOLEMAN
Photo of Ralph D. DeNunzio (NYT/Jack Manning); Photo of Martin A. Siegel (Armen
Kachaturian); Photos of the founding partners left, Henry P. Kidder, Francis H.
Peabody and Oliver W. Peabody, who founded Kidder, Peabody in 1824 (page 29)
By JAMES STERNGOLD
Published: April 10, 1987
A Federal grand jury yesterday indicted three senior
Wall Street traders who had been arrested in February on charges of insider
The three, Robert M. Freeman, 44 years old, director of
arbitrage at Goldman, Sachs & Company; Richard B. Wigton, 52, head of arbitrage
& Company , and
Timothy L. Tabor, 33, a former arbitrage trader at Kidder, Peabody, were each
charged with four felony counts. The long-awaited charges included conspiracy to
commit securities, mail and wire fraud and three counts of having committed
Through their lawyers, each denied the charges in the indictment, obtained by the United States Attorney in
A number of lawyers involved in the case, criminal law
experts and Wall Street executives said they were struck
more by what was not in yesterday's indictment than by
what was included. The nine-page document repeats much
of the information in the original complaint filed at
the time of the traders' arrests, but it contains less
information, in several respects, than that complaint.
No Other Stocks Mentioned
No new stocks were identified as the subject of the
insider trading. As in the complaints, the only stocks
mentioned were of the Unocal Corporation and Storer
Communications Inc., and there was no reference to the
Continental Group Inc.
Martin A. Siegel, a former Kidder, Peabody investment
banker, previously pleaded guilty to a charge that he
had received an inside tip about Continental from Mr.
Freeman, and then had Kidder, Peabody profit from
trading in its stock.
In subpoenas issued to the firms after the arrests, the
Government sought information about more than 40
companies that had been involved in takeovers or were
clients of the firms, sources with knowledge of the
investigation have said. The sources said that subpoenas
were also issued to individuals at each of the firms.
In a search warrant obtained to collect records from Mr.
Freeman's office in February, the Government also
alleged that Mr. Freeman told Mr. Siegel he had created
''padded'' research files on stocks in which he traded
illegally, so it would appear that the trades were based
on legal information.
'From what I know there is substantial material that could be used to impeach
Mr. Siegel's testimony,'' said Andrew Lawler, Mr. Tabor's attorney. ''We intend
to enter a plea of not guilty and to aggressively litigate.''
According to the indictment, from June 1984 to January
1986 Mr. Siegel swapped tips with Mr. Freeman about
pending takeover transactions on which their firms were
working. Secret Details on Storer
Mr. Siegel reportedly
leaked secret details of a takeover involving Storer
Communications to Mr. Freeman. Mr. Freeman is said to
have then traded with that information, earning
unspecified profits for himself, his family and Goldman,
In turn, Mr. Freeman is said to have tipped off Mr.
Siegel about a takeover bid involving Unocal, a Goldman,
Sachs client. Mr. Siegel is said to have passed this
information to Mr. Wigton and Mr. Tabor, who used it to
earn unspecified profits for Kidder, Peabody.
''Mr. Freeman will plead not guilty, and we look forward
to going to trial,'' said Paul J. Curran, Mr. Freeman's
''Mr. Wigton will be found innocent,'' said Stanley
Arkin, his attorney. Kidder, Peabody suspended Mr.
Wigton without pay yesterday, pending a trial, the
Mr. Freeman remains a partner at Goldman, Sachs. Sources
close to the firm said that since his arrest he had been
spending most of his time helping to prepare his
Mr. Tabor is currently unemployed.
photo of Robert M. Freeman; photo of Richard B. Wigton;
photo of Timothy L. Tabor
Neither Kidder, Peabody nor Goldman, Sachs was charged
in yesterday's indictment, despite the Government's
allegation that they had profited from the trading.
An arraignment of the three
traders was set for next Thursday in Federal District
Court in Manhattan. Would Be First Insider Trials
The lawyers for the indicted traders said that they
planned to fight the charges in court and insisted that
their clients would be vindicated. Their responses
indicated that the Government might face its first
trials since the scandal blew up last May with the
arrest of Dennis B. Levine, a former investment banker
at Drexel Burnham Lambert Inc. Up to now, 10 investment
bankers or lawyers have pleaded guilty to felony charges
or agreed to do so, without one case having gone to
The indictment had been
expected since the three were dramatically arrested,
shocking Wall Street and heightening the nervousness
created by the spreading scandal.
Mr. Tabor was arrested at his Manhattan home late on
Feb. 11 and Mr. Freeman and Mr. Wigton were taken from
their offices on Feb. 12.
ll had been implicated by Mr. Siegel, a former senior
investment banker and takeover specialist at Kidder,
Peabody. He pleaded guilty on Feb. 13, the day after Mr.
Freeman and Mr. Wigton were arrested. He also settled
Securities and Exchange Commission charges that he had
sold inside tips for $700,000 to the arbitrager Ivan F.
Boesky. Siegel Only Known Source
In its original complaint,
the Government hinted that its charges had resulted from
information provided by sources in addition to Mr.
Siegel, although it did not identify the sources. Nor
did the indictment issued yesterday refer to any other
potential witnesses. The defense lawyers involved
indicated that they looked forward to cross-examining
Mr. Siegel, should he be a key Government witness.
PaineWebber was sold to UBS
As of January 1, 1995, Kidder Peabody
Group Inc. was acquired by UBS
Wealth Management USA. Kidder, Peabody Group provides
investment banking and securities services to
individuals, corporations, institutions and governments.
Kidder Peabody Group Inc. was founded in 1865 and is
based in New York, New York. http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=2416989
GE's Investment in Kidder Finally Pays
The sale of PaineWebber is at least a partial victory
Tim Arango Jul 12, 2000 7:36 PM EDT
Updated from 12:02 p.m. EDT
A Wall Street story that began in the 1980s concluded
Tucked in the shadows of the buyout of PaineWebber ( PWJ)
by the Swiss investment bank UBS ( UBS) is both the
tangled wreckage of Kidder, Peabody -- the once-esteemed
Wall Street brokerage firm that collapsed in 1994 under
the weight of a bond trading scandal -- and the
ambitions of General Electric ( GE) to become a Wall
GE bought Kidder, Peabody, then a 121-year-old stately
investment house, for $600 million in 1986. What ensued
was a nearly decade-long stint on Wall Street by GE,
punctuated by financial scandals and waning profits at
Kidder, that culminated in the 1994 sale of its stake to
PaineWebber for $670 million in stock, giving GE a
nearly 25% stake in that firm.
With the sale of PaineWebber to UBS, GE stands to gain
about $1.5 billion. In 1998, it reaped about $400
million when it lowered its stake in the brokerage to
Not bad for an investment that once raised the ire of
shareholders and dragged the perennial blue-chip
company's stock to an approximate 40% discount to the
"It was like GE lost its mind," said Nicolas Heyman, an
analyst at Prudential Securities who has long followed
GE, describing the sentiment of the time of the Kidder
buyout. "This redeems GE in terms of saying that they
stuck with Kidder, Peabody, and generated almost $2
billion out of a disaster. I would say this is a very
favorable way to close out the chapter of the Kidder,
Peabody book." Prudential has not acted as an
underwriter for GE. Heyman rates GE a buy
With a bit of self-deprecation, Jack Welch, chief
executive of GE, praised the PaineWebber-UBS deal.
"Anyone who knows GE's history in the brokerage
business, knows we weren't so good at the game," he said
Wednesday in a statement. "However, PaineWebber had the
experience and leadership to leverage our Kidder Peabody
"We're pleased with the merger of PaineWebber and UBS,
which adds to the strong global franchise UBS enjoys
today, and dramatically increases its U.S. presence,"
Welch said. "We're confident of the strategic fit of
these two businesses and will vote our shares in support
of this transaction."
Shortly after GE bought Kidder in 1986, a skein of
insider trading scandals, which came to define the
Street of the 1980s and were depicted in the James
Stewart bestseller Den of Thieves, swept Wall Street.
The firm was implicated when former Kidder executive
Martin Seigel -- who had since left for Michael Milken's
junk-bond investment firm, Drexel Burnham Lambert --
admitted to selling inside information.
"We never would have touched Kidder Peabody with a
10-foot pole if we knew there was a skunk in the place,"
Welch said to Kidder employees in a speech in early
1988, as reported in Fortune magazine, shortly after the
scandal broke. "Unfortunately we did, and now we've got
to live with it. But we're as committed to winning as we
were on day one. We'd love you to win -- more than any
mother in the world."
It wasn't the insider trading scandals of the 1980s,
however, that brought Kidder down. Although weakened by
lawsuits and Securities and Exchange Commission fines,
the company managed to survive until 1994 when another
scandal, this one involving a bond trader who
manufactured $350 million in paper profits to mask
trading losses, forced the firm's collapse.
Out of patience, GE ripped Kidder apart and sold its
assets to PaineWebber, in an all-stock deal. In the
process it took a hit of 45 cents a share against its
1994 fourth-quarter earnings.
Wednesday's sale of PaineWebber is at least a partial
redemption for GE's frustrating foray into the Wall
Street brokerage business, analysts said.
"This is a victory for GE shareholders at the time, GE
shareholders who were punished," said Lawrence Horan, an
analyst at Parker/Hunter who covers General Electric.
Horan's firm has not performed investment banking
services for GE and Horan has a buy rating on the stock.
GE finished up 1 1/2, or 2.9%, at 53 3/4.