Financial History Issue 133 (Spring 2020) | Page 39

Workers chalk up stock quotations as clients use ticker tape machines and telephones at an E.F. Hutton & Co. stockbroker’s office, circa 1925.
1974, the firm expanded further by buying
14 offices in New England and the South-
east from the defunct brokerage house
duPont Walston. That year, the firm cre-
ated a holding company called E.F. Hutton
Group Inc. in which E.F. Hutton & Co.,
Inc., the brokerage house, was a subsidiary.
Shearson/Lehman Hutton (f. 1988)
In 1985, E.F. Hutton & Co. suffered a blow
to its reputation when it “pleaded guilty
to criminal charges that it defrauded its
banks out of millions of dollars in a check-
kiting scheme.” The firm admitted that
it wrote “checks for more than it had on
deposit at banks from July 1980 to early
1982. The government charged the scheme
gave the brokerage house intrest (sic)-free
use of up to $250 million a day.”
The firm agreed to pay a $2 million
fine. Fomon believed that pleading guilty
would make the scandal go away. He said,
“I never dreamed that there would be an
indictment. I thought at most that there
would be some kind of injunctive action.
And then I thought that the guilty plea
would end it.”
Instead, the scandal grew bigger and the
report written by former Attorney Gen-
eral Griffin B. Bell, whom Fomon hired to
investigate the scheme, found that Hutton
was “a highly aggressive firm where execu-
tives could encourage what turned out to
be fraudulent activities to earn extra inter-
est income for the firm—without taking
responsibility for the activities.”
Rumors circulated in late November
1985 that the firm would be acquired.
That year, Fomon cancelled the firm’s
popular ad campaign. The fallout of the
fraud continued even after he stepped
down as chairman. Fomon was replaced
as chairman by Robert P. Rittereiser, who
had been a member of Merrill Lynch
for 27 years. The firm was censured by
the Securities and Exchange Commission
(SEC), and rumors spread that the Justice
Department was going to investigate the
firm for money laundering.
Fomon retired in 1987. According to
the Associated Press, “His retirement with
Hutton marked the departure of the last
major executive associated with Hutton’s
troubles over the past two years, particu-
larly the scandal in which the firm pleaded
guilty to 2,000 counts of federal mail and
wire fraud.”
In November 1987, The New York Times
reported that E.F. Hutton lost “a two-year
struggle to remain independent” and had
“put itself up for sale.” That year, E.F.
Hutton & Co. announced it was being
acquired by Shearson Lehman Brothers, a
subsidiary of the American Express Com-
pany, in a $1 billion deal. Shearson was
interested in Hutton’s retail business and
asset management. At that time, Hutton
had 6,500 representatives, 350 outlets and
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