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Kidder Peabody Case Analysis

1497 words - 6 pages

Kidder, Peabody & Co.Group ProjectWho is to blame for the downfall of Kidder Peabody & Company?Arguments for guilt and innocence:-- Joseph Jett -GuiltyDid not reveal the accounting glitch to his superiors and took advantage of the system deficiencyContinually entered a new forward recon so the loss would not be calculated and recorded thus knowingly hiding the daily losesIf Jett did not knowingly commit fraud and acted within KP guidelines, that does not exonerate him from guilt. He was tasked with generating profits while acting within the framework of the financial regulatory environment. Instead, whether it was with intent or out of ignorance, Jett acted irresponsibly and should carry some blame for the firm closing and 2,000 people losing their jobs. Ignorance is not a valid form of defense.InnocentComplied with all internal controls as his transactions were not flagged by the internal accounting or auditing systemsNot deliberately trying to hide his actions as all of his trades were recorded in ledger books and open on his desk in plain view, and accessible to anyone, at any timeResults of his transactions available to his superiors in the form of daily reports but no orders were given for him to stop his current process. If upper management did not stop this then it was assumed Jett's methods were acceptable to themFollowed the rules of the system as he did not change or alter the system in any way. The system is to blame not him-- Melvin Mullins -GuiltyDid not understand Jett's trading strategy but did not ask any questions or take the time to understand or verify what Jett was doing. Didn't seem to have enough industry knowledge to understand the complexities of how unrealizable profits were generatedChampioned Jett as a top trader thereby providing Jett support and enabling him furtherHired Jett at Kidder Peabody and Co even though Jett had been laid off and fired from his previous two jobsDid not review daily reports in depth and took the numbers at face value. He could have caught the matter very early had he reviewed the information on settlement datesInnocentIt was Jett's strategy not Mullin'sDid not understand what Jett was doing (ignorant)Had an external audit done which did not find any faults or discrepancies-- Edward Cerrullo -GuiltyEven when Jett's level of profitability grew five times compared to the previous year, Cerullo insisted it was consistent with the asset growth and profit opportunities in STRIPSNo suspicion raised and did not examine trades done by JettDid not seek any information on trade settlements and counterpartiesFailed to effectively supervise JettHe did not participate in the trading strategy, however he should have raised his voice or investigated when he saw such big exposure in the bond market from few million-dollar portfolio to $30BillionDid not recognize the flaw in the management structure as managers were not just managers but traders also. This made it difficult to inspect when all are busy...

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