3: Paragraph 18 The Bank's affairs were handled by its two officers: the Trust Company's president Hitchcock and Richard Roeder at Hutton in New York. Hitchcock showed me the papers setting up the Bank, and Roeder and I had some discussions about it, but I didn't pry into the matter, because it wasn't my problem. I do remember that what business the Bank did was a few loans to some Hutton VIPs, but there were some legal irregularities about the situation, and a major reason we didn't do more with the Bank was that if it got active those defects might come to the attention of the regulatory authorities when they audited. Some of the irregularities had to do with doing business before the law was changed to allow it, and when the law was changed, it didn't cover Hutton Bank, but I'll come back to that later.
3: Paragraph 19 Once Shapiro got the Trust Company chartered as a Delaware limited-purpose trust company in July 1982, other Skadden lawyers prepared the usual corporate start-up documents and turned them over to Hutton. From then on, Hutton would call Skadden only when Hutton got into trouble with Commissioner Malarkey and couldn't get out of it without Shapiro's influence.
3: Paragraph 20 Hutton hired Hitchcock to be nominal head of the Trust Company; he had worked for State Street Bank in Boston for a long time, and Hutton brought in an outsider to be president so it would look as if the Trust Company was separate from the brokerage firm. In fact, though, as vice-chairman of its board James C. Lockwood was in charge of the Trust Company. Lockwood was the head of Hutton & Co.'s Consulting Services Division, a group that mostly charged fees for advising people which investment managers to hire: If the manager hired was a Hutton subsidiary, then Hutton got the management fee, and if the manager was not a Hutton affiliate, it brokered the investments through Hutton, so Hutton got the brokerage commissions. It was CSD's relationships with the pension funds that sparked the idea of the Trust Company, and Lockwood was responsible for it. He and two of his CSD executives, John Ellis and Len Reinhart, were on the Trust Company's board of directors by the time I got there.
3: Paragraph 21 Lockwood and the rest of CSD would come to Wilmington to share space with the Trust Company, and they would both move into offices in a new building on the Market Street Mall next to the Grand Opera House the day I started work in 1984, but when the Trust Company started in summer 1982 it was just Hitchcock and a few female clerical employees. He selected a software system called SEI and started accepting pension trusts.
3: Paragraph 22 Under the governing laws, regulations, and guidelines, as a trustee the Trust Company had to make both investment decisions and pay-out decisions in the best interests of the trust's beneficiaries, but Hutton never intended for the Trust Company to make those decisions, so no mechanisms were ever set up for them. Instead, once an account executive from the brokerage firm would sign a trust client up with the Trust Company, the Trust Company would make whatever investments and distributions that AE told it to: That violated the laws requiring a trustee to exercise responsibility for the trust and also the laws against self-dealing.
3: Paragraph 23 Hutton had picked Hitchcock thinking he was too wimpy to give Lockwood any back-talk but experienced enough to run the operation — they were only half right: Hitchcock lacked the intestinal fortitude to do anything but follow orders, and without experienced bankers making the management decisions, he was useless. Lockwood lacked the banking experience to know what bank operations were supposed to look like, so he couldn't direct Hitchcock in enough detail, and then Lockwood suddenly fell sick — I think it was a heart attack, but then he had prostate trouble, and he was incapacitated for many, many months — and nearly died; when it was feared he would die, or at least never be able to work again, it was necessary to put someone else in charge of the Trust Company.
3: Paragraph 24 So Hutton promoted Abbes, who had been on the board since the beginning; he replaced Lockwood as vice-chairman and CEO on 12 October 1983, Hitchcock remained president and COO, and Thomas P. Lynch of Hutton Group remained chairman. Abbes was a company man in every respect, so he followed Hutton's policy of not telling anyone more than he had to: In Hutton's world, managers didn't let subordinates know what was going on so they couldn't demand a piece of the action for carrying out the schemes, and they didn't put anything in the record that would expose their superiors to liability; when there was a problem, the middle-level manager would take the fall, and whatever higher-ups he was protecting would make sure he had a soft place to fall, often as a consultant to one of the investment management firms Hutton dealt with, if it wasn't possible to move him someplace else within Hutton itself.
3: Paragraph 25 Hutton Trust was never anything but a fa ade of a trust company — there was no substance to it, and not even much form. It performed no personnel functions, for example, and had no operational bank accounts and no petty cash. When an employee was hired, Hutton & Co.'s forms for a brokerage firm employee were completed and forwarded to New York, and then the person went on the payroll and was paid on Hutton & Co. checks. All reimbursements and employee benefits came from Hutton & Co.
3: Paragraph 26 Each of Hutton & Co.'s branch offices had a coded office i.d. number comprising one letter [out of eleven or twelve possibilities] designating the geographical region and two digits identifying the specific office, and that code was used as an address for telexes as well as an administrative identifier. The Trust Company was treated as a branch office of Hutton & Co. with the code V48, because we were office #48 in the national region; that's what went on all our personnel and payroll records. Hutton's brokerage office in Wilmington was coded A81, because it was office #81 in the Atlantic region; it was a satellite of the Philadelphia office coded A09. There were two brokerage offices in Washington DC, coded C16 and C18 because they were in the Central region, C20 was in Alexandria VA, and C32 was in Bethesda MD.
3: Paragraph 27 Hutton Trust rented a couple of safe deposit boxes and opened three checking accounts, but those weren't operating accounts — they were for payment of trust distributions. So when someone was supposed to get a pension payment from a fund trusteed at Hutton Trust, Hutton & Co. would deposit enough money in one of those accounts to cover the payment, and Hutton Trust would cut a check to the pensioner, but not necessarily in that order. Where would Hutton & Co. get the money? Out of the pension fund, of course. Wasn't Hutton Trust the trustee and supposed to be holding the fund? Of course that's what was supposed to be happening, but in fact Hutton & Co. never let Hutton Trust near any money except to launder the pay-outs, and that's what's wrong with this picture.