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Controversy swirls around the Justice Department's handling of the case. Some industry observers and legal experts were surprised by the department's decision not to cite individual Hutton employees in the May indictment. Fomon conceded to the New York Times that he was wrong to accept the terms of the May settlement. Said he: "If I had to do it over again . . . the individuals involved would have stood by themselves." Some members of Congress say that Justice's investigation of the case was superficial. Those complaints led the House subcommittee to begin its own probe. Attorney General Edwin Meese has not ruled out the possibility that the inquiry might be reopened by the Justice Department. "Our attention to the case continues," he said last week. "We are keeping our eyes open to any new information."
Hutton must bear some blame for the apparent inadequacy of the federal investigation. The firm's failure to deliver 18 subpoenaed documents may well have hampered the inquiry. Hutton explained that the relevant papers were only just discovered in file drawers that had belonged to Ball.
The controversy has battered Hutton's bottom line as well as its reputation. In May, New York City temporarily barred the firm from participating in two municipal-bond offerings, accusing Hutton of "stealing." Though the ban was lifted, it represented a loss of some $500,000 in fees and an incalculable amount of prestige. A New York state agency, the Metropolitan Transportation Authority, has indefinitely prohibited Hutton from doing any of its underwriting.
State officials could take even tougher action if they decided to suspend Hutton's brokerage licenses. Connecticut has begun hearings on such a move. Hutton now manages $100 million in assets for 13,000 clients in that state. Hutton, declares Brian Woolf, the Connecticut banking commissioner, accepted a public trust but then "betrayed it."
The depth of that betrayal may be determined by the House Judiciary subcommittee, which will conduct more hearings this week. Said New Jersey Democrat William Hughes, the chairman: "We're learning a lot more about the E.F. Hutton case by the hour." Yet even before the new hearings open, Hutton is hurting. Said James Hanbury, who monitors financial-services companies for the investment firm Wertheim & Co.: "Hutton's sales force is nearly demoralized, and its customers are starting to hold back. Even after it's over, Hutton will still wear the stigma. And in this business, which is regulated by trust, a company's reputation means a lot. " --By Barbara Rudolph. Reported by Anne Constable/Washington and Thomas McCarroll/New York City