Jett demands release of dollars 5m: Kidder Peabody trader accused over phantom trades goes on the offensive

JOSEPH JETT, the Kidder Peabody Treasuries trader accused of creating dollars 350m in phantom trades, has gone on the offensive, alleging complicity on the part of his superiors and demanding the firm release dollars 5m it has seized.

In documents filed earlier this week with the Supreme Court of New York state, Mr Jett 'vehemently denies any wrongdoing'. His lawyers also argue in the filing that as he kept all of his funds in accounts at Kidder it 'provides strong evidence of his own sense of innocence'.

Mr Jett, complaining that he does not have enough money to pay for his defence, has also asked the US National Association of Securities Dealers to arbitrate on the seizure of two cash management accounts he maintains at Kidder; one holds dollars 4.8m and the other dollars 130,000. His attorney, Kevin Warner, said that 'all of Mr Jett's liquid assets are held by Kidder', and that the firm had acted 'lawlessly' in freezing the accounts.

While Mr Warner would not comment directly on Mr Jett's defence, two New York papers quoted lawyers knowledgeable about the case as saying he will argue that his trading activities were known to his superiors and they did not object to the practices. 'He talked about it with them and they didn't have a problem with it,' one is reported as saying.

Kidder management has alleged that Mr Jett, its chief trader of US government securities, had faked a series of huge trades in stripped Treasury bonds, exploiting a flaw in its computerised accounting system that automatically recorded profits - concealing real trading losses and inflating his bonus, which was dollars 9m last year.

The filing coincides with reports that Edward Cerullo, the head of Kidder's fixed-income trading department and Mr Jett's boss, has been investigated for supervisory lapses in the past. One former Kidder trader, who was disciplined for dubious practices in 1988, has come forward to say Mr Cerullo approved of and indeed encouraged the questionable trades.

Ira Saferstein said Mr Cerullo 'was aware of all aspects regarding the mispricing of the securities'. The NASD, which investigated the incident, appeared to endorse his allegation, saying Mr Saferstein 'was never directed not to effect additional transactions' after the initial trade was discovered.

Kidder and other Wall Street executives have rallied to Mr Cerullo's defence. But one former Kidder trader, Michael Pinto, was quoted in the Wall Street Journal as saying that Mr Cerullo 'didn't care how profits were made'.

The US Securities and Exchange Commission is investigating the Jett incident, but the 36-year-old executive has not been charged with any crime.