Kidder Peabody fires trader for hiding losses

April 23, 1994|By New York Times News Service

NEW YORK -- Kidder, Peabody & Co. said yesterday that it had discharged another trader for concealing losses, in a sign that broader problems were emerging at the securities firm.

The trader, Neil Margolin, was the second person to be dismissed this week by Kidder after being accused of illicit trading activities.

Mr. Margolin's concealed losses, Kidder officials said, amounted about $10 million. But, they added, the hidden losses did not result in losses for any Kidder customers or other Wall Street brokerage firms.

The latest incident is small in comparison to the scheme that Kidder disclosed at the start of this week.

On Sunday, Kidder dismissed Joseph Jett, the head of the firm's government securities trading desk, after an internal review of trading practices found that he had conducted an elaborate trading scheme to create $350 million in fake profits and conceal $100 million in losses.

The two episodes, coming in quick succession, raise questions about the quality of the supervision of trading practices at Kidder.

Mr. Margolin, who had been at Kidder since 1986, worked on the firm's interest-rate swaps desk. A Kidder official said he had been dismissed Thursday after he "confessed to wrongdoing."

Helen Keehner, a Kidder spokeswoman, said the concealed losses totaled less than $10 million. The shortfall, she said, would be covered by Kidder's "normal operating reserves," and thus would not require a special charge against earnings for either Kidder or its corporate parent, General Electric Co.

Mr. Margolin did not respond to telephone calls to his home for comment.

Kidder officials said yesterday that the Margolin case was separate from the scheme that Mr. Jett was said to have engineered on the government desk.

But the two traders both fell under the overall supervisory review of Edward Cerullo, an executive managing director of Kidder and the head of fixed-income securities.

Mr. Margolin traded in interest rate swaps. An interest rate swap is an exchange between two parties of interest rate risk, meaning the two parties to the transaction swap their exposure to reduce risk or take a bigger bet on the direction of the bond market.

After Mr. Jett was dismissed, Kidder also suspended six other employees, who have not been identified. Wednesday, General Electric took a charge of $210 million, or 24 cents a share, to cover inflated profits at Kidder related to fictitious trades.

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