‘Justice Was Done’ in E.F. Hutton Fraud Case

Your editorial (May 6), “Unsolved Whodunit,” questioning whether “justice has been done” in the E.F. Hutton case is based on a serious misperception of the plea agreement and a lack of appreciation of the extraordinary and immediate relief obtained by the government for the victims of the fraud.

For what amounted to deceiving banks into giving it interest-free loans, Hutton was required to plead guilty--not nolo contendere--to an unprecedented 2,000 felony counts of intentional mail and wire fraud. No leeway was given to the company to advance any claim that this swindle might somehow be just a smart business practice. It was fined $2 million, the maximum the law allows and a sum that makes it the steepest fine in the history of our white-collar enforcement effort. Hutton was also required to pay the government $750,000 to cover the costs of the investigation, which are ordinarily not recoverable, even with a jury verdict of guilty.

More important, however, the Department of Justice demanded that Hutton immediately make full and complete restitution (plus interest) to each and every one of the bank victims, which it is now doing with a letter of apology.

You will look a long time before you find many criminal fraud cases where this much immediate benefit flows to the victims. Usually they are left high and dry. It is incorrect to assume or infer that restitution has been limited to the $8 million Hutton has reserved for this purpose. The only limitation on the amount of restitution is the amount stolen, plus interest.

In addition to looking after the interests of the victims, it is also one of our important priorities to protect the banking industry itself from fraudulent schemes and predatory money-management practices. The public must have faith in the stability of our financial institutions, and the people must have it today, not tomorrow. The plea of guilty without a risky, costly, and lengthy trial achieved this objective, now, not two years from now. The word is out. The cloud is gone. This conduct is criminal. It will be prosecuted.

Chasing in court the individual authors of the swindle would also have had some merit, but not at the expense of forgoing the opportunity to seize this extraordinary settlement. Prosecuting them would have meant dropping all that we have just won in favor of a protracted court fight that would have taken at least two years to complete. This scheme was so complex that most of the banks did not even realize that they had been victimized. Presenting it to a jury would not have been without problems.

The evidence is also clear that this scheme was peculiarly corporate in nature. The individual swindlers were not lining their own pockets with the stolen money; it went to Hutton. Hutton in turn gave them “profitability bonuses” for their efforts. This does not minimize their part in the scam, but it does underscore the company’s responsibility for what happened.

When it is appropriate in the pursuit of justice to pursue individual white-collar criminals as well as the companies for which they work, we do. The four-year federal prison sentence handed out this week to former Deputy Defense Secretary Paul Thayer and Dallas stockbroker Billy Bob Harris for their parts in an illegal stock scam, is unmistakable evidence of this policy as well as clear evidence of our commitment to bring the hammer of justice down hard on economic crime and economic criminals.

That is the message. Justice was done.


Washington, D.C.

Trott is assistant attorney general in charge of the Justice Department’s criminal division.