As part of its effort to boost GE Capital, the conglomerate acquired Boston-based investment bank Kidder, Peabody & Co. in 1986. The firm was quickly implicated in a widespread insider trading scandal, with then-mayor of New York City Rudy Giuliani threatening to indict the bank.
GE eventually fired a number of Kidder executives and paid a $25.3 million settlement with the SEC. Yet the conglomerate's Kidder-sourced woes were far from over.
One trader at the bank's government bond division exploited a computer flaw in 1994, making false profits to boost his bottom line. Discovery of his actions led to the trader's banishment from the industry and a $350 million pre-tax charge in GE's following earnings report from the phantom profits.
A New York Times report of the investigation revealed that — though the single trader's illegal methods accounted for more than 25% of the fixed income division's income — higher-ups at the GE-owned bank "never bothered to really understand where the profits were coming from."
Then-CEO of GE John Welch called the series of events "a headache and an embarrassment from the start" for the company.
Years after the 1994 scandal, Welch revealed GE's leaders were so stunned by the hit to the company's earnings they considered taking from other divisions' profits to offset the loss. The dubious strategy never came to fruition.