Hutton Fined $400,000 for Check Scheme : NYSE Also Censures Brokerage and 2 Former Top Executives

NEW YORK — E. F. Hutton & Co. has been fined $400,000 and censured by the New York Stock Exchange in connection with the firm’s 1985 check overdraft scandal, the NYSE announced Tuesday.

Two former Hutton officers, President George L. Ball and Executive Vice President Thomas P. Lynch, the company’s chief financial officer, also were censured, the NYSE said in a statement.

A censure is one of the mildest forms of sanctions the exchange can impose on members. The NYSE’s action against Hutton and the former executives had been expected for some time.

The hearing panel found that, from 1980 to 1982, Hutton failed to supervise and control its cashiering operations and several areas of its business operations.

Deliberate Overdrafts

The hearing panel also found that Hutton had “engaged in conduct inconsistent with just and equitable principles of trade” through the overdraft scheme, which the exchange said deprived banks of their property because Hutton did not pay interest on the funds it used.

Hutton, Ball and Lynch consented to the findings of an exchange hearing panel without admitting or denying guilt, the NYSE said.

The exchange’s investigation stemmed from a 1985 check-overdrafting scheme that Hutton orchestrated through its retail brokerage network. The firm earned up to $8 million in interest income at commercial banks by deliberately overdrawing checking accounts and putting the money to use elsewhere.

Hutton pleaded guilty to 2,000 federal fraud counts and paid a $2-million fine in May, 1985, because of the scheme, which exposed serious management lapses at the firm and led to a chain of events that forced Hutton to sell itself to Shearson Lehman Bros. late last year. The merged firm is known as Shearson Lehman Hutton Inc.

In a report on the disciplinary actions, the NYSE said there was no evidence that Ball, now the chairman of Prudential-Bache Securities Inc., or Lynch had been aware of excessive overdrafting before February, 1982, but should have questioned whether there was adequate supervision and control over branch offices.

The $400,000 fine is among the largest levied by the stock exchange.