A former employe of the Hartford office of the brokerage firm E. F. Hutton & Co. testified today that she was suspicious of some actions that were part of the check-kiting scheme to which Hutton pleaded guilty last May.
But she said her superiors never told her why she had to inform the Boston regional office of Hutton how much she deposited in the local bank each day, and why on Fridays she reported an amount two or three times bigger than the actual deposit.
The Connecticut attorney general said his office would show that Hutton used the funds as soon as its officers knew what the amounts were, despite the fact that the checks had not yet cleared and become Hutton's funds.
Lori Marvin, who was a $10,000-a-year cashier in Hutton's office here from 1979 until 1981, said that every Monday morning she would deposit in the local bank a Hutton check drawn on New York's Chemical Bank.
The amount of that check represented the difference between what she had actually deposited the previous Friday and the amount she had reported to the Boston regional office.
Marvin testified before the Connecticut Department of Banking, which must decide whether to suspend or revoke Hutton's license in the state because of its earlier guilty plea.
Connecticut Attorney General Joseph I. Lieberman is pressing the case against Hutton. He said he would ask for sanctions against the broker, but declined to say today whether he would ask the banking department to impose the ultimate penalty, revocation of the Hutton's licence to do business in the state.
Under Connecticut law, the banking department can suspend or revoke the registration of a broker or investment adviser who has been convicted of a felony.
Last May, Hutton pleaded guilty to 2,000 federal felony counts of mail and wire fraud. Hutton admitted it had engaged in a massive scheme against some of the more than 400 banks with which it did business, systematically overdrawing the accounts Hutton held in those banks.
Hutton agreed to pay $2 million in fines, $750,000 in court costs and to make restitution to the banks it defrauded. It also agreed to correct its checking practices.
Thomas F. Curnin, who is representing Hutton, said today that Hutton's top management was unaware of the abuses in its management system and that Hutton has made a major effort to "rehabilitate" itself, as Connecticut law requires.
His cocounsel, Ralph G. Elliott, said Hutton has not been shown to be untrustworthy in handling the funds of its customers.
Lieberman said he called Marvin to testify to show how Hutton systematically overdrew its bank accounts. He said he would show Thursday that as soon as the Boston region knew how much had been deposited in the Hartford bank, cash managers in Boston would immediately write a check on the Hartford account.
Lieberman said Hutton knew the checks that cashier Marvin had deposited had not yet cleared and were not yet Hutton's funds -- collected funds, as bankers call them.
The cashier reported a higher amount to Boston on Friday because Hutton's funds would be sitting in the Hartford account for two days without earning interest.
Lieberman told Acting Banking Commissioner Howard B. Brown that he would show that Hutton's top management pressured branch offices to earn interest income and that this pressure spawned the check kiting scheme.
Federal prosecutors have said that Hutton relied on the inability of most of its banks to detect that the firm was writing checks on uncollected funds. In effect, federal prosecutors said, the banks were inadvertently making hundreds of millions of dollars of interest-free loans to Hutton.
Hutton Chairman Robert Fomon will testify here Thursday. The Connecticut proceedings are the only public investigation into the Hutton scheme.