3: Paragraph 38 Three unrelated examples will show you why I often felt as if I was working in a Three Stooges comedy instead of a bank:
3: Paragraph 39 Congressman James T. Broyhill of North Carolina had his share of the money from selling his family's furniture business that he needed to put in a blind trust to avoid conflicts of interest in voting on legislation. Federal regulations cover such trusts and require annual reports, and because such a trust isn't a qualified plan under ERISA, it was considered a personal trust at Hutton Trust. When Broyhill's money came in, Butler decided to avoid any appearance of self-dealing between Hutton Trust and Hutton & Co. by putting it in a non-Hutton mutual fund; Butler chose one, and the AE executed the trade by paying the money out of the brokerage account to the mutual fund, and that was the last we heard of it. Several months later, after Butler was gone from the Trust Company, the AE and Broyhill's lawyer started bugging me to submit the required report, and I couldn't find the assets — I found Butler's note in the file saying which mutual fund he had picked, but when I asked that mutual fund, they denied having any account in either Broyhill's name or Hutton Trust's. I finally submitted the report anyway — after all, as far as Broyhill was concerned the trust was deaf and dumb as well as blind, and it was easy to find out what dividends the fund had paid since the date the money disappeared in that direction — and things were quiet for several months until Broyhill decided he wanted to move the trust somewhere else because we weren't cooperative enough about providing information about it. It took several weeks, but the AE finally found the account at the mutual fund, under Hutton & Co.'s name, closed it, and turned the proceeds over to Broyhill's lawyer. What's really funny, or scary, is when the AE found the account at the mutual fund, it was one of three in Hutton & Co.'s name with no indication of what customer they belonged to, and he just left the other two sitting there.
3: Paragraph 40 Mr. & Mrs. Burchard were a retired couple in about their 80s, each of whom had a trust, and most of the assets in the trusts were shares in a bank (I think it was in Illinois, but it might have been somewhere else in the Midwest) that Mrs. Burchard's father had founded and Mr. Burchard had been president of. They had retired to Arizona, and an AE in Hutton's Mesa office talked them into moving their trusts to Hutton Trust so he could sell the stock and use the proceeds to buy them some annuities from Hutton Life Insurance; the commissions AEs got for selling Hutton insurance were even higher than their brokerage commissions. By the time I found out about the trusts, the AE had already sold the stock, and when I told him annuities were an improper investment for the Burchards, he told me not to worry — the insurance company wouldn't issue annuities on people their age, so he was going to sell them annuities on their son's life, and when they died the son would inherit and sell the policies and invest in something else, and the AE would collect a commission on each transaction! That struck me as an archetypical example of "churning" an account, which means repeatedly liquidating investments and reinvesting the assets to collect commissions on the new investments. I got into trouble with Abbes for it, but I went over the AE's head to his branch office manager, and the BOM did keep the AE from tying the assets up in insurance. For some reason, every few months the two Burchard trusts would pop up as exceptions in another internal audit, and I'd get a phone call from some Hutton employee somewhere in the country, and I'd explain what happened, and that person wouldn't bother me about it again. Then one day I got a phone call from a bank officer at the Illinois bank whose stock they'd owned; when the bank had gone to hold its annual stockholders' meeting, the Burchards hadn't voted the stock, and without it the bank didn't have a quorum, because between them they'd owned the majority of the stock. So the bank president had phoned the Burchards and found out what the AE had done and was doing, and he threatened to sue on behalf of the Burchards. I don't know how that situation finally came out, but I've often wondered.
3: Paragraph 41 Mary Alice Anthony had left a trust for her two sons and their children, and an AE in Hutton's Hyannis MA office talked one of the sons, Julian Kaiser, into moving "his" half of the trust to Hutton by promising Kaiser to pay him as much of the trust's income as he wanted. The trust document provided for pay-outs to Kaiser, who was a doctor, or his children if they needed them, and "need" was determined under Connecticut law. Kaiser's children appeared to need the money more than he did, especially as we found in the computer about four brokerage accounts in his name with substantial stock holdings in them, but the AE kept paying Kaiser all the income, and Abbes and Hitchcock kept letting him, although I kept putting memos in the file saying that was wrong, and the bank examiners kept saying in their audit reports it was wrong. In February 1986 one of Kaiser's children wrote to Hutton Group's then-CEO threatening to sue for the mishandling of the trust, but I never heard how that came out, either.
3: Paragraph 42 Those three situations — involving trusts worth more than a million dollars and trustees' fees of tens of thousands — are just the kind of problems any rational person would expect from not having any mechanism for Hutton Trust to track trust assets or supervise investments or distributions, but Hutton still shrugs them off as "typical back-office problems in a new venture" according to Shapiro's testimony on 1 October 1991.
3: Paragraph 43 Besides the comic relief, Hutton also provided some romantic interest: One of the CSD units was Hutton Portfolio Management, and it was headed by Greg Phipps, whom I found very attractive, but when I not too subtly let him know I was interested, he rather more subtly let me know he wasn't, so I didn't embarrass either one of us by pushing it. For the most part, Hutton employees didn't have much class — which isn't to say they weren't great to work with and fun to party with, because they were, and the people were part of what I really loved about working there — but Phipps used an Imari cup for his tea, even when he was alone in his office, you know what I mean? Once when we went to Hutton headquarters in New York to meet with some customers about bringing a big trust in, he took me on a walking tour around Wall Street, including Trinity Church and the Stock Exchange, and told me their history.
3: Paragraph 44 HPM, the program he ran, supervised AEs who had qualified to act as investment managers, instead of brokers, for their customers' Hutton accounts. So if an account was signed up for HPM, the AE made the buy-sell decisions and executed the trades but received a fee that was a percentage of the account's value instead of commissions on each transaction. Phipps handpicked the AEs who got into the program and supervised their training and their performance, and it was a class act all the way.
3: Paragraph 45 One of the times he had me speak to a group of HPMers about using trusts and the Trust Company was in Washington DC on 20 September 1984. It was one of those several-day affairs including training sessions and field trips, and one of the trips the day I was there was to the Capitol to meet one of Delaware's Senators and ride the little train under the building. But when we got to the Capitol, there'd been a bombing in Lebanon or someplace, and the Senators were taking turns being briefed in the little dome-of-silence room that doesn't hold very many at a time, and the Senator couldn't make it, so he'd asked Congressman Carper to meet with us instead.
3: Paragraph 46 I'd never taken much of an interest in politics, and although I'd moved to Delaware on 30 June and had recently registered to vote, I didn't yet know the name of our only Representative, but I did know we had only one. When he finally showed up in the small room where we were having soft drinks and cookies, he had his notebook under his arm, and I swear I thought the name on it was "Crapper," but I soon picked up that it was actually Carper.
3: Paragraph 47 He made conversation with the group, much of it about finances — we'd just heard a lecture at the Federal Reserve — and there was some kidding that the HPMers were from other states, so he was wasting his electioneering on them, and I said, "Well, I'm registered to vote in Delaware," and Carper joked, "Then I'll ignore these men and just talk to you." A little later, after he was told I was one of Hutton Trust's officers, Carper drew me a little aside and started explaining why he was having trouble getting the legislation we wanted through the Banking Committee. At first I didn't have the faintest idea what he was talking about, but the way you find things out is by listening, so I did. When I got back I talked to Hitchcock about it, and he told me Carper was trying to get federal legislation passed that would extend to Hutton Trust and Hutton Bank — because they had been chartered outside the period to which the "non-bank bank" legislation applied — and then I was able to make sense of what Carper had said about grandfathering.