the practice of a policy described by Mr. Sullivan that seems to be one thing, but when the policy got to the so-called aggressive nature where instead of following a work sheet you were given estimates even though you say you did not do it in the Atlantic region, obviously in essence knowing this was probably followed in other areas of the country, you are then giving wide latitude, it seems to me, to encourage those people out there in the field managing this to do creative aggressiveness and that seems to be at the minimum of what happened with Hutton.

It just seems like to me that what Mr. Morley is saying in this memorandum is that you got plenty of leeway out there in the field to do some estimates, let us make sure we do not miss a penny. Let us double up if we have to is what the response of whoever the mysterious Tom was that he consulted with, and that overaggressiveness is what got Hutton into the problems you got into. I am not defending banks, but I am saying it seems to me that Hutton has made a lot of money here off people for their own benefit in double-triple quantities. Sort of like is that good or is that bad, I would say I think as a matter of public policy it is a good question. You know, that is a very important question. Banks are regulated in a way for this purpose. Perhaps we do not do a good job of that in all cases. Hutton certainly is regulated by the securities agency, but it is not regulated for this kind of what I would call creative loan making which is basically what it was after it got away from strictly recapture.

At any rate, my point was not to ask you a lot of questions about something that did not go on in your region, but I wanted to get this document in. I wanted it identified if we could. I think we have done that.

I have completed my questioning. Thank you, Mr. Chairman.
Mr. FEIGHAN. The gentleman from Connecticut.

Mr. MORRISON. There is one more document, I think, that we might usefully get in at this point, and that is the memo from Mr. Jensen to Tom Morley dated May 20, 1985, with the attached letter to Mr. Fomon from Donald G. Pepper, dated May 8, 1985.

Mr. Chairman, if that could be admitted into evidence.

Mr. FEIGHAN. Without objection, it will be entered as part of the record. So ordered.

[The information follows:]

In reference to the attached letter to Mr. Fomon, I have reviewed the Hutton-Provident banking relationship with Mr. Pepper. I have asked Mr. Pepper to provide us with a monthly account analysis. I have assured him that we will wire Federal Funds to cover any uncollected positions in our account. Under the present drawdown procedure, the account should not be uncollected at any time.

Mr. Pepper was receptive to my telephone call and will contact me directly with any future problems.

AJ/08
Attach.

Your letter to our former Board Chairman, Mr. Joseph F.
Rippe, dated May 3, 1985 has been referred to me for reply.

To say that we have "probably noted in the media" that Hutton bas recently entered a plea of guilty is the understatement of the day. Provident Bank has been mentioned in a number of press articles which we find rather disturbing. As you probably know, the financial climate in Cincinnati, as a result of the Home State Savings failure, is not the best, and we have received numerous telephone calls concerning Our $13,000,000.00 exposure to you during the period in question.

I find the remainder of your letter and the attached verbage in the press releases, to be somewhat confusing, and I must express my sympathy to you. It's always embarrassing when Someone in the organization does something which contradicts your intentions. 1 refer specifically to the fact that yesterday it was necessary for us to return a $297,000.00 DTC because it was drawn against uncollected funds. I don't know what the communication problem is in your organization, but we will not honor any checks, now or in the future, which are drawn against uncollected funds. Items drawn against uncollected funds will be returned, and your account will be appropriately charged under our existing schedules. We look forward to receiving further information.

Mr. MORRISON. This is somewhat more recent, so I think you would probably remember this. Do you recall this?

Mr. JENSEN. Yes, I recall it.

Mr. MORRISON. This exchange, OK. And I guess my only question about it is when I asked you earlier about the response of banks to this-to their offer to put in writing what-there has been some disagreement about whether the banks understood all along or they did not, but it certainly was not in writing.

Is this Provident Bank reaction which seems to be somewhat less than cordial, is that unusual or do we misunderstand the document?

They have said basically we will not honor any checks now or in the future which are drawn against uncollected funds. That seems a pretty flat statement. Is that unusual as a response?

Mr. JENSEN. This is very unusual, first of all. I have spoken to Mr. Pepper. When there is a problem on drawing on uncollected funds, there is usually a number of things that have to be researched. One would be, you know, the availability that the bank is giving us. Are they giving us 1-day money or are they giving us a lot of 2- and 3-day money? If they are, it is definite that the formula will not work-even the old one. That formula was predicated, and even the new one is, on getting 1-day money. So once we find out that maybe there is too much 2-day money from a bank, then we would-we have a problem. We have to stop. We have to really slow down our drawdown. But his analysis, he might be makinghe might like to make more money. We do not mind him making money, but maybe we can find another bank that will give us 1 day.

But when I spoke to him, I did not understand why he was having this problem. I told him that if you do have any problem, No. 1, we will wire you Fed funds immediately, as he knew in the past we want to make his account profitable. It is just my statement that I do not have these problems with other banks, and that he is not giving me the availability that the firm requires.

Mr. MORRISON. Mr. Chairman, I have no further questions. Mr. FEIGHAN. Thank you for your testimony, Mr. Jensen. Mr. MORRISON [presiding]. I would like to call as the next witness Mr. Ernest Dippel. Mr. Dippel is the regional vice president for the central region of Hutton. He joined the Hutton Co., in 1973, was branch manager in the Kansas City branch office until February 1982. Kansas City is in Hutton's central region. In 1975 or 1976 he became a part-time regional sales manager and in 1982 full-time as he gave us his position as branch office manager.

On behalf of the subcommittee we welcome you. Let the record indicate that pursuant to clause 2 of rule XI of the Rules of the House of Representatives, copies of the rules of the Judiciary Committee and of clause 2 of rule XI of the Rules of the House are available at the witness table.

Mr. Dippel, you have a right to counsel to assist you in the proceedings. Are you accompanied by counsel?

Mr. DIPPEL. I would like to present Mr. Tom Kafler, my attorney. Mr. MORRISON. I am now going to place you under oath. Please stand and raise your right hand.

[Witness sworn.]

TESTIMONY OF ERNEST DIPPEL, REGIONAL VICE PRESIDENT, CENTRAL REGION, E.F. HUTTON

Mr. MORRISON. You may proceed at this point to give whatever prepared statement that you have. As I understand it, we don't have any written prepared statement. If you would like to proceed. Mr. DIPPEL. I am prepared to answer questions.

Mr. MORRISON. So you have no statement that you wish to make? Mr. DIPPEL. No.

Mr. MORRISON. If we could start by directing your attention to your activities as Kansas City branch manager. Could you explain what your responsibilities were in that capacity with respect to the cash management activities of the branch?

Mr. DIPPEL. In the Kansas City branch this was a branch attached to a regional office, and our regional cashier, Betty Smith, handled the cashiering for that branch. So I had no responsibility for the Kansas City branch.

Mr. MORRISON. No responsibility at all?

Mr. DIPPEL. I would say I had no activity. Certainly as branch manager I had a responsibility, an overall responsibility. She handled 100 percent of the cashiering, so there were no management decisions to make.

Mr. MORRISON. There was no separate branch cashier in your branch?

Mr. DIPPEL. That is correct.

Mr. MORRISON. And Betty Smith was regional cashier and she did all of that?

Mr. DIPPEL. Yes, and that arrangement existed for many years. Mr. MORRISON. When you became regional sales manager, first part time and then full time, what association if any did you have with the branch managers with respect to cash management?

Mr. DIPPEL. Well, as regional sales manager, my main thrust was the-was sales motivation and recruiting of account executives, and more importantly, opening offices. So I had no cash management responsibilities at all. I became involved on the fringe of cash management activity in June 1981.

Mr. MORRISON. And how was that?

Mr. DIPPEL. In June 1981 we learned through some comparisons that we were the cellar club as a region. We were last in interest income as related to gross income. We were about 20 percent worse than the average in the firm, which is a situation uncharacteristic for the central region, a region that last year was region of the

year.

Mr. MORRISON. Last year meaning-

Mr. DIPPEL. 1984. We had great productivity in many areas, but in interest income we were retards.

Mr. MORRISON. Excuse me, but how did this come to your attention?

Mr. DIPPEL. It came to our attention through the ranks and direct contact with Mr. George Ball, then president of E.F. Hutton. Mr. MORRISON. So George Ball made a point of the fact that you were not doing well in that regard?

Mr. DIPPEL. Yes, he did. And the timing, in June of 1981, coincided with a meeting that we had for branch managers in New York.