Try as it may, E.F. Hutton, the fifth-largest U.S. brokerage firm, cannot escape an ongoing scandal. In fact, the company seems to become enmeshed ever deeper in suspicions and allegations. In May, Hutton was fined $2 million plus legal costs after pleading guilty to 2,000 counts of mail and wire fraud involving an elaborate check-kiting operation. That admission, though, seems to have been just the beginning of the firm's problems. Last week Hutton divulged that it had failed to submit 18 documents subpoenaed by the Justice Department during a three-year investigation of its practices. Former Hutton President George L. Ball looked increasingly vulnerable to charges that he had approved the operation.
In the check-kiting scheme, several bank accounts were played off against one another to avoid bouncing any checks and to gain, in effect, interest-free loans. Hutton's scheme was illegal because the overdrafting was so consistent and the amounts involved so excessive. The maneuvers, which took place over a 20 month period beginning in July 1980, involved checks totaling about $10 billion. On some days, Hutton enjoyed $250 million in interest-free loans.
It still remains unclear who condoned the practice, which was carried out by at least 23 Hutton branch offices. Hutton Chairman Robert Fomon defends his senior officers. Says he: "I have no reason to believe that any members of top management were involved."
A month ago, however, materials surfaced that may lead to evidence that Ball, Hutton's president from 1977 to 1982, was implicated. He left the firm in 1982 to become president of Prudential-Bache. Last month a House Judiciary subcommittee produced internal Hutton documents suggesting that Ball was aware of the practice. A memo sent in November 1981 to Ball by Linda Curtiss, an executive, de scribed "disproportionately high interest. . . from aggressive overdrafting with several branches in the Washington, D.C., area." But Ball has denied receiving the correspondence. Confusion arose, Ball said, because a memo dated March 1982, which mentioned the overdrafting, was later mistakenly stapled to the earlier one. In that way it appeared that the two documents "constituted a single memo addressed to me."
Among the 18 documents is additional corporate correspondence that could question Ball's claim of innocence. A memo dated May 12, 1981, praised one branch manager who earned $30,000 a month in interest through check overdrafting. That profit fell to $10,000 a month when the branch changed cashiers. In June 1981, Ball wrote a covering note to the memo, addressed to regional offices. He noted tersely: "A point well worth remembering, and acting on."
Fomon stands by Ball, stating that the documents do not offer "concrete evidence" that the former Hutton executive knew about any illegalities. Ball says that "a careful reading" of the documents "vindicates me and substantiates the position that I had no knowledge of any improper acts."