K. Kay Shearin.

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Hutton Trust had to do to "earn" its fee was white-out and retype the

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.

3: Paragraph 48 That was around the same time that Hutton Trust
acquired a new personal trust client, a corporation named International
Development Programs Inc., the chairman of whose board was Wilbur Mills.
An AE named John Jennison, in Hutton's C18 office in D.C. where Perry
Bacon was BOM, had a client named Barton F. Walker Jr., who was
president of Walker & Walker Associates, Inc., in Maryland and one of
IDP's principals, so Walker had brought IDP to Jennison. IDP's
president was Thomas M. Owen, whose phone numbers were in Virginia, and
its lawyer was Francis L. Jung, who was also general counsel to American
Pacific Trading Co. in D.C. The chairman of AmPac's board was Conrad K.
Hausman, who was also one of IDP's principals. The other two IDP
principals I dealt with were E. Doug Ward, executive vp of Astrotech
International Corp. in Pennsylvania, and Daniel Craig, president of
Norsud Corp. in California.

3: Paragraph 49 The companies these IDPers headed manufactured
aircraft, and maybe tanks, guns, and other war toys - they had mostly
been pilots in WWII and/or the Korean Conflict, and Hausman had worked
for Alexander Haig in Vietnam and then at the White House. Owen had
been on LBJ's re-election committee, and he told some of the best war
stories I ever heard: some about the parties his cousin Tallulah
Bankhead used to throw, some about his misadventures as a pilot during
the war, some about LBJ, and all of them hilarious.

3: Paragraph 50 IDP's 'raison d' tre' was to borrow money from the
pension funds of companies that manufactured industrial, agricultural,
and defensive equipment (which we took to mean aircraft, tanks, guns,
and related paraphernalia), invest it in U. S. Treasury notes, and lend
the interest to developing Third-World nations (mostly in the Middle
East and Central America) that would use the money to buy industrial,
agricultural, and defensive equipment (wink, nudge), probably from the
companies that had anted up their pension funds. They explained to us
that this was all part of President Reagan's plan to cut back on foreign
aid from the U.S. government and get the private sector more involved;
they said they had the required approvals and gave us phone numbers at
the State Dept. and White House to check them out, but Abbes forbade me
to do any checking: He said the only checking would be by Hutton &
Co.'s president Pierce through Barbara Bush to her husband the VP, and
then later he told me we had not just their approval but their

3: Paragraph 51 But the reason IDP had come to the Trust Company
then, as they told us, was that they couldn't pry any money loose from
the pension funds - remember I said that's where most of the investment
money in the country is, but the trustees have to meet the high
standards the law imposes on fiduciaries - so they'd gone looking for
money overseas and found some: The royal family of Saudi Arabia had a
lot of money to invest but couldn't be seen to do so because of the
Islamic prohibition against usury, so they had created something called
the Crusader Trust, run by one of the big Swiss banks fronting for them.
The Crusader Trust was willing to lend IDP $100 million for some number
of years I've forgotten now, but the Swiss bank insisted on having an
American financial institution hold the bag, and IDP had been up one
side of Wall Street and down the other and been turned down everywhere.
Then Bush asked Pierce to have Hutton do it, and Fomon agreed and told
Abbes to take care of it. It was, of course, a personal trust, so it
fell squarely in my lap, and I had most of the dealings with IDP.

3: Paragraph 52 The last week of October 1984 I had to go to Basel,
Switzerland, on rather short notice to meet with Owen, Hausman, Walker,
Ward, Craig, and someone from the Swiss bank, and that's when I finally
saw the printout of how the transaction was supposed to work. There
were two kinds of problems with it: One was that the bank wanted Hutton
to sign as the one liable for paying the interest for the term of the
loan and paying back the principal in Swiss francs at the end, so we
would in effect be guaranteeing not only the interest rate on Treasuries
but also the exchange rate, and we wouldn't; the other was that there
were so many finders' fees and up-front points to be paid to the various
players that it would take every bit of income from the Treasuries,
compounded by being repeatedly reinvested over the term of the loan, to
get the principal back to the amount to be repaid, and that didn't leave
anything to pay the income taxes with. When I pointed that out, Owen
said, "But we don't want to pay any income taxes," and I said, "Nobody
wants to pay income taxes, but how do you expect to get out of it?" So
they put me on the telephone to Mills - whom they always referred to as
"the Chairman" with such reverence that Abbes tried teasing them once by
referring to Fomon the same way, but they were not amused - back in the
States to find out what the story was on taxes. That was the only time
I ever talked to him, and he didn't have any idea how to get out of the
taxes, either, but he said he'd get the guys there working on it.

3: Paragraph 53 While I was in Basel - I went on Saturday the 27th
and came back on Halloween of 1984 - IDP took very good care of me, and
except for when I went back to my hotel to sleep and a couple of hours
the last afternoon when I walked around town, I was always with one of
more of them. One evening Owen wanted to drive to Zurich for dinner at
the Dolder Grand Hotel, so three of us went with him - that's a whole
story of its own, with Owen driving like Barney Oldfield on the autobahn
and me falling back on my college German to navigate from an outdated
map in the dark! While we were at the Dolder, Owen told us about the
last time he'd been there, when he'd run into the exiled Shah of Iran
and they'd talked about the good old days.

3: Paragraph 54 One day we drove across the corners of Germany and
France on a little sightseeing excursion whose purpose seemed to be to
let me see everybody's passports when we crossed the borders. They'd
been hinting pretty hard that Hausman was CIA, but I kept acting like I
hadn't caught on, and a day or so later Walker finally took me to brunch
alone and just told me, but the two things I learned from their
passports were that Hausman did, indeed, carry a diplomatic passport and
that most of them, especially Owen and Walker, had been in and out of
Iran a lot of times over the past year or so.

3: Paragraph 55 One evening when I got back to my hotel after
dinner, there were some urgent messages from Abbes to call back, so I
did, and because of the time difference he was still in the office. He
got one of Hutton & Co.'s lawyers in New York on the phone with us to
read us the riot act for my being there when the last thing the Legal
Dept. had told me on Friday was not to go - they kept referring to
IDP's plans as "gun-running" and wanting us to drop IDP as a client, but
all we did was quit telling them stuff that was only upsetting them -
but Bacon and Abbes had both told me later on Friday to go anyhow, with
authority from Pierce and Fomon, and Jennison bought my ticket and wired
me the money for traveler's checks. I'll always cherish the part of
that phone conversation when Abbes asked the lawyer what they were
afraid of, and he answered that after turning my head by getting me away
from my own turf and into exotic surroundings IDP might get me to agree
to something, to Hutton's detriment, that I wouldn't agree to at home;
Abbes said, "If you think that, you don't know Kay very well!" Abbes
knew, from trying to himself, it's virtually impossible to get me to do
anything I don't intend to, and it really touched me to know he had so
much faith in me, because by then I had a lot of regard for him, and I
still do.

3: Paragraph 56 Some months later we started to realize why the
Legal Dept. had been so hot about IDP when it hit the papers that Hutton
had been involved in the money-laundering scheme the media called "the
pizza connection." IDP kept talking to us for months about doing a
deal, but nothing ever came of it.

3: Paragraph 57 Then on 2 May 1985 Pierce entered Hutton & Co.'s
guilty plea to 2000 counts of federal mail and wire fraud in what came
to be referred to as "the check-kiting." Too much has been written
about that for me to have to describe it here; suffice it to say that
Hutton had for several years taken advantage of the float on checking
accounts by drawing checks to customers on accounts in banks at the
other end of the country from where the customers were and then
depositing the money to cover the checks later. Many of the AEs were
shaken that Hutton had been doing anything so blatantly against both the
law and the customers' interests, but I was surprised they were
surprised, because it was the same thing Hutton was still doing through
the Trust Company, and it was in keeping with everything I'd seen of the
way Hutton was run.

3: Paragraph 58 Hutton was fined $2 million and agreed to pay up to
$8 million in restitution to the banks, but Abbes and the other Hutton
higher-ups I dealt with laughed that off as "chump change" compared to
the amount Hutton had gained from it. They were, however, concerned
that VP Bush was pissed off at the political flak he was taking for
protecting Hutton, so they decided to hire a prominent Democrat to
repair the political fences; they ended up paying former AG Griffin Bell
about $2.5 million to handle the damage control. I can't help wondering
if all the members of Congress who were shouting so loud then for
someone at Hutton to go to jail would feel the same way now that their
own check-kiting at the House bank has come to light. And if Carper
hadn't known all along that what Hutton was doing was pretty shady, he
has to have known it by the summer of 1985, but he kept trying to help
Hutton get more favorable treatment under the federal banking laws.

3: Paragraph 59 Do you remember in "My Fair Lady" when Professor
Higgins said, "The French don't care what they do, as long as they
pronounce it correctly"? That's Hutton all over - they didn't care
that they broke the law, but they got all bent out of shape that the
media reported they did. Here's Shapiro's October 1991 testimony about
the check-kiting and related scandals: "Hutton had had a very bad press
because of some federal charges, and they were very sensitive about
adverse publicity." "Hutton had had a series of bad newspaper notices
and was very sensitive to criticism in the press." Apparently the only
lesson Hutton learned was that federal felony charges are bad publicity.
Other than that, Mrs. Lincoln, how did you like the play?

- -

CHAPTER IV. A crock of malarkey

4: Paragraph 1 Meanwhile, back at the ranch, the plot was
thickening: Hutton Trust was getting into trouble of its own.

4: Paragraph 2 The day I reported to work at Hutton Trust I was
assigned to handle the transfer of assets for the Vietnamese Orphans'
Trust: In April 1975 a number of children were being flown out of
Vietnam to be adopted in North America and Europe when a hatch blew off
the C-5A, so it crashed near Saigon, injuring many of the children
permanently. In settlement of the litigation on behalf of the 45
survivors who were adopted in the U.S., Lockheed Aircraft Corporation
had paid $13.5 million into a trust to provide compensation and the
costs of medical treatment to the children for the rest of their lives.

4: Paragraph 3 The case had been in federal court in D.C., and a
lawyer in the D.C. law firm McDermott, Will & Emery was appointed
"co-trustee" to oversee the trust. The complicated trust document
called for regular meetings of and reports to the children's parents,
and the structure was rather like that of a corporation, with the
co-trustee as the board of directors and the beneficiaries as

4: Paragraph 4 The lawyer who acted as co-trustee was Charles R.
Work, and the trustee had been American Security Bank in D.C., the one
that advertised it was on the back of a currency bill. When I was doing
my thesis on taxation of trusts and estates for my 1983 Master of Laws
in Taxation at Georgetown University Law Center, my thesis advisor had
been a senior trust officer from American Security, and he taught me
just about everything I knew about the practicalities of banks'
administering trusts before I came to Hutton.

4: Paragraph 5 An AE from Hutton's C18 brokerage office in D.C., Tom
Clark, had persuaded Work to move the trust, which was down to about $2
million because most of the principal had already been paid to the
beneficiaries, from American Security to Hutton Trust. Later on I found
in the file the misrepresentations Hutton Trust made to the federal
judge to get his approval, saying we were qualified to do business in
D.C. when we were not qualified to do business anywhere but in Delaware,
but all I knew the first day was that Butler told me to make
arrangements to receive and invest the assets.

4: Paragraph 6 We were going to put the assets in three accounts and
invest each separately to provide diversity of the investment portfolio
and because part of the principal was earmarked for the trust's
day-to-day operating expenses, but part was for long-term investment to
cover pay-outs in the distant future, which would diminish continuously.
American Security transferred stock to us, and we sold it and invested
the proceeds in other securities; it was when that stock started coming
in that I found out our SEI system was not programmed to accept data on
market and book values of assets.

4: Paragraph 7 It was also when I had my first of many run-ins with
Clark, because after I told Hutton's trading desk to invest the proceeds
in the non-Hutton securities Butler had chosen to avoid a conflict of
interests, Clark told me he had decided to invest in other, Hutton funds
that paid him a commission. Abbes ordered me to bust our trades and
honor Clark's orders, and I did; Butler was unhappy about it, but he was
a lame duck.

4: Paragraph 8 Clark was one of the most obnoxious people I've ever
met, and that was his reputation throughout Hutton. One AE who was,
like Clark, such a big-volume salesman he was invited to the prestigious
annual national meetings/blow-outs Hutton threw for its "Blue Chip" AEs,
told me he had met Clark when he roomed with him at one of those
conventions: The AE who was assigned to be Clark's roomie didn't want
to be in with him, and this guy, who didn't know Clark but figured he
could get along with anybody for a few days, agreed to swap room
assignments. He told me that he hadn't believed anybody could be as
obnoxious as Clark, and he was disappointed in himself to find out much
and how soon Clark got on his nerves.

4: Paragraph 9 What's surprising is that anybody like him could make

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