Hutton Memo Reveals High Justice Official Sought to Prosecute 3

A high Justice Department official at one point authorized the criminal prosecution of three E. F. Hutton & Co. officials for the brokerage house’s multimillion-dollar overdrafts, even though the case eventually concluded with no individuals being charged, according to a Hutton legal memorandum.

The memorandum, made available to The Times on Tuesday, said that the official, Assistant Atty. Gen. Stephen S. Trott, decided to move last March against three persons after a Justice Department prosecutor suggested that five Hutton officials be charged. None of the potential defendants were identified.

Trott, who has testified before Congress that the department considered prosecuting only two “mid-level” Hutton officials, said in an interview Tuesday that he did not recall authorizing the prosecution of three persons and insisted that the total number is “irrelevant.”

Much more important than the “numbers game,” he said, is what the Justice Department obtained last May in negotiations with Hutton: a guilty plea by the company to 2,000 criminal counts of fraud, $2.7 million in fines and legal costs and a sweeping injunction in the case, which arose from Hutton’s interest-free use of millions of dollars by intentionally writing checks in excess of its bank deposits.

Intense Criticism

The department has faced intense criticism from Congress for failing to prosecute any individual Hutton executives in the scheme. But department officials have argued that no high-level officials of the firm could have been prosecuted and that the case against the two mid-level individuals was “considerably less than certain.”

“We ultimately viewed our choice as one between an uncertain prospect of convicting two mid-level individuals who did not gain from the fraud against the certainty of a broad-based enforcement stroke that could immediately wipe out cash-management abuses throughout the business community,” the department said in its own summary of the controversial decision.

Trott declined to discuss how a Hutton lawyer, in the memorandum dated last March 17, could have concluded that he had authorized seeking an indictment of three Hutton employees in the case.

“That’s Hutton’s perception,” he said. “I’m not going to comment on their perception.”

Hard Line in Talks

But other sources, experienced in criminal prosecutions, said government prosecutors often take a hard line in discussions with attorneys for a potential defendant in hopes of obtaining concessions from the defendant. This could have taken place in Trott’s discussions with Hutton’s lawyers, these sources suggested.

The Hutton memorandum did indicate that Trott was taking a tougher stance with Hutton’s lawyers than was Robert W. Ogren, chief of the fraud section in the department’s criminal division. The memo said Ogren appeared willing to accept a guilty plea from the company alone, while Trott maintained that, if individuals were involved, they should be indicted.

Ogren and Albert R. Murray Jr., the Scranton, Pa., assistant U.S. attorney who spent three years developing the case, did not return reporters’ calls Tuesday.

Murray was identified in the memo as the prosecutor who suggested that five persons be charged.

In a related development, Hutton issued a statement from its New York headquarters saying a Washington-based official of the firm, Perry H. Bacon, denies that he destroyed “potential evidence” or is aware of any such destruction.

The Times reported Tuesday that an internal Hutton document referred to Bacon’s admission that he had destroyed some documents after they were subpoenaed by the government in 1982.

This legal memorandum, also dated March 17, said Justice Department prosecutor Peter B. Clark “reported that Bacon, in the course of his last interview and in the presence of his lawyers, admitted he had destroyed documents after the subpoena had been issued because he did not want to produce certain materials.”

The memo continued: “Clark was unclear when the documents were destroyed, i.e., after receipt of the 1982 subpoenas or after Bacon was subpoenaed to appear before the grand jury. Clark believes that many responsive documents have been destroyed/withheld.”

The memo was written by Thomas F. Curnin, a partner in the New York law firm of Cahill, Gordon & Reindel, one of the firms representing Hutton. Curnin was not available for comment Tuesday.

Clark has declined comment on the matter, and Bacon on Monday referred reporters to the company’s public affairs department in New York, which did not return several phone calls.

Trott also said that allegations that Hutton had withheld some subpoenaed documents “is under review.” He declined to call the review an investigation but added that “when the government subpoenas documents, it expects they will be produced, and when they are not, it’s serious.”

The newly disclosed documents have been uncovered during an internal investigation by a team of lawyers headed by former Atty. Gen. Griffin B. Bell, who was retained by Hutton to conduct the inquiry.

Bell’s work is scheduled to be completed after Labor Day.