Kidder, Peabody & Co., one of the nation's leading brokerage firms, yesterday settled charges that it improperly used $145 million of its customers' securities to obtain loans for the firm in 1984.
Kidder settled the charges, without admitting or denying them, in a comprehensive agreement with the Securities and Exchange Commission. Under terms of the settlement, Kidder was censured by the SEC for its actions and agreed to take steps designed to prevent future violations.
As part of the settlement, Kidder will retain independent accountants for two years who will review the firm's compliance with regulations and prepare special semiannual reports for the SEC. In addition, Kidder will prohibit Gerard A. Miller, a vice president of the firm, from supervising certain activities until the first of these special reports is filed with the SEC. Miller also was censured by the SEC as part of the settlement.
SEC officials said censuring carries no specific penalties but puts the firm on notice that it must make the agreed-upon changes.
The SEC had alleged that, in March and April of 1984, Kidder pledged securities that belonged to its customers as collateral for loans that benefited the firm. The SEC also had charged that, from October 1983 to September 1984, Kidder failed to maintain accurate and detailed records describing these transactions.
Although brokerage firms are allowed to use some of the securities they hold for their clients as collateral for loans, the SEC had alleged that Kidder went beyond its legal limit and failed to keep accurate records. However, the SEC was careful yesterday to point out that no customer suffered any loss of funds or securities as a result of Kidder's conduct and that Kidder had sufficient securities on hand to meet its obligations.
Kidder officials have argued throughout the dispute that the SEC and Kidder simply have differing interpretations of "technical rules" governing the firm's bookkeeping practices. In a statement distributed to its employes yesterday, Kidder management said it was pleased the matter was resolved.
Kidder said that, although the firm would have preferred a complete vindication, it agreed to a settlement because of the SEC's willingness to make it clear that the firm's customers were not endanged and that the firm at all times had sufficient securities to meet obligations.
"We believe the SEC release makes it totally clear that certain of the October news stories suggesting that our customers may have been inadequately protected or that we deliberately misused customers' securities for the firm's benefit were completely unfounded or in error," the statement said. "This process involved technical operations rules with which both we and our independent public accountants believe we were in compliance.
"However, in order to resolve this dispute, we have agreed to implement certain specific bookkeeping procedures which we have already adopted and to accept a censure. In view of the SEC's willingness to resolve the matter . . . we concluded it would be in the best interest of the firm to avoid the substantial press, delay and distraction of energies that a complete vindication would have caused."