GE Tightens Control of Investment Unit With Senior Shakeup
JAMES F. PELTZ
May. 14, 1987
NEW YORK (AP) _ General Electric Co. on Thursday announced a shakeup of top management at Kidder, Peabody Group Inc., the venerable investment firm GE acquired last year that is now embroiled in Wall Street's insider trading scandal.
Ralph D. DeNunzio, Kidder's chief executive, and John T. Roche, the firm's chief operating officer, will resign those posts June 1, GE said.
DeNunzio will remain chairman of Kidder, but GE also said Kidder's board of directors will be changed to give officials of GE, which owns 80 percent of Kidder, the majority of seats.
Silas S. Cathcart, a GE director for 15 years and former chairman of Illinois Tool Works Inc., an industrial products concern, was named president and chief executive of Kidder to replace DeNunzio.
Replacing Roche is Max C. Chapman Jr., president of Kidder, Peabody & Co., the firm's broker-dealer subsidiary.
Three former Kidder executives were charged in the insider trading scandal in February, and a subsequent GE investigation uncovered ''a lack of procedures and controls'' at the firm, said Jack Batty, a spokesman at GE's headquarters in Fairfield, Conn.
The investigation led to discussions between GE and Kidder ''to make sure that things were set right,'' and ''out of those discussions, mutually, GE and DeNunzio agreed that it might be time for him to step out of day-to-day management,'' Batty said.
DeNunzio said in a statement that he and GE also agreed ''that my most important contribution in the near term would be to lead the management transition.''
Batty said GE was not aware of any government investigations involving DeNunzio or Roche, and Kidder itself has not been charged with any wrongdoing related to the scandal.
Two of Kidder's former top traders, Richard B. Wigton and Timothy L. Tabor, along with Robert M. Freeman, an executive with the investment firm Goldman, Sachs & Co., were charged in February with securities fraud stemming from the year-old Wall Street insider trading scandal.
The government alleged then that some of the profits from the alleged fraud went into Kidder Peabody's accounts. Those arrests resulted from cooperation with federal prosecutors by another former top Kidder executive, merger specialist Martin A. Siegel, who admitted guilt in a conspiracy to traffic in inside, or non-public, information.
But Wigton, Tabor and Freeman pleaded innocent to the charges - the first defendants in the scandal to do so.
Prosecutors asked a federal judge on Tuesday to delay the start of the trial for the three men, but the judge refused. The government then asked the judge Wednesday to dismiss an indictment of the trio, saying prosecutors wanted to prepare broader charges against the defendants.
Lawyers for Wigton, Tabor and Freeman complained that the prosecutors were denying the defendants' right to a speedy trial and indirectly acknowledging that they were wrong to arrest the three men.
Regardless, the management shakeup at Kidder fulfilled previous Wall Street speculation that the alleged involvement of Kidder employees in the scandal would prompt GE to exert tighter control over the firm.
Perrin Long, a brokerage analyst at Lipper Analytical Services Corp., said that GE typically ''likes to have at least one or two of its people in senior management of an organization it acquires,'' and that the scandal likely accelerated that policy in Kidder's case.
In a statement GE Vice Chairman Lawrence A. Bossidy called DeNunzio a ''man of demonstrated integrity'' who was the ''modern architect of Kidder Peabody, helping to build almost every aspect of the firm, and earning the admiration of his colleagues both inside and outside Kidder Peabody.''
Nonetheless, Kidder last year found itself short of the capital it needed to compete effectively with its larger rivals, particularly since most of the firms were aggressively expanding into overseas markets.
DeNunzio, a former chairman of the New York Stock Exchange who has spent his entire career on Wall Street, spearheaded Kidder's merger with GE last May in order to bolster its capital base. GE paid about $600 million for its stake and provided Kidder a $500 million line of credit in December.
DeNunzio graduated from Princeton in 1953 and immediately joined Kidder as a trainee. He rose through the ranks as a salesman and underwriting syndicate manager, eventually becoming president in 1977 and chief executive in 1980.
Cathcart, 61, joined Illinois Tool after graduating from Princeton in 1948, and served as the company's chairman from 1972 to 1986. He also has been a director for several other major companies.