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10/25/17 10:18 AM
10/28/17 3:00 AM
E.F. HUTTON CHARGED WITH LAUNDERING FUNDS
Associated Press
Published: May 6, 1988 12:00 a.m.
The government Friday charged E.F. Hutton & Co. Inc. with conspiracy and laundering at least $532,000 for organized crime figures and businessmen who wanted to hide income from the Internal Revenue Service.
Malfeasance and mergers
In the 1980s, Hutton was caught up in a number of difficulties that ultimately led the firm to seek a buyer. Hutton's most serious trouble came from a check kiting scandal that was uncovered in 1985. Hutton branches were writing checks against accounts at various regional banks and then funding those accounts with checks from yet other banks. This strategy, known as "chaining," gave Hutton the use of money in both accounts until the checks cleared. In effect, Hutton was giving itself a free loan that also did not carry any interest.[3][4] Then, in early 1987, an internal Hutton probe revealed that brokers at an office in Providence, Rhode Island, laundered money for the Patriarca crime family. Although Hutton reported the investigation to the SEC, it was not enough to stop prosecutors from all but announcing that Hutton would be indicted.[5] This last scandal was uncovered only a week before the 1987 stock market crash. By the end of November 1987, Hutton had lost $76 million, largely due to massive trading losses and margin calls that its customers could not meet.
On December 3, 1987, Hutton agreed to a merger with Shearson Lehman in a $1 billion ($2,108,084,359 today) deal. The merger took effect in 1988, and the merged firm was named Shearson Lehman Hutton, Inc.[6]
Following the merger, dozens of Hutton brokers left the firm to join competitors. At the same time, the combined firm suffered dwindling business from individual investors as its focus was shifted to large corporate transactions.[7] The Hutton brand was used until 1990, when American Express abandoned the name and the business was renamed Shearson Lehman Brothers. Joe Plumeri became the President & Managing Partner of Shearson Lehman Brothers in 1990.[8][9]
In 1992 Shearson sold The Boston Company, an asset management group, to Mellon Financial. In December 1988, the Boston Company, had disclosed that it had overreported its earnings by $30 million.
In 1993, American Express sold its brokerage and asset management business—the Shearson and Hutton parts of Shearson Lehman Hutton—to Primerica. Primerica merged them with Smith Barney (which it had bought in 1987) to form Smith Barney Shearson, later shortened back to simply Smith Barney. As a result of several mergers over the rest of the decade, the remains of the original E.F. Hutton became part of Citigroup, and later Morgan Stanley Wealth Management, a joint venture between Morgan Stanley and Citigroup.
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