The securities industry is again cast in murk by the news.
The former head of government bond trading at Kidder, Peabody & Co. has been accused of creating phantom profits of $350 million to cover up losses of $100 million.
An ex-party planner at Salomon Brothers admitted that she stole more than $1 million from the firm and spent the money to buy clothes from Saks Fifth Avenue and jewelry from Bergdorf Goodman.
Wardell R. Lazard, who owned most of the nation's largest minority investment bank, died from an overdose of cocaine and alcohol.
The obvious thing to be said about this spate of shameful events is that it's nothing new. A certain amount of wrongdoing takes place at all times in the securities business, and it's the work of executives and directors to ferret it out and fight it. From the looks of things, they are not as effective as they should be.
This failure can be seen in the huge illusory profit at Kidder. It can be seen in the theft from Salomon. It can be seen in the tragic death of Lazard, who had created a minority firm that ranked 68th last year among municipal bond underwriters.
"How could $350 million in profits go into the books when no money changed hands?" wondered a financial officer of General Electric, parent of Kidder, and the question has yet to be answered. John Welch, the high-powered chief executive at GE, a man proud of reducing corporate bureaucracy, told the Wall Street Journal recently that he is "paying a lot of bright people a lot of money to find out" it tighter controls are needed. People of ordinary intelligence would say they are.
Salomon's party-planner theft is just a small-scale embarrassment compared to the firm's 1991 Treasury auction scandal. But the stain reinstates concern that the firm's controls are not what they should be.
Lazard's misfortune is more difficult to assess, and the results are more grievous. As major owner of a firm, he had the only real control over his behavior, and he failed to exert it. The firm is the focus of an active criminal investigation, but no connection has been made between the inquiry and Lazard's death. The tragedy is that he headed a firm that co-managed $5 billion of municipal bonds in the first quarter, the most of any minority-owned firm, and seemed to have achieved success.
The securities business is less in control than it should be.