throughout the country. The second problem we investigated was known as "chaining," which involved transfers of money from branch to branch accounts for several reasons, including attempts to capture the float and increase interest profits. The third problem, labeled as "criss-crossing" or "facilitating transactions" by the Justice Department involved same-day multimillion dollar check swaps between Hutton accounts at Manufacturers Hanover Trust Company and Chemical Bank. The fourth problem concerned deficiencies with the machine readable codes printed on some of Hutton's checks. The fifth and last problem was added at Hutton's request after the investigation commenced, and concerned the apparent failure of Hutton to respond fully to subpoenas issued in connection with the grand jury investigation that preceded the plea agreement of May 2, 1985. Although our investigation benefited from information made public by the Justice Department at the plea taking on May 2, 1985, we used several additional criteria in an effort to identify the practices and responsible individuals. An example of the additional criteria used is found in Exhibit 12 of the Appendix to The Hutton Report, which is attached to this Statement as Exhibit B. This Exhibit reflects the criteria we used in an effort to determine those Hutton branches involved in excessive overdrafting and chaining. The findings of my investigation are published in The Hutton Report which was made public pursuant to an understanding with Hutton prior to completion of the Report. I note that Congressman William J. Hughes, Chairman of the House of Representatives Subcommittee on Crime, is to appear before this Committee to give his views on the E.F. Hutton investigation. I offered to appear before Chairman Hughes' Subcommittee, but was never called. (See letter of September 6, 1985 to Chairman Hughes, attached as Exhibit C to this statement). I appreciate the opportunity which this Committee has given me to answer questions regarding the findings of my investigation. This letter sets forth the scope of your retention by The E.F. Hutton Group Inc. ("Group") in connection with the matters charged in the Information in United States v. E.F. Hutton & Company Inc. (the "Company") in the United States District Court for the Middle District of Pennsylvania. As you know, I announced at our Annual Shareholders' meeting on Friday, May 17, 1985 that I asked the Board of Directors to authorize me to retain special counsel to conduct an independent inquiry into this matter involving our subsidiary, E.F. Hutton & Company Inc. At that meeting, I was pleased to announce your acceptance of this assignment. You are hereby requested to review the practices to which the Company pleaded, determine how those practices evolved, identify those individuals who bear personal responsibility (officers or employees) and make recommendations with respect to these individuals. We seek your advice as to the rights and obligations of Group and the Company with respect to such individuals, giving due regard to all applicable law, and self-regulatory requirements to which Group or the Company are subject, and the multiple derivative and class actions pending against Group and the Company and some of their officers and directors. It is our hope that you will proceed as expeditiously as possible, but take as long as is required thoroughly to complete your investigation. I pledge to you our full resources and Cooperation and am directing all officers and employees to do the same. A copy of my letter to officers and employees is attached. As you complete your investigation, or at such time as you believe appropriate, please determine and advise us of the appropriate body or persons to whom you believe you should make your report and recommendations, whether that be myself as Chairman of The E.F. Hutton Group Inc., Scott Pierce, President of E.F. Hutton & Company Inc., the Board of Directors, or the Audit Committee of the Board (consisting of the outside Directors of Group), or such combination as you may determine. Sincerely, Robert Hormon Robert Fomon |