About a dozen middle managers of E. F. Hutton & Co. are named in an investigation of an illegal check-kiting scheme that gave the large Wall Street brokerage firm the use of hundreds of millions of dollars interest-free, a company spokesman said yesterday.
Former U.S. attorney general Griffin B. Bell was hired by the company to conduct the independent investigation, the results of which will be released here today.
According to the company spokesman, the employes implicated in the Bell investigation face punishments ranging from outright dismissal to fines, censures or suspensions.
But in a talk broadcast to employes in most of Hutton's 300-plus offices, the firm's chairman and chief executive officer, Robert Fomon, said the Bell investigation found "no criminal culpability" on the part of any employe. "There were failures of judgment. But he's saying that nobody intended to break the law," the spokesman said.
Fomon, moreover, insisted that Bell's investigation cleared senior executives of any complicity in the scheme. The company pleaded guilty to 2,000 counts of fraud because of the illegal practice of writing check overdrafts; it paid $2.7 million in fines and legal fees. But the Justice Department, in a controversial decision, declined to prosecute any of Hutton's officers or employes.
The substance of Fomon's remarks was reported yesterday in The Wall Street Journal and The New York Times and confirmed later by the company.
Fomon said the Bell probe "didn't find a smoking gun" showing that the company's top management was involved in the scheme, and after investigations by Congress, the Security and Exchange Commission and the Justice Department, "it's become clear that no one else will, either.
"I want to be very explicit here," Fomon told Hutton employes. "Senior management was not involved in designing or carrying out the illegal practices."
However, in pleading guilty to the federal criminal charges, Fomon said, Hutton's top executives acknowledged they were "responsible for the absence of controls that would have detected those practices."
He blamed the scheme on a few branch managers and mid-level executives who were "a bit too entrepreneurial" in trying to make money for the company. They "thought they were serving E. F. Hutton" by carrying out "activities that common sense should have told them were contrary to Hutton policy," he added.
Fomon said the schemes, which gave the firm what amounted to interest-free loans, involved fewer than one-fourth of Hutton's branch offices.
Fomon said he had not seen the report but was briefed on it by Bell, an Atlanta lawyer who was attorney general in the Carter administration.