A former manager of the Bethesda branch of E. F. Hutton & Co. charged yesterday that top officers and directors of the firm shaped and ran the criminal check-kiting scheme to which Hutton pleaded guilty last May.
John M. Pearce, who now works for Hutton in Florida, contended in a $20 million suit against the firm and former U.S. attorney general Griffin B. Bell that they made him a scapegoat in the massive check overdrafting abuses.
He said the scheme "was initiated, encouraged and administered by senior corporate officers . . . with the knowledge and active concurrence of" members of the board of directors.
Hutton, which has denied that senior officials were culpable in the case, hired Bell to conduct an investigation into how its cash-concentration practices got out of hand. He filed a report in September, which agreed that senior managers were not involved in the design or implementation of the illegal practices, but called for sanctions against Pearce and five other branch managers. A few higher-ranking officials were sharply criticized.
In the suit, which charges defamation and invasion of privacy, Pearce alleged that Bell made several "knowingly false statements" about him in the report on the inquiry and in public comments.
He also alleged that Hutton knew the statements were false, but circulated them widely and used them as a basis of negotiations with state securities regulators to preserve its licenses to do business.
He said he had asked for retractions, but was refused by both Bell and Hutton.
Bell, reached at his Atlanta law firm, said: "The Hutton report on Mr. Pearce speaks for itself, and the references to him will prove to be well-founded."
A spokesman for Hutton said, "We have confidence in the fairness of Judge Bell's investigation and believe that the basis of Mr. Pearce's lawsuit is without merit."
Pearce brought the complaint in U.S. District Court here eight months and a day after Hutton pleaded guilty to 2,000 felony counts of mail and wire fraud over an 18-month period ended in February 1982. Hutton paid a $2 million fine.
The Justice Department has said repeatedly that a few middle-management employes were the only ones who could have been prosecuted -- with only a partial chance of success.
After Pearce managed the Bethesda branch for two years, he was transferred to St. Louis in September 1981. As a result of the Bell report, Pearce said, he was "demoted to a nonmanagement position in another city" (he now lives in Longboat Key, Fla.), has seen his professional license put in jeopardy in several states, has been "deprived of future opportunities" in the securities industry, and has "suffered an immediate reduction in his annual income of more than $100,000."
Hutton fined each of the six branch managers named in the Bell report between $25,000 and $50,000, saying it would donate the funds to charity.
The Bell report said only one branch "initiated and administered" an abusive checking account practice called "chaining," and pointed out that Pearce was the Bethesda branch manager when "the St. Louis/Bethesda/Seattle chain began about mid-October 1981. . . . "
The report also said that Pearce "actually engaged in wrongdoing" and engaged in activity "so aggressive and egregious as to warrant sanctions."
But Hutton and Bell knew that he had "never been a target" of the grand jury investigation which led to the company's guilty plea, that he has never engaged in any criminal conduct, and that he is a person "of high moral character and professional integrity," Pearce said in the suit.
The suit alleged that Bell, acting as "an agent" for Hutton, held a press conference here Sept. 5 at which he "falsely portrayed" Pearce's character and activities to the public.
He recalled an exchange in which a reporter asked: "You did find criminal wrongdoing, but it wasn't at the top levels?" Bell replied, "Exactly." A reporter then asked, "It was the middle and lower levels?"
Bell answered, "That's exactly right."
Bell, a former U.S. appellate court judge, also said that the six branch managers, including Pearce, "deserve to be penalized for what they did."
Bell also said that one of the six managers had "two branches; he was at one place and moved to another -- engaged in excessive overdrafts at both places."
Bell continued: "On the standard we used, which is that no person could have thought it was reasonable, which I was trying to get something pretty close to a criminal prosecution standard, we decided that they were the only ones that ought to be sanctioned."
Pearce said in the complaint that he "was the only individual named in the written report of defendant Bell who had managed two branches of E. F. Hutton."
He pinned a "false" label on the cited statements made by Bell at the press conference and charged that they "attribute criminal conduct" to him.
Pearce said that Hutton republished "such knowingly false statements" and incorporated them "in written presentations to securities regulators of the various states" who are empowered to suspend or revoke his professional license.
After Pearce had asked Hutton for a retraction, according to the complaint, Hutton made a written agreement with Virginia regulatory officials "to bar him for a period of five years as a condition of avoiding a proceeding to revoke the broker-dealer license of E. F. Hutton Co."
Pearce seeks $10 million in compensatory damages and an equal sum as a punitive award from Bell and from the firm's corporate parent, E. F. Hutton Group Inc.