Ex-Hutton Head Approved Overdrafting, Papers Show

George L. Ball, president of E.F. Hutton & Co. from 1977 to 1982, approved the deliberate overdrafting of bank accounts in a 1981 memo to all of the brokerage house’s regional officers after being told that one branch office was earning $30,000 a month in interest through such practices, according to internal company documents obtained Monday by The Times.

Moreover, one document also said that a Washington-based Hutton executive had admitted to federal prosecutors that he destroyed some records involving the company’s cash management practices after they were subpoenaed by the government in 1982.

The documents raise new questions about the Justice Department’s controversial decision six weeks ago to obtain a guilty plea from the company as a whole for massive illegal overdrafts rather than to prosecute individual Hutton officials.

But Atty. Gen. Edwin Meese III has said that “it remains to be seen” whether Hutton officials have withheld any information in the longstanding investigation into the company’s business practices, and department officials have refused to say whether they are reopening the case on those grounds.

Some of the new documents recently have been provided by Hutton to the Justice Department and to a House Judiciary subcommittee conducting an inquiry into how the department has handled its investigation.

The newly revealed memo to Ball stated that for several months in late 1980 and early 1981 “a certain branch in our retail system had been earning a consistent $30,000 per month in interest just from overdrafting of the bank account.”

Three weeks later, on June 3, 1981, Ball sent copies of the memo to hundreds of regional vice presidents, sales managers and branch office managers with the comment: “A point well worth remembering, and acting on.”

Ball, who left Hutton in 1982 to become president and chief executive of Prudential-Bache Securities, has said repeatedly that he only advocated “legitimate overdrafts that are a normal business practice”--not the excessive, illegal kind to which Hutton ultimately pleaded guilty.

Stands By Statements

When asked Monday if $30,000 a month in interest income from overdrafts still would be considered legitimate, Ball said through a spokesman that he would stand by his previous statements.

Meanwhile, Perry H. Bacon, the Hutton executive in Washington, declined comment on the question of his alleged destruction of documents and referred reporters to the company’s public affairs department in New York. Officials there declined to return repeated telephone calls.

However, the Hutton document stated that Bacon had said, in the presence of his attorneys, that he simply did not want prosecutors to see the materials.

‘Not in a Contest’

At the Justice Department, prosecutor Peter B. Clark refused comment, declaring: “Nobody in the department is commenting on reports of newly discovered documents or on what effect they would have on the department. We’re not in a contest. We don’t have to tell our side of the story.”

Ball was apprised of the branch overdrafting through a copy of a memo received by Thomas P. Morley, Hutton’s first vice president, from Tom Lillis, a subordinate, on May 12, 1981.

The memo said in part that “for the months of January and February, 1981 (and many months before), a certain branch in our retail system had been earning a consistent $30,000 per month in interest just from overdrafting of the bank account.

“At the beginning of March, 1981, the branch manager changed cashiers, and for the months of March and April, 1981, the same branch earned less than $10,000 per month by overdrafting the bank account. In two months, the branch lost $40,000 of location profit and the branch manager lost $4,000 of additional bonus.”

In concluding his memo, Lillis said: “Therefore, I repeat, ‘A good branch cashier is worth as much as an A.E. (account executive).’ Between us, we need a program to accelerate branch and region awareness of the opportunities for interest profits.”

According to court papers filed by the government in the case, Hutton’s scheme involved withdrawing arbitrary amounts that exceeded the amount of customer funds it had deposited. These excessive withdrawals were covered by depositing checks drawn on other Hutton accounts. Hutton called the practice “excessive drawdowns,” which it defined as “intentionally and persistently writing excessively large checks against deposits before the checks creating those deposits had cleared.”

Other Memos Obtained

Although the exact nature of the records that Bacon allegedly destroyed could not be learned, the House Judiciary subcommittee on crime, headed by Rep. William J. Hughes (D-N.J.), has obtained other memos involving Bacon that describe Hutton’s aggressive practice of overdrafts.

In a memo dated March 12, 1982, Steve Bralove, who has headed one Washington-based office, wrote Bacon, who heads another office in the capital: “I have spent the last couple of weeks trying to repair the damage created by your efforts to make excessive interest profits for your office. Of course, we are all concerned with maximizing profits in our offices, but not at the expense of our business reputation or future profitability. Your excessive overdrafting shows a blatant disregard for the consequences of your actions.”

In reply, Bacon wrote on April 23, 1982, that “we--as a firm--learned to use the float because it is exactly what the banks do to us.” But Bacon conceded that “we will from time to time draw down not only deposits plus anticipated deposits, but also bogus deposits.”