Memos Detail Overdrafting at E. F. Hutton : Ex-President Approved Practice, Papers Show

WASHINGTON â€”  A former president of E. F. Hutton & Co. personally approved regular overdrafting of the brokerage house’s bank accounts in the early 1980s, according to internal Hutton memos obtained by a House Judiciary subcommittee.

The memos, written in early 1982 to George L. Ball, then president of Hutton, by company Comptroller Michael P. Castellano, indicate that Ball had authorized overdrafts in Hutton’s regional bank accounts.

Ball said Monday through a spokesman that he was referring only to “legitimate overdrafts that are a normal business practice.�

Last May, Hutton pleaded guilty to 2,000 counts of wire and mail fraud for excessive, illegal overdrafts. While accepting Hutton’s guilty plea, the Justice Department has declined to prosecute any past or present Hutton executives on grounds that the firm’s senior management apparently had no knowledge of the scheme, similar to “check kiting.�

President for 5 Years

The Castellano-Ball correspondence is being studied by the House Judiciary subcommittee on crime as part of thousands of documents obtained by subpoena from Hutton in that case.

Abuses by the brokerage firm in its overdraft practices, initially uncovered by the Justice Department, dealt with the years 1980, 1981 and 1982. Ball was Hutton’s president for five years until July, 1982, when he left to become president and chief executive of Prudential-Bache Securities.

A memo to Ball from Castellano on Feb. 9, 1982, and furnished to the subcommittee, says in part: “Although you have made the decision to give branches credit for interest earned via overdrafting of the Regional Bank Account, how these branch interest credits are determined and accounted for is still unresolved.�

Later, Castellano wrote Ball that he had asked Hutton’s regional offices “which bank accounts they were using to overdraft the branches.�

Rep. William J. Hughes (D-N.J.), the subcommittee chairman, said the panel will hear from “a variety of witnesses� in the Hutton case, including Ball.

“Many have criticized the Justice Department for not proceeding against individuals,� Hughes said of Hutton’s guilty plea. “One of the purposes of these hearings is to review just that issue.�

Castellano has said that he and other Hutton executives “did not become aware of any improprieties� until May, 1982, as a result of inquiries from federal investigators about flagrant overdrafts. Hutton ordered the practices halted and ultimately agreed to pay a fine of $2 million and to reimburse banks for millions of dollars in interest-free loans obtained from the illegal “float.�

Some Overdrafting Allowed

Last month, Hutton Group Chairman Robert Fomon told the Hughes subcommittee that “I have absolutely no evidence� that any senior company officials had been involved in illegal overdrafts. The Justice Department has taken the same position.