Kidder Peabody Group Inc. sold

PLEASE REFRESH PAGE
To view updates

HOME

God Bless America !

 "The best way to fight an enemy is head on- and out in the open."

 

 


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 said yesterday.

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 adequate.

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 customers' securities.

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.''
http://www.nytimes.com/1986/02/11/business/kidder-peabody-censured-by-sec.html

How did Joseph Jett cause Kidder, Peabody & Co. to lose over $350 million? By Andrew Beattie
Share
A:

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.
Ads

Read more: How did Joseph Jett cause Kidder, Peabody & Co. to lose over $350 million? http://www.investopedia.com/ask/answers/08/kidder-peabody-joseph-jett.asp#ixzz4mFwEDvWg
Follow us: Investopedia on Facebook

http://www.investopedia.com/ask/answers/08/kidder-peabody-joseph-jett.asp
 

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

Newton

Middlesex County

Massachusetts, USA

Death: Nov. 19, 1957

Hawleyville

Fairfield County

Connecticut, USA

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., Country club.

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 American securities. http://peabody.yale.edu/collections/archives/biography/george-peabody

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 1859 on.[14]

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.[15]

1965 Kidder, Peabody & Co. was an American securities firm, established in Massachusetts in 1865. Its operations included investment banking, brokerage, and trading.

The Firm was sold to the General Electric Company in 1986.

Headquarters: Boston, MA

Founder: Henry P. Kidder

Founded: 1865

Ceased operations: 1994

1869 George Peabody died in London on November 4, 1869.

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 Street.

In November 2000, PaineWebber itself was merged with UBS AG.

http://peabody.yale.edu/collections/archives/biography/george-peabody 

1986

GE bought Kidder, Peabody, then a 121-year-old stately investment house, for $600 million in 1986.

Kidder Faces Life After Siegel

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 wrongdoing.

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 known.

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 the firm.

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 him.''
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 records.

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 information.

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 junk-bond financing.

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 insider information?

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 successes.''

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)
http://www.nytimes.com/1987/02/22/business/kidder-faces-life-after-siegel.html?pagewanted=4

3 INDICTED ON INSIDER CHARGES
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 trading.

The three, Robert M. Freeman, 44 years old, director of arbitrage at Goldman, Sachs & Company; Richard B. Wigton, 52, head of arbitrage at Kidder, Peabody & 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 securities fraud.

Through their lawyers, each denied the charges in the indictment, obtained by the United States Attorney in Manhattan.

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, Sachs.

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 attorney.

''Mr. Wigton will be found innocent,'' said Stanley Arkin, his attorney. Kidder, Peabody suspended Mr. Wigton without pay yesterday, pending a trial, the company said.

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 defense.

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 court.

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.

http://www.nytimes.com/1987/04/10/business/3-indicted-on-insider-charges.html

1994

PaineWebber was sold to UBS

1995

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

2000

GE's Investment in Kidder Finally Pays Off
The sale of PaineWebber is at least a partial victory for GE.

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 Wednesday.

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 Street powerhouse.
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 22%.
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 market.
"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 franchise.
"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.

https://www.thestreet.com/story/997551/1/ges-investment-in-kidder-finally-pays-off.html