E.F. Hutton & Co. is facing trial next month in a lawsuit filed by a Washington real-estate developer and surgeon who has accused the brokerage firm of breach of contract, breach of fiduciary duty and fraud in two multi-million-dollar transactions.
Hutton has denied the charges, saying in a court paper that it "properly exercised its duty" and acted "in good faith" at all times in the transactions that began in 1983.
Developer Laszlo N. Tauber, who is also a surgeon, is suing Hutton for actual damages of more than $5.3 million, punitive damages of $24 million and statutory treble damages exceeding $13 million.
Tauber is the developer of several Washington office projects that have produced a fortune estimated by Forbes magazine at $250 million, making him one of the 400 richest people in the United States.
The U.S. District Court in Alexandria has set Aug. 19 for trial of the complaint, which was filed in February, nearly three months before Hutton pleaded guilty to 2,000 counts of criminal check-kiting.
Hutton was Tauber's broker in selling Swiss franc put options, which are contracts granting the right to sell Swiss francs at a specified price by a certain date. When the options matured and Tauber had to take delivery of the francs, Hutton agreed to lend him dollars, eventually totalling about $18 million, so he could pay for the Swiss currency. Tauber's lawsuit says that Hutton held the francs as collateral, agreeing to invest them to obtain for him "the highest possible market rate" of return.
Instead, the suit alleges, Hutton sought to improve its relationship with an American bank by depositing the Swiss francs in an account that initially paid zero interest, and later paid interest well below market rates. Tauber charges that Hutton ignored his instructions to transfer the francs to investments earning maximum rates.
In the second transaction described in the complaint, Hutton arranged for its Swiss subsidiary, Societe Financiere Privee S.A. (SoFiPriv), to lend 31 million Swiss francs to Tauber. He used these francs to finance 80 percent of the purchase price of U.S. Treasury notes, which had a face value of $16.5 million, and which became SoFiPriv's collateral for the loan. He paid the 20 percent balance of the price out of his own pocket.
Tauber alleges that Hutton asked him to let it transfer the collateral to the subsidiary, and that he consented on condition that Hutton "unconditionally guarantee" the notes' safety. Hutton "gave such guarantee," his suit says.
Tauber claims that SoFiPriv improperly withheld taxes on the interest earned on the Treasury notes and billed him for hundreds of thousands of dollars in fees that he had not been told of in advance.
According to the suit, Hutton told Tauber in May 1984 that it had sold its interest in SoFiPriv and "that it would not honor its guarantee." Then, he says, he found that his notes comprised about one-third of the assets of the Swiss firm, which was uninsured, was not a bank, and was not subject to Swiss banking regulations.
Tauber says that he tried to substitute 31 million Swiss francs for the Treasury notes, but that SoFiPriv declined to let him do so until he agreed to put up 33 million francs--2 million more. The transaction cost Tauber millions of dollars, the suit alleges, because he was forced to make a premature sale of the Treasury notes, to make a premature purchase of the francs and thus to lose interest.