U.S. Defends Decision to Settle Hutton Case
The Justice Department, in the most detailed defense yet of its decision not to prosecute individuals in the E. F. Hutton check-kiting probe, said Thursday that settling the case earlier this month averted a lengthy, legally uncertain trial that might have caused a financial panic.
In a letter to Sen. Thomas F. Eagleton (D-Mo.), Assistant Atty. Gen. Stephen S. Trott said that only two Hutton employees were “primarily responsible” for the multibillion-dollar scheme, which defrauded about 400 banks, and that their prosecution would be “very difficult.”
“Our career prosecutors opted for the numerous overwhelming benefits of the immediate solution,” Trott wrote, “and we find their judgment to be absolutely sound and above reproach.”
But the explanation failed to stem persistent congressional charges that the Hutton settlement, worth more than $10 million, reveals a softness toward white-collar crime in the Justice Department’s top ranks.
Eagleton, who had sharply attacked the agreement in a letter to Atty. Gen. Edwin Meese III, said in a statement Thursday that the department’s defense “simply won’t fly.”
In a related move, an aide to Sen. Charles McC. Mathias of Maryland, the second-ranking Republican on the Senate Judiciary Committee, said the panel would examine the Hutton plea bargain in hearings on white-collar crime later this summer. The House Judiciary Committee has scheduled similar hearings beginning Wednesday.
“This isn’t going to go away,” a Democratic Senate aide said.
‘Substantial’ Benefits Claimed
The six-page letter from Trott defended as “extraordinary” the Hutton settlement, which resolved charges that the huge brokerage firm had written billions of dollars in overdraft checks to banks, then invested the “float” to earn millions more in illegal interest.
Hutton pleaded guilty to 2,000 counts of fraud, paid a $2-million fine and $750,000 in prosecution costs and agreed to repay the victimized banks at least $8 million for the interest they had lost.
While it is department policy to hold individuals rather than companies responsible for crimes, Trott stated, the benefits of the Hutton settlement “were so substantial that they clearly warranted an exception to our policy.”
Prosecution of the two Hutton employees--both non-executive workers in the firm’s New York cash management offices--would have been “very thorny” because of recent Supreme Court rulings that have clouded the illegality of check-kiting, he wrote. Nor would a trial have assured repayment of all banks affected by the swindle.
Moreover, he wrote, a lengthy trial “had the capacity to undercut public confidence in those banks” that had suffered losses under the Hutton scheme.
“One has only to look to the recent problems in Ohio and Maryland,” where privately insured savings and loan associations have suffered runs on deposits, “to see how fragile public confidence can be” when bank losses are publicized, Trott wrote.
Eagleton rejected those explanations, saying he “still cannot comprehend how, with 2,000 felony counts returned in this case, no one is guilty of a crime.”
Senate aides familiar with the case also questioned the letter’s excuses. Among questions left unanswered, they said, are why a fraud scheme that ended in 1982, leaving no mortally wounded banks, required immediate settlement to avoid a public panic.
They also questioned why Hutton agreed to such a huge cash settlement if even the conviction of two lower-level workers was uncertain at best.
“The question that has to be raised is why it was so important to Hutton to avoid any individual prosecution,” one Senate aide asked. “The question, really, is what’s the trade-off?”