Report by Bell Cites a Dozen at E. F. Hutton : Top Managers Cleared in Overdrafting Scheme

About a dozen middle-management employees of E. F. Hutton & Co. have been implicated in an investigation of illegal banking practices and face punishment ranging from censure to dismissal, the investment firm’s chairman says.

Robert Fomon, Hutton’s chairman, also said that the investigation conducted for the company by former Atty. Gen. Griffin Bell “didn’t find a smoking gun” that would implicate Hutton’s top management in the overdrafting scheme and that “it’s become clear that nobody else will either.”

Bell, who served as attorney general under former President Jimmy Carter, scheduled a news conference for this morning in Washington to release his report.

$2.75 Million in Fines, Costs

In May, Hutton pleaded guilty to 2,000 counts of mail and wire fraud in connection with a practice of withdrawing far more money than was on deposit in its checking accounts. It paid $2.75 million in fines and legal costs as part of its settlement with the Justice Department.

The scheme provided Hutton with the equivalent of short-term, interest-free loans that on some days totaled hundreds of millions of dollars.

Congress, the Justice Department and other state and federal regulatory agencies are still looking into the case. No individuals have been charged with any wrongdoing by the government.

Fomon addressed employees Tuesday over the company’s internal public address system to give a preview of the findings. He said he had not seen the report but had been briefed by Bell.

Reports on Fomon’s remarks were carried Wednesday by the Wall Street Journal and the New York Times and were confirmed by Hutton.

“I suspect that, among many of you, a desire for a full accounting is somewhat offset by the fear of a massive purge; the facts do not warrant that fear,” Foman said. “The number of individuals who will in some manner be adversely affected is more like a dozen than dozens.”

‘Failures of Judgment’

Fomon said the employees to be named in Bell’s report generally believed that they were not breaking the law and thought that they were serving the company.

He said Bell found “no criminal culpability on the part of any individual. There were failures of judgment. But he’s saying that nobody intended to break the law.”

Punishment would include censure, fines, suspension, reassignment and dismissal, Fomon said.

He did not identify the executives implicated in the investigation.

Although Fomon said “senior management was not involved in designing or carrying out the illegal practices,” he repeated earlier Hutton statements that its top officials were responsible for the absence of controls that would have detected the illegal practices. He said senior executives also had put pressure on middle-management officials to increase interest income.