E. F. Hutton & Co.

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E. F. Hutton & Co. was an American stock brokerage firm founded in 1904 by Edward Francis Hutton, his brother Franklyn Laws Hutton, and Gerald M. Loeb. Under their leadership, it became one of the most respected financial firms in the United States and for several decades was the second largest brokerage firm in the United States.

The brokerage house was the prinicipal component of what grew into a conglomerate of companies owned by E. F. Hutton Group Inc., listed on the NYSE. Other subsidiaries of that Delaware-chartered holding company were E. F. Hutton Trust Company (now "Smith Barney Corporate Trust Company" and owned by Citigroup), E. F. Hutton Life Insurance Company, and E. F. Hutton Bank. The Hutton companies also managed many mutual funds and other investment vehicles, some of which were separately incorporated and/or registered, and participated actively in corporate mergers and public offerings of securities. The firm was best known for its commercials based on the phrase, "When E. F. Hutton talks, people listen."

Francis Hutton died in 1962 and years later in the 1980s, the conglomerate disintegrated due to corporate misconduct, mostly by the brokerage firm. The firm had knowingly engaged in money laundering for organized crime (the so-called "Pizza Connection" because money was sometimes delivered in pizza boxes, see External link) and other unlawful groups (including the "Iran-Contra Affair"). It was not until after the president of the brokerage firm, Scott Pierce (the brother of Barbara Bush, wife of the then-vice-president of the U.S.), entered his corporation's guilty plea to 2000 criminal counts of federal mail and wire fraud in 1985, that the Hutton conglomerate fell apart. On Black Monday (1987) E. F. Hutton's paper assets declined with the market, but that day was below minimum required capitalization. It was purchased that week by Shearson Lehman/American Express, to form Shearson Lehman Hutton. In 1993, acknowledging that it had failed to create the country's first financial services supermarket, American Express sold Shearson and Hutton retail brokerage operations to Sandy Weill's Primerica. The following year, American Express spun-off Lehman Brothers, forming Lehman Brothers Holdings Inc., a separately traded public corporation.^[1]

The criminal "check-kiting" involved fraud on Hutton's brokerage clients and the banks where it did business: When Hutton was supposed to send money to a brokerage customer from that customer's account, Hutton would draw a check on a bank account on the other side of the country from the customer and mail it; Hutton would not deposit the money to "cover" the check until days later, usually after it had already "cleared". Thus, Hutton was, in effect, getting short-term loans (termed "the float") from the banks for free and forcing the banks to make those loans by threatening not to keep its accounts with them if they did not. The value of the unpaid "interest" on those forced "loans" amounted to many millions of dollars and made a significant addition to Hutton's "bottom line".

[edit] Books about the E. F. Hutton companies :

Burning Down the House: How Greed, Deceit, and Bitter Revenge Destroyed E. F. Hutton by James Sterngold (1990) {ISBN 0-671-70901-1}
The Fall of the House of Hutton by Donna S. Carpenter and John Feloni (1989) {ISBN 0-8050-0946-9}
Sudden Death: The Rise and Fall of E. F. Hutton by Mark Stevens (1989) {ISBN 0-453-00673-6}