Shearson to Pay Record $500,000 Fine to NYSE : Wall Street: The firm allegedly violated exchange rules in buying E. F. Hutton stock in 1986. Shearson neither admitted nor denied wrongdoing.

Shearson Lehman Hutton Inc. has agreed to pay the New York Stock Exchange a record $500,000 fine to settle allegations that it violated exchange rules in buying E. F. Hutton & Co. stock in 1986.

Shearson is paying the fine without admitting or denying wrongdoing, the NYSE said Friday.

Shearson acquired a 4.9% stake in Hutton in 1986, then sold the shares that October after the management of the troubled brokerage rejected a Shearson takeover overture. Shearson, then known as Shearson Lehman Bros., succeeded in acquiring Hutton the following year.

The NYSE said Shearson violated exchange rules by failing to announce on the exchange floor as it bought the Hutton shares that they were intended for Shearson’s own account, as opposed to a customer’s account.

NYSE rules require that any brokerage that is an exchange member must announce when it is buying shares for its own account. The rules also require that orders from the public to purchase stock in the same company take priority over a brokerage’s order for its own account.

The NYSE said in its disciplinary action that “on at least three occasions, the Shearson floor broker failed to yield priority to public orders for purchases of shares of Hutton.”

The NYSE also criticized the manner in which Shearson sold its Hutton stake.

Shearson sold a third of its stake on Oct. 15, 1986, the same day that Hutton management privately rejected Shearson’s takeover offer. The next day, Hutton announced publicly that it was not engaged in any acquisition discussions with any party, causing Hutton’s stock price to plunge in heavy trading.

The exchange said neither Shearson nor Hutton ever stated publicly that they were involved in takeover talks.

Although it did not allege that Shearson violated NYSE rules in selling the stake, the exchange said Shearson consented to findings that it “engaged in conduct inconsistent with just and equitable principles of trade, and/or engaged in acts detrimental to the interest or welfare of the exchange.”

The sale of the stake, which was concluded over three days, coincided with heavy, volatile trading in Hutton stock fed by rumors that other companies were interested in taking over the brokerage.

In addition to paying the fine, Shearson agreed to retain a special lawyer for three years to advise the brokerage on laws and regulations that it must follow in trading stock for its own account.

“We determined to settle now rather than go through protracted litigation,” said Mike O’Neill, a vice president and spokesman for Shearson, whose majority owner is American Express Co.

Sharon Gamsin, an NYSE spokeswoman, said the fine was a record for the exchange.

With respect to the sale of its Hutton stake, O’Neill said, “Shearson didn’t violate any law or existing interpretation of exchange rules.”

In determining Shearson’s penalty, the NYSE said it considered that Shearson consulted with lawyers before selling its Hutton stake.

In addition, after exchange officials questioned Shearson’s purchase of Hutton shares, Shearson took steps to educate its employees about exchange rules pertaining to purchases for its own account, the NYSE said. The exchange also said Shearson took that action before it learned it was under investigation for its accumulation of Hutton stock.

The exchange rules cited in the disciplinary action are based on federal laws governing stock trading, raising the possibility that Shearson could face legal sanctions.

It could not be determined whether the Securities and Exchange Commission was investigating Shearson over the Hutton stock accumulation. The SEC does not comment on its investigations.

However, a Wall Street source close to the case, speaking on condition of anonymity, said the SEC was not believed to be investigating Shearson.