LEROY, N.Y. -- An auditor at a small upstate bank who blew the whistle on a multibillion dollar check floating scheme by E.F. Hutton & Co. never feared the giant brokerage house, the bank manager said Thursday.
Genesee Country Bank in LeRoy, Genesee County, notified authorities 3 years ago that Hutton had tried to write checks in excess of its deposits at the rural bank, federal officials said.
The tip triggered a federal investigation that culminated in Hutton's decision to plead guilty last week to 2,000 felony counts of mail and wire fraud.
James Lapp, a senior vice president of Genesee Country at the time, said Hutton's size didn't stop senior bank officials from reporting the bounced checks to state and federal authorities.
'I don't think there was ever any hesitancy,' he said.
Genesee Country Bank, then a subsidiary of Rochester-based Security New York State Corp., is now a branch of Security Norstar Bank, a unit of Norstar Bancorp Inc. Most of its customers are farmers in the rich Genesee Valley.
Hutton, the nation's fifth largest brokerage house, pleaded guilty to what the government said amounted to a $4.35 billion scheme involving about 400 commercial banks.
The brokerage firm admitted to overdrawing bank accounts and transferring funds between small and larger banks to take advantage of the 'float,' or time it takes for a check to clear the bank.
The LeRoy bank blew the whistle in 1981 after the bank bounced $21 million worth of uncovered Hutton checks in one week. The bank, located about 25 miles west of Rochester, only had deposits of $50 million at the time.
'I don't necessarily think that we find a lot of pride in finding a corporate giant like E.F. Hutton guilty of fraud,' Lapp said. 'I would have hoped that the thing never had occurred -- that there would never have been anything to find.'
Genesee Country closed Hutton's account at its Batavia branch and received money from the firm to cover the checks.
However, John Lounsbury, auditor of Security New York State at the time, still wrote letters to the commissioner of the state Banking Department, the Federal Reserve Bank of New York, the Federal Deposit Insurance Corp. and the FBI.
The letter to the Federal Reserve 'got an immediate response' and a promise of an investigation, Lounsbury said.
Lounsbury said he and other bank officials were called three times to present bank records and testify before a federal grand jury in Scranton, Pa., that was investigating the Hutton case.
