posed questions they were to be prepared to answer at the hearing. Responses to both of these inquiries will be forwarded in a few days. Senator HATCH. Mr. Ball, I will now call on you, sir. I welcome you, and you, Mr. Cutler, as well. We will swear you in. Do you promise to tell the truth, the whole truth, and nothing but the truth, so help you God? Mr. BALL. I do. Senator HATCH. We turn the time over to you, Mr. Ball. Do you have any statement for the committee? TESTIMONY OF PANEL CONSISTING OF GEORGE BALL, CHIEF EXECUTIVE OFFICER, PRUDENTIAL-BACHE SECURITIES, NEW YORK, NY, ACCOMPANIED BY LLOYD N. CUTLER, COUNSEL, WILMER, CUTLER & PICKERING Mr. BALL. I gave a statement when I testified at the Hughes committee. Perhaps I could enter it for the record rather than boring the two of you with a recitation of it. If I could just summarize one or two lines, people sometimes can go on ad nauseum, but let me just mention two or three things. Senator HATCH. Go ahead. Mr. BALL. During my tenure at Hutton, I was not aware of any improprieties in the conduct of its draw-down system until February 1982 when Mr. Fomon told me that a problem had been brought to his attention by counsel, and that Mr. Fomon had told counsel to remedy the situation. Even thereafter, I was not included in meetings relating to the drawdown problems or possible modifications of that system. I did not have knowledge of the responsibility for the deficiencies in Hutton's control mechanisms that resulted in its cash management system. I was, of course, aware that the firm had a cash management system which was designed to bring money in from branches to its headquarters as quickly as possible, and that this utilized overdrafting against uncleared check deposits. I was not aware of the specific methods used to reach that result. A number of memos that I have annotated on and that have been sent to me that I in turn disseminated have been cited. I think it would be fair to cite that I was a very prolific memo writer and distributor. I really believe that communication is good. I did not parse every word. I did not study in detail the implications of every phrase, nor do I think that there were improprieties in those memoranda, but I think that, really, the more management does to try to communicate about a business in all of its dimensions-you have just heard about things that relate to cash management systems, but as to communications costs or to improve the sale of legitimate tax shelters or what have you-they are a part of the job and something that was done and done quite well at Hutton. With that, let me not bore you further. [Statement follows:] United States House of Representatives Subcommittee on Crime Prepared Statement of George M. Ball Thank you, Mr. Chairman and Members of the Subcommittee: I welcome the opportunity you afford me to answer your questions this morning concerning E.F. Hutton's cash management practices during the time I was associated with that firm. As you may know, I became president of E.F. Hutton in 1977, having been its national retail sales manager for the preceding seven years. I left E.F. Hutton in July, 1982. While I was president of E.F. Hutton, my responsibilities continued to be primarily those of the management of the retail sales function. I was not the firm's chief operating officer. Like a number of other senior Hutton officers, I reported directly to Robert M. Fomon, chairman and chief executive officer. Those others reporting directly to him included the chief financial officer, the head of operations and the company's general counsel, each of whose functions have been integral to your inquiry. In addition, the heads of the corporate finance, public finance and trading also reported directly to Mr. Fomon. I underscore the diffuse nature of Hutton's management structure to provide you with a better understanding of its corporate system without attempting to suggest I was a minor figure in the company. To the contrary the retail sales force which reported to me consisted of over 4,000 account executives and generated revenues of over one billion dollars a year by the time I left Hutton in July 1982. During my tenure at Hutton, my knowledge of the drawdown system was sketchy at best. I was not aware of any improprieties in its drawdown system until February, 1982, when Mr. Fomon informed me that a problem had been brought to his attention by counsel and that he had told them to remedy the situation. Even thereafter, I was not included in meetings relating to drawdown system problems or possible modifications to that system. Simply put, I had no knowledge of, nor responsibility for, the deficiences in Hutton's control mechanisms that resulted in the abuse of its cash management system. I was of course aware that the firm had a cash management system designed to bring money from its branches to its headquarters as quickly as possible to minimize the loss of interest on float to banks. I was also aware that this system utilized overdrafting against uncleared check deposits as a means to reduce the loss of float. I was not aware of the procedures or specific methods used to reach that result. I certainly was also not aware that some regions and branches were abusing that system in order to generate additional interest income by excessive overdrafting or chaining. As you know, I was a prolific memo and note writer, and consistently encouraged employees to achieve excellence in each aspect of their work. In my experience, there is no sales person, no manager, no worker, who has reached the maximum of his or her abilities. That is true at Hutton and elsewhere. However, one should not mistake a search for improvement for a willingness to cut corners. Exhorting branches to increase their interest profits or stock sales or cost effectiveness, was in no way a call for sharp practices. To the contrary, on several occasions in the course of reviewing the financial results of the branches, I sent memoranda to my colleagues asking questions about branch profit margins and interest income that appeared unusually high. In some cases the memos related to branches that, according to Judge Bell's recent report, he exonerated from any responsibility for abusive practices. In other cases, the memoranda |