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Joseph Jett: "Kidder Is Gone. I'm Still Standing"
The former Kidder Peabody bond trader accused of massive fraud talks about his experiences
Joseph Jett was head of government bond trading at Kidder Peabody when in 1993, he was abruptly fired -- and blamed for generating losses that resulted in a $210 million write-off for Kidder's parent, General Electric. Both the Securities & Exchange Commission and the National Association of Securities Dealers rejected Kidder's charges that Jett had engaged in fraud. But the SEC charged him with book- and record-keeping violations as well as intent to commit fraud, and ordered him to disgorge $8.2 million in alleged false profits, all of which Jett is appealing.
Jett, who is African American, has just finished a book tour for his account of that episode, Black And White on Wall Street, The Untold Story of the Man Wrongly Accused of Bringing Down Kidder Peabody, by Joseph Jett and Sabra Chartrand. Recently, he talked with Business Week Senior Writer Leah Nathans Spiro, whose review of the book ran in Business Week's May 10, 1999 issue. Here are edited excerpts from their conversation:
Q: You were vehemently anti-affirmative action. Yet you played the race card and wrote a book about race on Wall Street. Isn't this inconsistent?
A: I wanted to call it Broken Bonds. But marketing requires something that grabs people's attention. They wanted a black man's experience in the white world of Wall Street. I threw up. We fought. I stood my ground, until my literary agent said you have to give them black and white unless the book won't sell. I was on 60 Minutes. I said to Ed Bradley as I held up an internal auditors document: This is my innocence in black and white. They took double entendres and put it in the title. Basically, the publisher thought it was needed to market the book.
Throughout the trial period and throughout the pre-trial period, I never mentioned any race-related things in the book. It all happened during [the] O.J. Simpson [case]. The fastest way for a black man to lose his credibility was to mention his race. I wanted to discuss the racial context in which I worked to show that despite the racism, which was absolutely overt, it did not stop me from rising up through the ranks. So racism is no excuse for not rising up through the ranks. This is a confirmation.
Racism can't stop you. Any more than anti-Semitism. You had Lehman Bros., you had Morgan Stanley. Goldman Sachs, Dean Witter. Salomon Bros., First Boston. [Jett is contrasting historically "Jewish" Wall Street firms, with historically "WASP" firms.] You see the demarcation. Jews had their own firms. Yet if you look within the gentile firms, you still see Jews doing very very well.
What I hope to say, by detailing the racism at Kidder, is that race cannot be used as an excuse for not doing well. That to me is the biggest argument against affirmative action. This idea of hiring people from community colleges so you have more blacks, or the idea of Jesse Jackson running around Silicon Valley saying it is racist because there are no blacks. There are no blacks in Silicon Valley because there are no blacks in engineering. That is a recipe for failure and disaster.
What blacks need to do is to stop being rap singers and do their homework. Instead of black studies, they should study the hard sciences, things that allow you to compete in objective areas. If you do that, racism can't stop you. I'm one black guy standing up against the largest corporation in the free world. I won. I won on Wall Street. It can be done. Don't give me excuses, like white people don't like me. We can do it. I just did it.
Q: Some people would say you lost. Your career is in shambles. You've been crushed.
A: I don't feel I've been crushed. In doing this book tour, I found myself on CNBC. On NBC. I was even on Court TV with Johnny Cochran. I was on Jack Welch's show because they know what draws viewers. I can bring in ratings.
Am I crushed? Kidder is gone. I'm still standing. They have turned me into a name that is known across the globe. I was sitting on a beach on the Bahamas. A German guy came up to me and said, "Haven't I seen you on 60 Minutes?" They have given me a position of worldwide recognition, and it's up to me what I do with it. No, they haven't crushed me.
Yet there are no stories about me in Black Enterprise magazine. I am completely ostracized due to my views on affirmative action. Now there are more black radio stations, black newspapers, fully discussing my views on affirmative action. There is a false idea out there that most blacks are just dying for affirmative action. I think it is absolutely wrong. A lot of these black ministers, who are the darlings of the press, say blacks are too dumb to compete against whites. Blacks want to compete and feel far more like I do than Jesse Jackson. The entire hegemony of negro priest kings, they are all ducking me.
Q: That view will go over well on Wall Street?
A: It's the people on Wall Street who are banning me and welcoming Jesse Jackson with open arms. I was in Atlanta talking to a group of black ministers. I'm not religious. They were saying, people should give their money to their minister. I said, are you crazy? They were saying they were prosperity preachers. It's important they show they are prosperous, it's important they take people's money and have the trappings of prosperity. I said, it's all a crock.... The greatest problem in the black community is that the black church is not doing its job. What percent of children are born out of wedlock? If the black church is so strong, why are 55% of violent crimes committed by blacks?
Q: What have you been doing for the past six months?
A: The book has been the main thing I've been doing. You start off with 550 pages and they tell you to cut it in half. You decide what things were redundant and only keep what is essential. Because I named names, we wanted to make certain we backed it up with factual evidence. We wanted to have a legally tight document, as well as a fast-reading book.
Q: Who is your co-author, Sabra Chartrand?
A: She is a New York Times reporter. She co-wrote, Flying Blind, Flying Safe about the ValueJet crash. My credibility had failed for years. In trying to publish this book, we needed to bring on someone with tremendous credibility. Someone who had co-authored a best-seller [which Chartrand's previous book was]. That wouldn't get involved with a project that was a bunch of lies. The fact that she was a New York Times reporter, the paper of record, played a role.
Q: Did you enjoy writing the book with her?
A: I'm a geek. I tend to talk in numbers. She would say, explain it to me again. And again. She was very patient.
Q: How is the book selling?
A: It's been in the top 200 for a number of weeks on Amazon. A lot of publishers didn't want to touch the book. One, because GE is so large. And two, I'm not very politically correct. I'm very pleased. My publisher made a very strong effort. I was amazed. They managed to tire me out on this tour.
Q: What is the status of the SEC decision. You are appealing it?
A: They are so weird. They had 60 days to render their decision. Two years was outrageous. I sent my appeal in September, 1998. They had 30 days. They've disappeared again. It could be another two years before I hear anything. It is like having the Sword of Damacles over my head. If I want to start a mutual fund, which I could do.... On my book tour, so many people said, do you have a fund? I can't. Because the SEC [has not reached a decision.]
I will admit, contempt does not even begin to reach my assessment of them.
A: Yes. As a judicial process, it is an absolute outrage.
Q: Are you planning to launch a mutual fund?
A: That's right. The problem that I have now, is the regulatory authority that the SEC has over mutual funds. If I owned a fund, I don't think I would have a good relationship with the SEC, I think they would move to shut it down. But there are ways for me to act as a consultant. To have arms-length control, to make decisions, without being the actual owner. That's what we're looking into now. I am directing trading activity but arms-length relationship with the fund. There's a limit to the power of the SEC.
Q: Are you optimistic you will be able to launch a mutual fund?
A: Quite. Quite. Really, it is just a matter of making certain that legally the entity is protected.
Q: Do you have a partner to play that legal role?
A: An abundance. I've signed books for 13 Kidder employees. Seven have asked for roles, have said, what are you doing now? I'm not happy, sorry I couldn't support you. They signed an agreement with Kidder that they would support GE or lose their bonus money. I'm supposed to understand. And actually, I do understand. Most of my people were fired by September, 1994. All the people who were close to me. They were in a situation with no job, poor prospects. They saw me crucified. What were they going to do? Try to be a hero, or see their families were fed?
Q: Are you saying they are still loyal to you?
A: No. If you want loyalty, buy a dog. If you work on Wall Street, that's what you can expect. But they said they would be eager to look at future employment possibilities. That meant a lot to me. Despite all the accusations, people knew that the government desk was a group of people that worked. We came early, stayed late. We went about our business with Germanic efficiency. It was one place at Kidder where women felt comfortable -- I didn't tolerate harassment. Minorities felt comfortable. It was an idyllic place. I also hope to start an onshore hedge fund. They are completely outside the jurisdiction of SEC.
Q: Why would anyone give you money?
A: I would set the fund up in a fashion where I have an arms-length relationship.
Q: Who would invest in your fund?
A: I currently have an offshore fund. My big problem is breaking into institutions. My investor base is currently 78.3% high-net-worth individuals. Most of whom, strangely enough, are Israeli.
A: Because I was on the Jackie Mason show.
Q: People called you?
A: Yes. He has a show called, Crossing the Line with Raul Felder, the attorney who does rich people's divorces. I was supposed to debate Al Sharpton and Lionel Jeffries. Neither showed up. So I ended up debating Adam Clayton Powell VI. The audience was Jackie Mason fans. They invited me back. Once again, after the show, large numbers of people, many who were Israeli, approached me.
But the problem I'm having, when I talk to institutions, when I meet people one-on-one, things are fine. But when things get to their higher ups, they hear the name, they say, isn't he in jail? I find I have to go through a long explanation of what went on at Kidder.
Q: How much money are you trying to raise?
A: When I was at Kidder, I was handling $30 billion. And I felt very comfortable with that. I think that a decent size for me, I would like to reach $5 billion. I'm far, far short of that. The book took me out of the money-raising business for quite some time.
Q: How much are you managing now?
A: I'm currently under $100 million.
Q: Do you have an office?
A: What Wall Street and boutique firms will discover, is that there is no need for an office. I have traders in London, Hong Kong, and Mexico who work with me. We communicate by E-mail, phone. There isn't a need for brick and morter. I use rules-based trading. Very much along the lines of what Long-Term Capital was using. We're trying to go after relative value transactions. But we're cautious. Russia is not a place I would go for love or money. We did lose money in Malaysia. I was accused of this huge fraud when I actually lost just 1%, $300 million as percent of $30 billion. I'm cautious in my approach. I'm doing the same type of trading I did while I was at Kidder, but in broader range of commodities.
Q: Where are you based?
A: The fund itself is in the British Virgin Islands.
Q: Are you raising money now?
A: I'm not just marketing the book, I'm marketing my future, my existing fund, and my potential fund, I'm hoping this book will allow me to break into the institutional investor community. Yes, I could raise money from high-net-worth individuals. But it is more cost-effective to break into the institutional business.
Q: Realistically, do you think institutions are going to give you money?
A: Right now, 21% of my offshore fund comes from institutional investors. I took a far more serious a beating in terms of credibility in the U.S. than overseas. I don't think any professionals ever believed that I pulled that off by myself. No Wall Street person believed I hoodwinked my managers out of $210 million. That was a myth for the public. Overseas, they not only thought I hadn't done it but they are sophisticated enough to think, hey, he's a scapegoat.
Q: If your path crossed with GE chief executive, Jack Welch, what would you say to him?
A: I would suggest he give my book a read so that he knew what was going on with his company. Welch made the error of putting his personal relationship with [Michael A.] Carpenter [the former CEO of Kidder Peabody & Co.] before his business sense. He got into a situation with the Kidder investment, it went sour very, very quickly, and then he turned away from it. If Welch had been aware of evidence that [Kidder attorney Gary] Lynch possesed, rather than allowing Lynch to pursue his multimillion-dollar campaign against me, he would have said, fire everyone, get rid of the company.
Q: What do you think of Carpenter [now] having a senior job over at Citigroup?
A: When you're trained as a consultant, you're not there to be hands-on. You're there to oversee. I think Carpenter can be a good manager. One thing that ticked me off, he is the one who began with his statement on CNBC. Before people knew I was black, when [anchorman] Neil Cavuto asked, how can one guy have done this? Carpenter said, you have to understand the power of this man, he had eyes that could bore right thru you. Carpenter began the Mike Tysonization of Joseph Jett. That I was 6-foot-5. To this day, people are astounded when they meet me. Carpenter started that. At Kidder, Carpenter made a number of mistakes. He shot himself in the foot when he attempted to sell the firm and didn't. He lost his authority as a chief executive officer.
EDITED BY DOUGLAS HARBRECHT
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