It’s a bizarre case, even by the elastic ethics of Wall Street. The Kidder report rebukes senior executives for various sins of omission, citing “lax oversight, as well as poor judgments and missed opportunities” to supervise Jett’s trades and take appropriate action. But it absolves all higher-ups of any conscious wrongdoing – a conclusion that squares oddly with recent events. Since Jett’s dismissal in April, big heads have rolled: Kidder chairman and CEO Michael Carpenter and Jett’s boss Edward Cerullo, both of whom “resigned,” according to the company; Melvin Mullin, a managing director, was “terminated” last week. Jett considers himself a scapegoat. Lynch finds that ironic: “He deserves to take the fall. This was Joe Jett’s trading account,” resulting in a $210 million loss.
What comes next? Jett’s attorney may want to look at Lynch’s role. It’s been more than five years since Lynch left the SEC, where he built a reputation as a giant slayer. His tough probe of insider trading helped bring down both Ivan Boesky and junk-bond king Michael Milken. Now a securities lawyer at the New York firm Davis Polk & Wardwell, Lynch has painted himself into a strange corner. He is defending Kidder in investigations into the Jett affair by the SEC, the U.S. attorney and the New York Stock Exchange, and he is representing Kidder in its arbitration claim against Jett. Not exactly the stuff of objectivity when it comes to writing a report on the scandal. Does Lynch himself catch a whiff of conflict of interest? “No. Absolutely not,” he insists. “If we’d determined that there were others who’d participated in this scheme, we’d pursue them as well.” Lynch similarly dismisses the broader conspiracy theory at Kidder. “You’d have to assume that nearly everyone who spoke to us made up their story,” he says. Kidder will pay for those stories, picking up the legal expenses of every executive – fired or otherwise – who comes under investigation.
Except for Jett. His assets are frozen in two Kidder accounts. He has no access to the records of his securities transactions. “You can pronounce someone guilty, but to tie their hands in their attempts to prove their innocence, I find this deplorable,” says Jett, who has the occasional habit of discussing his case in the third person plural. He vehemently insists he has done nothing wrong. But Jett sometimes equates innocence with questionable, if rampant, trading practices. “A lot of things similar to this episode are occurring on Wall Street,” he adds mysteriously. “One day, I hope, it will come out.” When it does, it’s unlikely to paint a pretty picture of either side.
