Companies that vanished: E.F. Hutton — who’s listening now?

Jun 16 2008

Companies that vanished: E.F. Hutton — who’s listening now?

Posted by: admin in Marketing and Advertising

Filed under: Law, Competitive strategy, Marketing and advertising, Scandals

This post is part of a series on some of the most memorable companies that have disappeared.

“When E.F. Hutton talks, people listen,” claimed the well-known slogan from the respected broker’s ubiquitous ads in the 1970s and 1980s. Well, it seems people stopped listening when E.F. Hutton & Co. was caught check kiting and money laundering.

The American firm was founded in 1904 by Edward Francis Hutton. It grew to become one of the most respected U.S. financial firms, and for many years was the second-largest brokerage in the United States. Edward Hutton held the reins at the company until his death in 1962.

But in 1980 some Hutton branches began shifting funds from one account to another, effectively giving itself interest-free loans until the checks cleared. Of course the scheme eventually came to light, and in 1985 Hutton pleaded guilty to 2,000 counts of mail and wire fraud. However, the SEC uncharacteristically granted Hutton to stay in business.

An internal investigation in 1987 uncovered that a Providence, Rhode Island, branch was laundering money for a crime family. Hutton voluntarily brought this matter to the SEC, but all signs recommended Hutton couldn’t count on leniency a second time. However, this happened just before the stock market crash of 1987. With that, along with all the bad press, the firm’s deep debt going back to 1985, and its star performers defecting to other firms, Hutton was on the verge of collapse by the end of the year, and so agreed to be acquired by Shearson Lehman Brothers.

Several mergers later, what remains of the once proud firm is now part of Citigroup Inc. (NYSE: C).

I wonder what Edward Hutton would have to say about how things turned out — and would anyone these days listen?