you did not have any money in the bank, you would wind up in the slammer. But at E.F. Hutton, with all the resources in the Department of Justice, we could not find a way to prosecute one single individual.

Talk about equal treatment. When an ordinary citizen can suffer enormous consequences from writing a check but no single individual in the corporate structure suffers any penalties, and there is $10 billion of checks. It is extremely difficult to believe that no responsible official at Hutton had direct knowledge of what was going on. It is just not believable.

The Justice Department says it had to give immunity to some persons in order to get testimony, and that is understandable. But the theory of granting immunity is to give immunity to lower level employees to obtain proof against the higher-ups. Why did that not happen here?

Far too often we hear the argument that it was not worth going after the individuals; it would have been more difficult to make a settlement. We could not have brought the thing to a conclusion, or there was no certainty of conviction, or the individuals have suffered enough because of publicity-and on and on.

No individual suffered anything in the E.F. Hutton case. No individual suffered anything. There are some questions that I have to ask about the severance arrangements with respect to one individual who was directly involved, to the best of my information at this moment, received something like $600,000 severance pay. I have some questions about that.

The hard reality is that corporations only engage in improper conduct because individuals make the decisions. And only when we get to the point of punishing individuals in appropriate cases can we create an environment where these individuals know it does not pay to engage in illegal shortcuts. Only by our willingness to prosecute high level corporate officials when they have engaged in illegal behavior can the American people have faith in the judicial system.

Thank you.

The Chairman. The distinguished Senator from Delaware, Mr. Biden.

OPENING STATEMENT OF SENATOR JOSEPH R. BIDEN, JR. Senator BIDEN. Thank you very much, Mr. Chairman.

It is good to see you again, gentlemen.

Mr. Chairman, I have a relatively brief opening statement and then a number of questions when my opportunity comes.

Mr. Chairman, this afternoon, to state the obvious, we are continuing our hearings into the white-collar crime issue, the economic impact of which the Attorney General's annual report-admittedly as imperfect as it may be, and they do not hold it to precisely this number-that put in the $200 billion per year range, the amount of illegal revenue obtained as a consequence of white-collar crime, which I might note for the record is at a higher value than estimates for drug trafficking in this country. But not only that, the economic costs are only one part of the substantial adverse impact of white-collar crime on our Nation. Far more significant is

the loss of the most precious of commodities in a free society: trust, particularly in the securities market, the subject of today's hearing.

The growth of the securities market in the United States in recent years has been little less than remarkable. From 1977 through 1983, for example, the number of shares annually traded on the New York Stock Exchange has increased from 5.2 to 21.6 billion, a net increase of over 300 percent. In addition, the number of first-time registrants with the Securities and Exchange Commission increased 260 percent. Broker-dealer registration grew by 59 percent; investment company registration grew by 52 percent. The stock market itself is now in one of its alltime high bull markets with the Dow Jones Industrial average over 1800, and I would not be surprised to pick up the newspaper tonight and find it broke 19, although I have no money in the stock market. I wish I did.

In the context of such impressive data, no argument need be advanced for the vital character of the securities market for the economic vitaility of our Nation or the economical personal welfare, security or quality of life for its citizens. But what is not often pointed out is that the whole free enterprise system of our Nation's economic life rests on an intangible foundation: trust, a trust for which there is no foolproof guarantee of permanency.

Without trust, people could not delegate the discretionary use of their funds to others. Money need only have to be kept under a mattress, not saved in banks or invested in the creation of new jobs and products, which would be a disaster for us all. Lawyers would have to become mining engineers to invest in gold. University scholars in the humanities would have to audit books themselves to invest their school's endowments. Individuals would have to create their own saving plans. I could give you 100 other examples as to why the trust is so important.

Numerous professions are employed in a close working relationship with our economic system: auditors are obviously a part of that; securities analysts and broker dealers from whom we buy and sell equity ownership in the wealth of this Nation. When one major company in that securities industry betrays the trust placed in it by other segments of our financial system, it affects more than the individuals and organizations immediately involved. It affects all of us. It calls into question the very premise upon which the economic system rests.

Mr. Chairman, the calling to account of that betrayal of trust in the private sector potentially raises another kind of trust-trust in Government, a kind of trust that is equally necessary to the working of a free society. Nothing will more surely or more quickly undermine the legitimacy of a system of Government more than the belief, well founded or not, among its people that two standards of justice are being enforced in this land: one for the high and mighty, and the other for the lowly and powerless.

The law, and those who enforce it, must be above partisan politics or narrow personal interest; it must be administered impartially by, admittedly, partisans; it must be vigorously but fairly administered without regard to the status of persons, to state the obvious. Yet recent surveys of public opinion reported in the New York Times in fact reveal that a tragic 85 percent of the American

people believe that most white-collar offenders may get away with their violation. That is in the New York Times of June 9, 1985. Similarly, 68 percent of our people believe that the government is not making enough of an effort to bring white-collar offenders to the bar of justice. Those beliefs are tragic, even in fact, as I believe they are, based upon in large part mistaken facts. But either way, we must give our people good reason to change their minds.

We need to take stock of where we have been and where we are going in our enforcement efforts against white-collar crime. But one thing is certain at the outset: The recent series of white-collar crime prosecutions in the Department of Justice has produced a public reaction that something is terribly wrong.

People believe that our system of law and those who manage it have failed and may not have even tried to deal effectively with unethical or illegal conduct in high places, a view that I do not share but the American people apparently believe:

That the Government has been shortchanged and cheated on vital defense contracts-a view that I do share and believe it is also a shared view by the American people;

That fiduciaries we trust for investment advice have made fast bucks for themselves in the clandestine manipulation of the banking system's inevitable delays;

That while prosecutions have been brought, those responsible but higher up in corrupt organizations have not been appropriately held accountable-a view that I am not at all certain of but one that in fact I think is the exception;

That we do not have laws that adequately sanction such illegal conduct or serve to prevent the recurrence of it in larger organizations.

The public perceptions are certainly not totally without justification. Even from a more cautious legal or legislative point of view, the outcomes of these prosecutions raise a number of pressing questions that must be answered in this hearing today and in the months ahead.

First, do these prosecutions represent aberrations or a pattern from which we may draw more troubling conclusions?

If a pattern, is corporate wrongdoing widespread?

Are the people investigating the wrongdoing competent in fully implementing the laws that are at their disposal?

If so, are they being permitted to do their jobs?

And do they have the legal tools necessary to get the job done? As I said at the outset of these hearings, I think it is important that we deal with the perceptions; that in fact we are not being tough enough on white-collar crime. It may very well be that the answer lies not in that we have failed to move, not in that we have lacked due diligence or competence to proceed under the laws, but that the laws we have are not sufficient to enable you to go do what the public at this point perceives we should do.

And so it is in that spirit that these hearings are one in a continuation of a series of hearings we will be holding, and I have a number of questions at the appropriate time, Mr. Chairman, to pursue, at least in this one Senator's perspective, answers to those questions-not merely whether or not the E.F. Hutton matter and affair was properly and fully prosecuted.

With that, Mr. Chairman, I have no further statement, and I will proceed in any way you think is appropriate.

The CHAIRMAN. Thank you, Senator.

Will the following witnesses please stand and be sworn: Stephen S. Trott, Assistant Attorney General; Albert Murray, Assistant U.S. Attorney; the panel of Robert Fomon, Chairman of the Board, Robert Ritterreiser

Mr. TROTT. Mr. Chairman, with your permission, I have two other witnesses with me who will be available to answer questions. The CHAIRMAN. Who are they?

Mr. TROTT. Robert Ogren and Peter Clark.

The CHAIRMAN. You can stand too, and I will swear all of you at

once.

And Mr. Robert Ritterreiser, President of E. F. Hutton.

Please raise your right hands and be sworn. Will the testimony you give in this hearing be the truth, the whole truth and nothing but the truth, so help you God.

Mr. TROTT. Yes.

Mr. MURRAY. Yes.

Mr. FOMON. Yes.

Mr. RITTERREISER. Yes.

Mr. OGREN. Yes.

Mr. CLARK. Yes.

The CHAIRMAN. The first witness is Mr. Trott. Mr. Trott, I have just a few questions and then we will move on.

Did you want to make a statement to begin with?

TESTIMONY OF PANEL CONSISTING OF STEPHEN S. TROTT, ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE; ALBERT MURRAY, ASSISTANT U.S. ATTORNEY, U.S. DEPARTMENT OF JUSTICE, ACCOMPANIED BY ROBERT W. OGREN, FRAUD SECTION CHIEF AND PETER B. CLARK, CRIMINAL DIVISION, FRAUD SECTION

Mr. TROTT. Yes, Mr. Chairman. With your permission, I have a full statement which I would like entered into the record, if that is proper.

The CHAIRMAN. Without objection, I will put your full statement in the record. If you could just summarize it briefly.

Mr. TROTT. Yes. I have no more than 5 minutes of comments. Mr. Chairman, as you have noted in your opening statement, the facts of the Hutton case are enormously complex. Most public comments on the results of this case have been based on a serious misunderstanding of the unusual factual and legal setting of the case and, really, in my view, a failure to appreciate the litigation risks involved in this prosecution.

Not everyone who has commented on the Hutton prosecution has made the difficult effort to learn what really happened. We are heartened, however, that the results in this prosecution has not gone unnoticed by the many regulators, bankers, lawyers, and responsible corporate managers who have taken the time to study this case. In that regard, I am very pleased to be here with Mr. Murray, Mr. Ogren, and Mr. Clark, our career people who know as

much about it, along with John Holland from the Postal Inspection Service, as anybody in the country.

The Hutton prosecution is really without precedent in the Federal system. When this investigation was commenced by Al Murray and the Postal Inspection Service in Pennsylvania a number of years ago, they literally walked out onto a planet, onto terrain previously unexplored by Federal law enforcement agencies: the alien and arcane land of corporate money management.

Some of the practices embraced by our enforcement action were probably legal until the Bank Fraud statute was enacted in October 1984 as part of the comprehensive crime program. I am very pleased to say that many of the problems we had in this case were fixed by the enactment of those laws. Nonetheless, these abuses were very serious and threatened to inflict significant losses on banks.

The investigation about which we are talking essentially covered 3 years and involved ultimately the analysis of 7 million documents. On top of these difficulties, we recognized that many of Hutton's most serious cash management abuses simply could not be reached by convential criminal prosecution. Our prosecutors faced a difficult choice, Senators. In the first option, a prosecution, conventional in its scope and description of Hutton and two midlevel individuals. Such a prosecution in the judgment of our people would have been costly, inefficient, had a questionable prospect of success, and could not reach the most widespread abuses of Hutton and the rest of the money management community. The second option: a comprehensive settlement that we judged would address most directly the serious problem of widespread money management abuses in such a way that it would almost instantaneously, in connection with the money management industry, restore the trust that Senator Biden has referred to in his opening statement that is so essential to the continuing functioning of the financial institutions that were involved in this.

For what amounted to deceiving banks into giving it interestfree, unsecured, short-term loans, Hutton was required to plead guilty to an unprecedented 2,000 felony counts of intentional mail and wire fraud. It was fined $2 million, the maximum the law allowed for this unparalleled number of counts, and a sum that made it the steepest fine in the history of our white collar crime enforcement effort. Hutton was also required to pay to the Government $750,000 to cover the costs of investigation. These costs are ordinarily not recoverable, even with a jury verdict of guilty. Additionally, and in many ways most significantly, the new injunctive provision of 18 U.S.C. 1345 was used for the first time since its enactment by Congress in October 1984 to enjoin all of Hutton's cash management abuses, not just those precisely identified in the criminal information, many of which were not criminal prior to the enactment of the Comprehensive Crime Control Act.

The Department of Justice also required that Hutton immediately make full and complete restitution, with interest, to each and every one of the bank victims without regard to the Federal district in which they were domiciled. Although not required to participate in the restitution procedure, many of the affected banks by now have filed claims. Thirty claims have been settled, and I un