Joseph Jett - The Lynch Report

The Lynch Report

As the scandal first came to light, Kidder Peabody hired lawyer Gary G. Lynch from the law firm of Davis, Polk & Wardwell, the former enforcement chief of the Securities and Exchange Commission, to conduct an internal investigation. The result was an 86 page document that became known as the Lynch Report. The report was released in August 1994 and concluded that Jett acted alone, but also blamed the losses on a complete breakdown of the system of supervision at Kidder, particularly with regard to Ed Cerullo and Melvin Mullin.

"Jett was provided the opportunity to generate false profits by trading and accounting systems," Mr. Lynch wrote. "It was his supervisors, however, who allowed Jett that opportunity for over two years because they never understood Jett's daily trading activity or the source of his apparent profitability. Instead, their focus was on profit and loss and risk-management data that provided no insight into the mechanics of Jett's trading."

The use of Gary Lynch to conduct the internal investigation was controversial, as he was also the lawyer hired by Kidder to represent the firm in its case against Jett.