Kidder Fires Exec Over Phantom Trades : Wall Street: Discovery of scheme forces the brokerage to take a $210-million charge against first-quarter earnings.

Wall Street brokerage Kidder Peabody said Sunday that it has fired the head of its government trading desk after the firm uncovered a scheme that created phantom trades.

The brokerage, owned by General Electric Co., said that although the scheme had no impact on Kidder’s cash position, it will result in a $210-million, after-tax, onetime, non-cash charge against first-quarter earnings, resulting in a loss for the period.

GE, which plans to release its first-quarter results this week, said it had been preparing to announce record earnings but that because of the loss, it will instead report results “close to 1993’s first-quarter ongoing net earnings of $1.085 billion.”

Kidder Chairman and Chief Executive Michael Carpenter said in a statement that the phantom trades occurred totally within the firm and involved no customers.

He said the trader involved, Joseph Jett, was dismissed from his position as managing director and head of Kidder’s government trading desk. Jett, 36, had almost three years of service at the firm.

“This has all the appearance of someone, Joseph Jett, developing a trading scheme to improve the appearance of his performance,” Carpenter said. “And it worked for him. His performance-based compensation for 1993 was over $9 million, one of the highest at the firm.” Attempts to reach Jett for comment were unsuccessful.

Six other employees in Kidder’s operations and fixed-income units were relieved of their duties and placed on special assignment pending further investigation, the firm said.

Carpenter said the $210-million charge reflects the reversal of phantom profits and does not relate to Kidder’s activities in mortgages or derivatives or to market conditions in the first quarter.

He called the scheme “an isolated incident that happened despite the diligent efforts the company has made to make its controls, compliance procedures and risk management systems state-of-the-art.”

In a separate statement, GE Chairman Jack Welch said, “Having this reprehensible scheme . . . break our more-than-decade-long string of ‘no surprises’ has all of us damn mad--both at the violation and at its impact on our share owners.

“Seventy-two hours ago, this company was preparing to announce record first-quarter earnings based on the strong fundamental global strengths of its operating businesses,” he said.

The brokerage said that after the scheme was discovered, it retained Gary Lynch, former head of enforcement at the Securities and Exchange Commission and now at the Davis, Polk & Wardwell law firm, to head an investigation of the incident and recommend steps to prevent a recurrence. Kidder said it will pursue legal measures against Jett.