E. F. Hutton & Co.

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E.F. Hutton & Co.
Industry Investment banking, Brokerage
Founded 1904 (original firm; acquired by Shearson Lehman Brothers in 1988 to form Shearson Lehman Hutton)
2012 (revived firm)
Founder Edward Francis Hutton
Headquarters New York, New York, United States
Key people
Gerald M. Loeb
(Former Chairman),
Peter V. Ueberroth
(Former Director)
Robert M. Fomon
(former Chairman & CEO)
Website EFHuttonCompany.com

E. F. Hutton & Co. 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, 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 United States. The firm was best known for its commercials in the 1970s and 1980s based on the phrase, "When E. F. Hutton talks, people listen" (which usually involved a young professional remarking at a dinner party that his broker was E.F. Hutton, which caused the moderately loud party to stop all conversation to listen to him).

Hutton was one of the first brokerages to open offices in California. 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.

Edward Hutton led the firm until his death in 1962. By the early 1980s, the brokerage house he founded had become the principal component of what grew into a conglomerate of companies owned by E. F. Hutton Group Inc., listed on the New York Stock Exchange. 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.

As a result of several mergers, the remains of the old E.F. Hutton are now part of Smith Barney, a subsidiary of Citigroup. However, on January 13, 2009, Citigroup itself announced that it would sell 51% of Smith Barney to Morgan Stanley, creating Morgan Stanley Smith Barney, which was formerly a division of Citi Global Wealth Management.

E.F. Hutton was revived in April 2012 by a management team composed of executives of the former firm and Stanley Hutton Rumbough, grandson of E.F. Hutton.[1]


E.F. Hutton & Co. was founded in San Francisco in 1904 by namesake Edward Francis Hutton and his brother, Franklyn Laws Hutton. 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 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 various debt and equity securities.

In 1970, Robert M. Fomon was appointed Hutton's Chief Executive Officer.[2] 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.[3] Other subsidiaries of that Delaware-chartered holding company were E.F. Hutton Trust Company, 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[edit]

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."[4] 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.[5]

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.[4]

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. Hutton also agreed to pay $8 million in restitution—the estimated extra income earned from the fraud. 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.[4][5]

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.[4] Although Fomon was not implicated in the scandal, the board fired him in 1987.[7]

Further troubles, merger[edit]

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]


E.F. Hutton was revived in April 2012 by a management team composed of executives of the former firm and Stanley Hutton Rumbough, grandson of E.F. Hutton.

Bois de Boulogne kidnapping[edit]

On August 9, 1977, Bernard Mallet, President and Director-General of E.F. Hutton (France), was kidnapped in the Bois de Boulogne, Paris, while walking his dog. He was approached by eight men while walking towards his car, one of whom called out his name and then temporarily blinded him using a teargas canister. He was handcuffed, hooded and transported to an abandoned café where he was chained to rings set into cement inside a wooden bread store. Mallet's kidnappers had been under surveillance by members of the French police's anti-gang squad, the Brigade de recherche et d'intervention, who were able to apprehend the gang and release Mallet.[11][12]


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 are now part of Morgan Stanley Wealth Management, a joint venture between Morgan Stanley and Citigroup.

The following is an illustration of the company's mergers and its role in later successor firms (this is not a comprehensive list):[13]

Shearson Lehman Hutton
(merged 1988)
Shearson Lehman Brothers
(merged 1984)
Shearson/American Express
(merged 1981)

American Express
(est. 1850)

Shearson Loeb Rhoades
(acquired 1981)
Shearson Hayden Stone
(merged 1973)
Hayden Stone, Inc. (formerly CBWL-Hayden Stone, merged 1970)

Cogan, Berlind, Weill & Levitt
(formerly Carter, Berlind, Potoma & Weill, est. 1960)

Hayden, Stone & Co.

Shearson, Hammill & Co.
(est. 1902)

Loeb, Rhoades, Hornblower & Co.
(merged 1978)
Loeb, Rhoades & Co.
(merged 1937)

Carl M. Loeb & Co.
(est. 1931)

Rhoades & Company
(est. 1905)

Hornblower, Weeks, Noyes & Trask
(merged 1953-1977)

Hornblower & Weeks
(est. 1888)

Hemphill, Noyes & Co.
(est. 1919, acq. 1963)

Spencer Trask & Co.
(est. 1866 as Trask & Brown)

Paul H. Davis & Co.
(est. 1920, acq. 1953)

Lehman Brothers Kuhn Loeb
(merged 1977)

Lehman Brothers
(est. 1850)

Kuhn, Loeb & Co.
(est. 1867)

Abraham & Co.
(est. 1938, acq. 1975)

E. F. Hutton & Co.
(est. 1904)


  1. ^ Surprise! E.F. Hutton talks again as firm resurrected April 23, 2012 InvestmentNews
  2. ^ Robert Fomon at Hutton September 30, 1985 The Miami News
  3. ^ Douglas Frantz (September 8, 1985). "How E.f. Hutton Scandal Unfolded". Chicago Tribune. 
  4. ^ a b c d Kornbluth, Jesse (1992). Highly Confident: The Crime and Punishment of Michael Milken. New York City: William Morrow and Company. ISBN 0-688-10937-3. 
  5. ^ a b Nash, Nathaniel C. (1985-05-03). "E.F. Hutton guilty in bank fraud: penalties could top $10 million". New York Times. 
  6. ^ "Placing the Blame At E.F. Hutton". Time. September 16, 1985. Retrieved May 1, 2010. 
  7. ^ June 3, 2000 New York Times article titled "Robert M. Foman Dead"
  8. ^ Halloran, Richard (2007-10-11). "U.S. Hints at Hutton Indictment in Money Scheme". New York Times. 
  9. ^ a b Sterngold, James (1988-01-17). "How They Tore Hutton to Pieces". New York Times. 
  10. ^ *Shearson Reported To Acquire Hutton In a $1 Billion Deal. New York Times, December 3, 1987
  11. ^ "Police free banker from bread bin". The Times (60078) (London). 10 August 1977. p. 4. 
  12. ^ Murray, Ian (13 August 1977). "Anti-gang police squad win over French public by banker's prompt rescue from kidnappers". The Times (60081) (London). p. 3. 
  13. ^ "Salomon Smith Barney" from Gambee, Robert. Wall Street. W. W. Norton & Company, 1999. p.73

Further reading[edit]

External links[edit]

Vintage TV commercial from late 1970's When E.F. Hutton talks, people listen