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Monday, June 28, 1999

An Investment Opinion
by Yi-Hsin Chang

Black and White on Wall Street

During my jet-lagged hours on my recent vacation, I read Joseph Jett's Black and White on Wall Street. It's clear fairly early on that Jett never expected to write a book by that title. A general book on Wall Street or at least on bond trading perhaps, but one focused on race? Not likely, considering his father's influence on him and his unwavering opposition toward affirmative action.

If Joe Jett's name doesn't ring a bell, you probably remember news reports in early 1994, and intermittently since then, of a top Wall Street trader who allegedly "brought down" Kidder Peabody. I remember the media stressed the fact he was black. As Jett recalls, "The tenor of the stories conveyed the idea that you can take a black man out of the ghetto, but you can't take the ghetto out of the black man."

Judging from Jett's upbringing in the suburbs of Cleveland, there's little, if any, "ghetto" in this son of an accountant and a school teacher. His father, who served in the navy and the army, was a strict disciplinarian. Jett applied to and was accepted to Carnegie Mellon, Ohio State, and Harvard University. He applied to MIT on a bet from a white classmate who said the only reason he had been accepted was because he was black. Without putting race on his application, Jett was immediately accepted to MIT and ended up going there.

Several years later, while applying for a job during his second year at Harvard Business School, Jett prepared a color-blind resume that didn't mention his race. Inevitably, though, during the interview process, he would be sent to the affirmative-action office. This is a snippet of what he said to the affirmative-action manager at Shearson Lehman:

"[A]ffirmative action is not an opportunity. It is nothing more than an admission of your intellectual inferiority. It's an agreement that says hire me and I will never challenge you. It's an agreement that says the only reason I am here is that the great white father has let me in here. There used to be a saying that it's better to die on your feet than to live on your knees. Affirmative action is living on your knees."

Jett was 100% right, of course. Not surprisingly, he got no job offer from Shearson Lehman. Jett knew that race is such a pervasive issue in this country that he couldn't expect a fair shake in the workplace. He thought one exception would be on Wall Street, where his job performance could be measured by objective standards. This was where he went wrong. Yes, the numbers would show how successfully he invested the company's money, but that's no guarantee that he would be justly compensated for his hard work.

What Jett soon discovered at Kidder was that traders and salesmen weren't rewarded by the amount of business they brought in but rather their ability to master office politics and their buddy-buddy relationships with the boss. Perhaps just as important is a trader's athleticism, proven on the ski slopes or on the golf course.

The strangest and most offensive episodes were the lectures Jett said he got from his boss on "black male sexuality." According to Jett, anytime he was seen just talking to a white woman at the office -- and this didn't happen often because Jett went out of his way to avoid such situations -- he was warned not to date white women, warned that the Kidder culture was "particularly sensitive to issues involving black male sexuality and black male sexual aggressiveness."

With such overt threats of trumped-up charges of sexual harassment, it hardly comes as any surprise that Kidder would blame Jett for what was an orchestrated effort to deceive its parent company, General Electric (NYSE: GE), by juggling books and doctoring balance sheets. Kidder and GE blamed Jett for fictionalizing $350 million in profits. Now, even if you don't believe Jett's detailed and technical account of what actually went on at Kidder, it's much harder to believe that Jett's managers didn't know how he was investing the company's money -- we're talking $30 billion -- when they were keeping tabs on his brief contacts with white female employees.

What happened to Jett would not have happened had he been white. A whole group of people, especially his immediate bosses, would've gone down for the deceptive accounting practices instead of being allowed to retire on the bonuses they earned off of Jett's successful trading strategies.

In the end, in early 1997, a panel of arbitrators at the National Association of Securities Dealers (NASD) rejected Kidder's charge that Jett had engaged in "fraud, breach of duty and unjust enrichment," and determined that the money Jett had made was real. Still, Jett's recovery from the public lynching by the media has been slow. Investor confidence is crucial in the financial services industry, and Jett's name has been trashed so much that it has been hard to round up clients for his fledgling hedge fund.

Black and White on Wall Street is yet another step in helping to rehabilitate Jett's torn image. While the case was in litigation, his lawyers advised him against making comments, which in effect kept him from telling his side of the story. If you take the time to look, a similar albeit far less dramatic "black and white" story can be found in almost any company in America.

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