I am enclosing herewith a report of Arthur Young & Co. entitled "Comtemporary Cash Management Practices and the E.F. Hutton Concentration System". The report is submitted on behalf of our clients, E.F. Hutton & Company, Inc. ("Hutton"), E.F. Hutton Group, Inc. ("Group"), and Messrs. Thomas P. Lynch, Norman Epstein, and Thomas W. Rae, who are officers of Hutton and/or Group. The submission is made in connection with grand jury proceedings currently being conducted in the Middle District of Pennsylvania, and we request that it be treated as submitted in connection with plea negotiations pursuant to Fed. R. Evid. 410 and Fed. R. Crim. P. 11(e) (6), as well as treated as confidential for Freedom of Information Act purposes.

As you know, the grand jury inquiry concerns various aspects of Hutton's cash management practices, some of which constituted corporate policy and some of which did not. The Arthur Young report provides background on the cash management issues under review and analyzes in detail Hutton's "drawdown" system, which concentrates Hutton's branch office receipts into central corporate level accounts. The drawdown system has been a major focus of the investigation; the report concludes that Hutton's system is "a practical and straightforward approach to collected balance management" (p. 52) whose central feature-the issuance of an intra-Hutton funds transfer check in an amount greater than the amount on deposit at the time the check was issued-"is not unusual or improper cash management practice" (p. 88).

obert Ogren, Esquire November 9, 1984 Page Two

We expect to submit over the next several weeks factual memoranda relating to the discrete areas of the grand jury's concerns insofar as we understand them, as well as an overall memorandum of law. These memoranda are being submitted now, rather than months ago, because until very recently there was simply nothing to which we could respond. No substantive discussions with the prosecutors were permitted until August 10 of this year, and no specific allegations detailed enough to permit meaningful investigation and response were made known to us until late September, although the investigation began at least 2 1/2 years ago and we had been repeatedly assured of an opportunity for meaningful pre-indictment review at the United States Attorney level. Now, with the grand jury about to expire, the United States Attorney has stated that he will not extend the life of the grand jury and will not discuss the facts with us because there is not sufficient time to do so.

For these reasons, we have no choice but to make our detailed presentations directly to the Department of Justice and simultaneously to the United States Attorney in the Middle District of Pennsylvania. That will take some time; this is not a simple case. We therefore urgently request that the terms of the grand jury be extended pursuant to Rule 6(g) so that the potentially fatal decision whether to indict these much regulated, multi-licensed companies, with approximately 15,000 employees and 30,000 or so shareholders (not to mention the well-respected businessmen who, we are informed, are currently targets), can be made with due consideration and not under the pressure of an imminently expiring grand jury.

Respectfully,

HUNDLEY & CACHERIS, P.C.

By

William G. Hundley

CAHILL GORDON & REINDEL

By

Thomas F. Curnin

-and

BY.

Thomas J. Kavaler

Please be advised that the firm of Bower & Gardner represents
both of whom have been

-subpoenaed to testify.

We are anxious to comply with the subpoenas and cooperate with
the investigation; however, both of our clients will insist
on their Fifth Amendment rights pursuant to the United States
Constitution.

If there is any change in the schedule of

or

appearance
appearance, please let us known at your earliest
convenience and you may contact the undersigned, Steven J.
Ahmuty, Jr. or my secretary, Connie Dickerman.

If you have any questions, please do not hesitate to call.

Unfortunately,

I am in receipt of your letter dated April 4, 1984.
the procedures relating to negotiations for letter immunity set
forth in your letter are not acceptable.

I note at the outset that I advised Mr. Murray by letter dated
March 15, 1984 that Messrs.
desire to cooperate
with your office in its investigation, but they will insist on
their Fifth Amendment rights. You did not respond to my letter;
nor could I have anticipated that you would adopt these procedures
because, to my knowledge, these procedures have not been used
with respect to other persons in the same investigation who have
received letter immunity.

During my conversation with Mr. Murray and you at your office
on March 28, I asked you whether Messrs.
Iwere
targets of the investigation. Mr. Murray responded that they
were not yet targets, but they may have criminal responsibility
and could become targets by virtue of their respective positions
in E.F. Hutton. In view of that statement and the representation
in your letter that your office limits letter immunity to