The chairman of E. F. Hutton & Co. said last night he believes the firm's former president was ignorant of the massive criminal check-kiting scheme that led the brokerage firm to plead guilty in May to 2,000 counts of mail and wire fraud.
Robert M. Fomon, chairman and chief executive officer of the brokerage and its parent, the E. F. Hutton Group, was asked in an interview if he thinks that George L. Ball, president of the brokerage firm until July 1982, was aware of illegal overdrafts.
"No, I don't," he replied.
But Fomon said he had "no way of knowing" if there are other officers still at the firm who were aware of the illegal overdrafts. "That's why I hired" former Attorney General Griffin B. Bell to make an internal investigation, Fomon said.
Fomon held to the view he expressed under oath to the House Judiciary Subcommittee on Crime on June 19, when said he had "no reason to believe" that anyone in senior management was involved in the overdraft scheme. As he put it last night, "I have no reason to believe that anybody in top management was aware of the illegal practices to which we pleaded."
These views clashed with two newspaper reports yesterday of what Fomon said in separate untaped interviews.
The Wall Street Journal quoted Fomon as asserting that "the Justice Department's description seems incredible to me . . . I cannot believe the whole thing was orchestrated" by a few low-ranking executives without the support of more senior officials.
Asked about this last night, Fomon said that he understood why the world would assume the noninvolvement of executives in the scheme to be "incredible" and "unbelievable." But, he went on, "I didn't say, 'to me.' " Was he misquoted? "Okay, it's a misquote," he asserted.
The Times story said:
"Mr. Fomon did not yet know which individuals were involved, but he agreed that it was 'incredible' to think that no high-level executives were aware of the fraud.
" 'I don't believe that those two mid-level executives came up with the entire scheme,' he said, referring to an earlier Justice Department assertion that only two unnamed officials knew about the scheme."
The news reports figured in a decision by Rep. William J. Hughes (D-N.J.), chairman of the House Judiciary subcommittee, to hold a news conference yesterday at which he ridiculed the Justice Department assertion.
"It is increasingly difficult to find anyone who agrees with that conclusion, including the chairman of the board of the company itself," Hughes told reporters. He said it would be "unrealistic" to believe that a scheme that probably cost banks tens of millions of dollars was not noticed by "the entire heirarchy."
Hughes said that daily headlines "announce 'discovery' by Hutton officials of previously suppressed documents. Scores and scores of documents which are under subpoena by the subcommittee are coming to light weeks after they should have been produced to the subcommittee."
"No documents have been suppressed," Fomon said in the interview.
Similarly, the Justice Department rejected the congressman's charge that it "is stonewalling us in our attempt to get the information we need to evaluate, among other things, the department's self-serving claim that no higher-ups were involved." The charge is "inaccurate," said Stephen S. Trott, chief of the criminal division.
Hughes set next Friday for a hearing to take testimony from Fomon and Trott.
In addition to pleading guilty to the 2,000 counts, the brokerage firm agreed to pay a $2 million fine; to make restitution to victimized banks, setting up a $8 million reserve fund for that purpose, and to pledge to end abusive cash-concentration practices beyond those to which it pleaded guilty.
Trott, in a Wednesday interview, praised the settlement, emphasizing anew his view that it served the public interest far more than would have a hypothetical criminal prosecution of individuals that "was not a sure winner."
Trott also said that Hutton had made nonprosecution of individuals "sort of a quid pro quo" for the agreement. Fomon, asked last night who had represented Hutton on this, named Thomas F. Curnin, a partner in Cahill, Gordon & Reindel, a New-York based law firm. Curnin has not returned reporters' phone calls.
Fomon said that "it was the Justice Department that was pushing for the plea agreement," saying that it did not want to go through a trial that might last two years. He also stressed that a 2 1/2-year grand jury investigation found "no one in top management" who had been involved in the fraud.
John S. R. Shad, chairman of the Securities and Exchange Commission, was vice chairman of Hutton, in charge of corporate finance, in 1980, while the scheme was under way. Shad in "no way was involved," Fomon said last night. He said that the Justice Department interviewed Shad but did not, he believed, summon Shad before the grand jury.
Hughes said that the subcommittee subpoena to Hutton called for delivery of all pertinent documents by June 14. Three weeks ago, he said, he suggested to Fomon that he should be able to supply the papers by today, but Fomon asked for an extra week -- until next Friday. Up to now, Hughes said, Hutton has made "very little progress" in complying with the subpoena while "selectively releasing documents" to the press.
The brokerage firm is also embattled in Connecticut, where authorities are weighing an effort by the state attorney general to revoke its broker-dealer license on the ground that it has been convicted of felonies. Fomon said last night, "The state has the right to do whatever they want, but I will be surprised if they yank our license as a broker-dealer."