MEMORANDUM #78 March 14, 1985 Re: Hutton - F Matter Debriefing Interviews of Robert Morales and Christopher Mahoney On March 5, 1985, at the Bank of America offices, 40 Broad Street, Marna Brown, Allen Joslyn and Dick Schumacher interviewed Robert Morales and Christopher Mahoney regarding their grand jury testimonies. I. Robert Morales Robert Morales testified before the grand jury on February 27, 1985 for approximately an hour and a half. Mr. Morales is presently working for Bank of America Trust Company having begun his employment in October of 1984. From 1981 until May of 1983, Mr. Morales was an account officer for the New York office of Bank of America. In May of 1983, Chris Mahoney, the second intervievee, took over Mr. Morales' position. (From May 1983 until October 1984, Mr. Morales worked at the New York corporate office of Bank of America in a section outside and unrelated to the financial institutional section.) -2 Mr. Murray first asked questions regarding Mr. Morales' current and past employment as related above. Mr. Murray next asked Mr. Morales who his primary contact was at Hutton during the time he was an account officer. Mr. Morales replied that he had dealt with either Tom Morley or Kevin Mahoney (who is now dead). When asked about contacts with senior management, Mr. Morales replied that he had only made courtesy calls, primarily to Lynch, at which time he would discuss how the economy was going or the general trend of interest rates, but the Hutton concentration accounts were never discussed. Mr. Morales then was asked to explain the types of depository accounts that Hutton had with the bank. Mr. Morales explained that there were two basic types of accounts: (1) the concentration account with the function of concentrating funds from the Hutton branch offices west of the Mississippi (primarily California and Texas), and (2) the disbursement account which functioned as a zero balance account, with funds to be wired in as needed. Mr. Morales explained that the items deposited into the concentration account were checks, bank vires from New York and DTCs (depository transfer checks). Не then explained that any negative collected balances would occur in the concentration account because float became greater than the ledger balance. These negative balances would occur only -3 in the concentration accounts because the disbursement accounts are zero balance accounts. (The transfer of funds from a concentration account to a disbursement account was automatically accomplished at the Bank of America Corporation Service Center in Los Angeles; both concentration and disbursement accounts were service center accounts.) Mr. Murray asked Mr. Morales when the negative collected balances started. Mr. Morales stated that they began in early 1981. When asked what he did about it, Mr. Morales replied that he entered into negotiations with Hutton for compensation and used an algorithm to figure out how much Hutton owed in compensation. Mr. Morales explained that for just about every month from January through October of 1981 there were negative collected balances in Hutton's concentration account. By using the algorithm Mr. Morales would calculate the excess balances which Hutton would have to keep in its concentration account to provide sufficient compensation to the bank. If sufficient funds were not in the account for compensation. purposes, then the bank would ask Hutton to wire in funds directly into the account for compensation. In addition to compensation, the bank also billed Hutton monthly for activity expenses. -4 Mr. Murray asked Mr. Morales what he believed to be Hutton's reason for the negative collected balances. that Mr. Morales replied that Hutton told him that the reason was the inability of the bank to give same day information the bank was not able to tell Hutton what was deposited and what was disbursed on each day. Mr. Murray showed Mr. Morales an E. F. Hutton form which indicated a beginning balance for each day and displayed space for disbursement calculations, and at the bottom stated "draw out for these funds" or something like that, i.e., probably a draw down sheet. When asked if he had ever seen the exhibit before, Mr. Morales replied that he had not and that he didn't know that Hutton used it. Mr. Murray then asked Mr. Morales if the negative balances continued or started up again after the bank had negotiated with Hutton in 1981 regarding compensation. Mr. Morales replied, yes, that the negative balances continued until late 1982. Mr. Murray then asked Mr. Morales what he did next. Mr. Morales explained that he set up a meeting between the cash management consultant, Barbara Holgraver (no longer at the bank) and Hutton (possibly Kevin Mahoney, Mercedes Neff or others on Morley's staff). At the conclusion of this meeting, it was decided that in order to give Hutton same day information regarding its account, the bank would put Hutton on its BAMTRACS system. Mr. Morales explained that today's work or transactions are normally processed by the bank tomorrow morning, and the BAMTRACS system reports the result of that work to the customer via terminal by 9:30 a.m. Without the BAMTRACS system, if a customer called on a particular day to ask about the amount of money in his account, the bank wouldn't know how much was in the account at that time because so much stuff was coming in all day. Mr. Murray then asked Mr. Morales if the negative collected balances continued (to which Morales said yes) and then what Hutton's explanation was for the continued negative balances. Mr. Morales stated that Hutton told him that the BAMTRACS system was not accurate. The bank then checked into the accuracy of the BAMTRACS system and discovered that certain adjustments had to be made to the data produced by the system since it would not include checks which were rejected by the optical scanner (since they may have been wrinkled, etc.) and which thus required individual entry. It was agreed that either Hutton would contact the service center in L.A., or vice versa, with regard to the adjustment figures. Mr. Morales stated that he did not recall if some of the checks were not printed properly and he didn't know what bank or banks the |