WASHINGTON -- E.F. Hutton Co. pleaded guilty to 2,000 federal felony charges in a $10 billion check-kiting scheme and the head of the government's fraud section says other firms may be doing the same thing.
E.F. Hutton, the nation's fifth largest brokerage firm, agreed Thursday to pay $2 million in fines and $750,000 to reimburse the government for the investigation, and make restitution to the banks it defrauded.
Bob Ogren, chief of the Justice Department's fraud section, estimated that more than 400 banks lost 'tens of millions of dollars' in interest payments on money that did not exist as a result of the 19-month scam.
No individuals were charged in the scheme, which the Justice Department described as check kiting -- a situation in which checks are written on funds of distant banks before money is available to cover them.
The department refused to release the names of any corporate officials involved in the fraud.
The 82-year-old company said the activities 'did not involve or threaten customer or client funds. The injured parties were certain commercial banks, to which the company will make full restitution.'
Attorney General Edwin Meese said at a news conference the firm's guilty plea and the $2.75 million fine 'sends a message to the busIness world that so-called white-collar crime by business enterprises will not be tolerated.'
At a later briefing for reporters, Ogren said, 'There are some indications we've received it is happening other places.' He did not elaborate.
In West Virginia, Treasurer A. James Manchin abruptly halted any new state investments with Hutton, saying, 'When E.F. Hutton speaks, I will no longer listen.' Manchin termed the firm 'a vulture on the limb of life,' and said 'it may no longer compete for the state's investment business.'
The company entered its guilty plea in federal court in Scranton, Pa., to 2,000 separate counts of mail and wire fraud -- each charge representing a single check. Those checks were worth $4.349 billion, but Ogren estimated that E.F. Hutton ran $10 billion through the system.
Each count drew a fine of $1,000 and the additional $750,000 levy was to defray the costs of the government's investigation.
The department said that between July 1, 1980, and Feb. 28, 1982, E.F. Hutton drew against uncollected funds, w)th daily overdrafts sometimes exceeding $250 million.
Hutton also won a waiver of Securities and Exchange Commission rules Thursday that would bar any convicted felon -- including a company - from acting as an investment adviser. SEC spokeswoman Mary McCue said the exemption was granted 'to avoid disruption of the securities market.'
In a statement, the company said that 'senior management stopped the practices in question when brought to their attention.'
At a briefing, Albert Murray, an assistant U.S. attorney from Pennsylvania who investigated the case, said those responsible for the fraud involved the top operating levels of the company.
'You remember the old saying ... 'When E.F. Hutton,' whatever,' Murray said, adding that few banks were willing to question activities of the firm.
The company is well known for its slogan, 'When E.F. Hutton talks, people listen.'
'E.F. Hutton based on its corporate integrity and its financial standing was able to conduct the scheme,' Murray said.