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Flabbiness in the Hutton Case

July 10, 1985

Nine weeks ago E. F. Hutton & Co., the big brokerage house, pleaded guilty in federal court to 2,000 counts of mail and wire fraud, forked over a $2-million fine and agreed to pay $8 million to the banks that it had cheated out of phony interest earnings between 1980 and 1982. And that, so far as the Justice Department was concerned, was that. Holding that the crimes committed were corporate activities, the department decided not to prosecute any Hutton employees. The nation was left to infer that, untouched by human hands, the corporate entity known as E. F. Hutton was able all by itself to carry off a complex and profitable fraud.

The House Judiciary subcommittee on crime is among those wondering how that could be. The subcommittee has now obtained documents suggesting that there may indeed have been a considerable measure of individual involvement in the program to bolster Hutton's profits through what one internal memo describes as "bogus deposits" in banks. The question is whether individual involvement, under the law, points to individual culpability.

The Hutton scheme involved profiting from deliberate overdrafts on its bank accounts--a practice that yielded one of the firm's branch offices $30,000 a month in unearned interest. When this example of enterprise was brought to the attention of George F. Ball, Hutton's president from 1977 to 1982, he alerted the firm's regional vice presidents with the comment, "A point well worth remembering, and acting on." Ball says that he was only advocating "legitimate overdrafts that are a normal business practice."

The Justice Department's position is that prosecution of individuals in the case would have been costly and uncertain of success. Maybe. But the fact remains that a huge fraud was committed, that Hutton, the corporation, readily pleaded guilty to that crime, but that no one working for Hutton has yet been held to account. All of which suggests that either the law or the system for enforcing it is in considerable need of being strengthened.

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