E. F. Hutton said today it has retained former U.S. attorney general Griffin B. Bell to conduct a special investigation into the company's check-kiting scandal.
The big brokerage firm said Bell would be empowered to investigate whether any Hutton employes should be held responsible or punished for their parts in the scheme. Hutton pleaded guilty earlier this month to 2,000 federal fraud counts for taking advantage of bank "floats" by writing billions of dollars of checks against deposits that had not yet been collected by its banks. It covered the overdrafts by shifting money between the company's hundreds of bank accounts.
Hutton was forced to pay a $2 million fine and make restitution to the banks for the interest they lost as a result of the scheme. Hutton has set aside $8 million for that restitution, and company officials today labeled as erroneous reports that claims against the firm could total $40 million or $50 million.
Bell's appointment was announced at the company's annual meeting by Robert Fomon, chairman of the board of E. F. Hutton Group Inc. The annual meeting was notable for its lack of stockholder comment about the firestorm that has erupted around the company in the past two weeks as a result of the check-kiting affair. The only question asked from the floor by a stockholder concerned another matter, and the meeting was over in less than half an hour.
Fomon said Bell will be responsible for "conducting a thorough review of the practices to which the company pleaded guilty, determining how those practices evolved, identifying those individuals who bear personal responsibility, and making recommendations with respect to those individuals."
Bell, who was attorney general in the Carter administration and now is a senior partner in the Atlanta law firm of King and Spalding, said in a statement released by Hutton that he was unsure how long it would take to complete the inquiry. "I will move it forward as quickly as possible, but take as long as necessary to complete fully the assignment," Bell said.
Fomon reiterated Hutton's contention that senior management was not involved in the matter and had no knowledge of it until it learned of a federal grand jury investigation into the situation three years ago. The scheme occurred over a 20-month period between mid-1980 and early 1982.
Still, Fomon said, Hutton's top management had to take responsibility for the actions of lower-level employes who conducted the operation -- although Fomon said at a press conference after the meeting that he and other of the company's top executives had not considered resigning because of the scandal.
"To the extent that we have erred, we are acknowledging our failings, compensating those who might have suffered, and ensuring that such events will never be repeated," Fomon told shareholders.
At the press conference, Fomon said he thought the coverage of Hutton's problems had been overblown, and said it was unfair to point fingers of blame for the fiasco without a full investigation such as the one to be conducted by Bell. "It's wonderful the way people can judge who don't know the facts," he complained. He noted that the federal grand jury had brought charges only against the company, and not against any of its employes.
Fomon also suggested that by prosecuting Hutton, the Justice Department was trying to send a message to other companies that might be similarly playing bank floats for profit -- although he declined to speculate whether any other companies actually play the float as Hutton did. "I think that was the principal purpose of the Justice Department, to make an example of somebody," Fomon said.
Fomon said he believed the employes who concocted the elaborate, wide-ranging check-kiting arrangement, which involved more than 100 Hutton branches and more than 400 banks, did not know they were doing anything illegal. "I cannot believe any employe would jeopardize the company knowingly breaking the law," he said at the press conference.
However, Fomon told the annual meeting that Hutton would take the money needed to make restitution out of funds that would have been used to give bonuses to employes based on how they managed their money. Zeal in that task is what led the employes to begin playing the bank floats, Hutton officials said. But Fomon said there was no indication the employes were trying to inflate their bonuses. "They did personally gain, but that was not their primary motivation," he said.
And in another step aimed at tightening the company's cash management operations, Fomon told stockholders that Hutton was transferring responsibility for its money-management department, which oversees the movement of money between Hutton bank accounts, from the company's operations division to its control and planning division. "Our past problems reflect the need for centralized management of all those activities relating to the management, mobilization and control of the company's financial resources," he said.