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E. F. Hutton & Co.

E. F. Hutton & Co.

EF Hutton was an American stock brokerage firm founded in 1904 by Edward Francis Hutton and his brother, Franklyn Laws Hutton. Later, it was led by well known Wall Street trader Gerald M. Loeb. Under their leadership, EF Hutton became one of the most respected financial firms in the United States and for several decades was the second largest brokerage firm in the country.

EF Hutton
IndustryFinancial services
FateRevived - 2012; suspended operations - 2019
Founded1904 (original firm; acquired by Shearson Lehman Brothers in 1988 to form Shearson Lehman Hutton)
2012 (revived as EF Hutton America, Inc.)
FounderEdward Francis Hutton
HeadquartersSpringfield, Ohio
Key people
Gerald M. Loeb
(Former Chairman),
Peter V. Ueberroth
(Former Director)
Robert M. Fomon
(former Chairman & CEO),
Christopher Daniels
(former President and CEO)
Websiteefhutton.com [20]


E.F. Hutton & Co. was founded in San Francisco in 1904 by namesake Edward Francis Hutton and his brother, Franklyn Laws Hutton. EF Hutton was one of the first brokerages to open offices in California. In 1906, two years after the firm was founded, its offices were destroyed in the San Francisco earthquake of 1906. In 1924, famed Wall Street trader Gerald M. Loeb joined the firm, ultimately rising to chairman. The firm developed a nationwide retail brokerage network to market its debt and equity securities. It also operated seasonal offices in Palm Beach, Florida (winter) and Saratoga Springs, New York (summer) to cater to its customers. Morrie Cohen opened Hutton's first one-man office on Maui in December 1969.

Hutton, an entrepreneur who later also became chairman of the General Foods Corporation and for years wrote a newspaper column, led the firm until his death in 1962. In 1970, Robert M. Fomon was appointed Hutton's Chief Executive Officer.[1] Despite the failure or takeover of many of its peers in the 1960s and 1970s, Hutton retained its independence under Fomon's leadership. By the early 1980s, the original E.F. Hutton & Co. had become the principal component of what grew into a group of companies owned by E.F. Hutton Group Inc., listed on the New York Stock Exchange.[2] 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. In 1976, Western Union partnered with E. F. Hutton & Co.

Check kiting scandal

In 1980, several Hutton branches began writing checks greater than what they had on hand at one bank, then making a deposit in another bank equal to the amount it wrote at the first bank. This strategy, known as "chaining", is a form of check kiting. "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. Thomas Morley, who was in charge of getting the firm to better manage its cash, wrote a memo to Hutton's president, George Ball, saying that this practice netted one branch an extra $30,000 per month. Ball sent the memo out across Hutton's network of regional sales managers, with the note, "A point well remembered—and acted on."[3] Over the years, Hutton shuffled money in this manner between 400 banks (mostly small rural banks), gaining the use of an estimated $250 million a day without paying a penny in interest. Whenever something was amiss, Hutton questioned the bank's procedures.[4]

The scheme worked for almost three years until officials at the Genesee County Bank in Batavia, New York, discovered that the large deposits made by Hutton's four-person office there were far more than the office's banking requirements. They also discovered that the checks Hutton was using to make the deposits were drawn on two Pennsylvania banks. When Genesee officials learned that Hutton did not have enough money in the Pennsylvania bank accounts to cover the checks, they stopped honoring Hutton checks. One of the banks involved, United Penn Bank (now part of Citizens Financial Group), asked the Federal Deposit Insurance Corporation to investigate. In 1984, the matter was forwarded to the United States Attorney for the Middle District of Pennsylvania, who opened a federal criminal probe.

Hutton retained Tom Curnin, a respected defense attorney who was inclined to fight the government. However, in February 1985, Curnin discovered a memo from a Hutton regional vice president for the Washington, D.C., area which stated that his offices drew on "bogus deposits". The memo—tantamount to a smoking gun—led Curnin to change tactics and begin negotiations for a plea agreement. In the spring of 1985, Curnin told Hutton's board that it faced two choices: plead guilty to a massive list of felonies or face a trial that would likely see three senior Hutton executives convicted and drive Hutton out of business. Curnin advised settling with the government to avoid years of bad publicity.[3]

On May 2, Hutton agreed to plead guilty to 2,000 counts of mail and wire fraud, as well as pay a $2 million fine plus $750,000 for the cost of the investigation. This is equivalent to approximately $4 million and $1.5 million, respectively, in 2018.[5] Hutton also agreed to pay $8 million in restitution—the estimated extra income earned from the fraud. This is equivalent to approximately $16.2 million in 2018.[5] In return, Curnin wrung two major concessions. First, no Hutton executives would be prosecuted (even though the government determined that 25 senior officers masterminded the scheme). Second, the Securities and Exchange Commission allowed Hutton to stay in business; offenses of this magnitude usually result in an individual or firm being permanently barred from the securities industry.[3][4]

An internal review conducted by former Attorney General Griffin Bell concluded that the scam occurred due to inadequate internal controls. For example, no one admitted to being Morley's immediate supervisor.[6] However, a wide perception that Hutton had not been punished enough (for example, The New York Times' William Safire claimed that the $2.75 million fine amounted to "putting a parking ticket on the Brink's getaway car"), led several customers to pull their accounts with Hutton, and many of the firm's star performers fled to other firms. Several public agencies also took their business elsewhere.[3] Although Fomon was not implicated in the scandal, the board fired him in 1987.[7]

Further troubles, merger

In early 1987, an internal 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.[8]

In a case of especially bad timing, this came only a week before the 1987 stock market crash. By the end of November, Hutton had lost $76 million, largely due to massive trading losses and margin calls that its customers could not meet. It also had its commercial paper rating cut from A-2 to A-3, effectively losing $1.3 million in financing. Hutton was now weeks—perhaps days, according to some board members—from collapse.[9] On December 3, Hutton agreed to a merger with Shearson Lehman/American Express. The merger took effect in 1988, and the merged firm was named Shearson Lehman Hutton, Inc.[10]

It later emerged that Hutton had faced massive cash shorts as early as 1985, and the firm's management had tried to put it up for sale as early as 1986.[9]

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.[11] 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.[12][13]

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 throughout the 1990s, 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.


As a result of the Subprime mortgage crisis, Citigroup was forced to sell assets and a group of E.F. Hutton alumni bought the E.F. Hutton brand for an undisclosed amount.[14]

The E.F. Hutton brand was revived in 2007 by EFH Group and went public in 2013. EFH Group changed the brands stylization from E.F. Hutton to EF Hutton. In 2014, EFH Group was acquired by Twentyfour/seven Ventures, Inc. and renamed EF Hutton America, Inc. and was formerly led by CEO and Co-Chairman Christopher Daniels and Chairman Stanley Hutton Rumbough, the grandson of Edward Francis Hutton.[15] In 2016, the new EF Hutton moved its headquarters from New York City to Springfield, Ohio.[16]

In April 2019, the company suspended operations with the resignation of CEO and Interim CFO Christopher Daniels.[17]


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Citation Linkwww.nytimes.com*Shearson Reported To Acquire Hutton In a $1 Billion Deal. New York Times, December 3, 1987
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