New Jersey Firm Lends Small Banks a Hand in Seeking Restitution from EF Hutton

By Tyson, David O. | American Banker, August 7, 1985 | Go to article overview
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New Jersey Firm Lends Small Banks a Hand in Seeking Restitution from EF Hutton


Tyson, David O., American Banker


Major banks have a technological advantage over small banks in getting back money lost to E.F. Hutton & Co. in its check kiting scheme.

Using sophisticated account analysis programs, they can more easily identify the damage they suffered. Some of them recovered losses even before the government started investigating Hutton.

But small banks have a problem. In its $8 million restitution program, Hutton requires day-to-day documentation so extensive and complex that the task of filling out a claim manually is impossible, and few small institutions are equipped to computerize the task.

A New Jersey management consulting firm, Management Designs & Concepts Inc., now lends a hand with a relational data base program to reduce the time involved to manageable proportions.

Management Designs worked with an outside programmer to develop the software. It first does a preliminary analysis to come up with a conservative estimate of what award the bank client can expect from Hutton. If it looks worthwile from the analysis, the bank can request participation in the court-sponsored Hutton restitution program.

By filing the request, the bank waives any other right to monetary recovery from Hutton for the period in question -- July 1, 1980 to Dec. 31, 1982. But by agreeing to the waiver, the bank can obtain certain information from Hutton, basically all its internal documentation on the account.

Roger Sherman, vice president and treasurer of Management Designs, says that a key item among the documents is what is called the "blotter."

"If it's available," Mr. Sherman said in a phone interview, "it lists every check deposited at the bank and the ABA routing number, which is the key to the whole claim. The problem is that if that information is not available, the bank would have go to a microfilm machine and look at every deposit ever made. And then determine how long it took checks to clear."

With such information in hand, Management Designs goes ahead with a thorough analysis, including complete documentation.

"Hutton requires a one-page summary document at the end," Mr. Sherman said, "but it has the right to demand full documentation as to how those figures were developed. And that's what we are able to supply."

Management Designs & Concepts, which is located near Phillipsburg in Stewartsville, N.J., was started in the fall of 1983 by Mr. Sherman and John McGann, now president of the company. Both are ex-bankers who started their own consulting firm after leaving another -- Firm Direction in Banking, in Blue Anchor, N.J., halfway between Philadelphia and Atlantic City.

"Basically, what our company does is analyze back-room operations of financial institutions and then make a pitch as to whether we can save them money," Mr. Sherman said. "We are not time and motion experts."

The firm has done work for about 20 clients in the last two years, from Vermont to South Carolina. Most are smaller independent banks in the mid-Atlantic states. None has more than $200 million assets.

"One client called us after they received the initial package from E.F. Hutton," Mr. Sherman said. "They said they looked through it, and it was going to be a mess -- could we stop in and give them a hand?"

He declined to identify the bank but said it has less than $150 million in assets.

A bank has two choices in the Hutton restitution program. If it supplied Hutton with an account analysis during the period in question, it must submit copies of that.

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