The E.F. Hutton stock brokerage company, already facing criminal problems in the East, must now answer six Utah civil suits alleging the company's Provo office "churned" accounts to build up commissions.
Churning is the practice of excessive trading in an account - sometimes for little or no profit - just to claim the brokerage commissions, which are paid for every transaction, even if no money is made for the client.U.S. District Chief Judge Bruce S. Jenkins ordered consolidation of the six suits for pretrial purposes only. Discovery processes can go ahead jointly, with all lawyers taking depositions from witnesses at the same time.
But the cases could conceivably go to separate trials.
The Utah suits were filed between May 5 and Oct. 24 by Mark A. Fullmer, trustee of the Mark A. Fullmer M.D. Ltd. Defined Pension Plan; Lowell Anderson and Niles Herrod, trustees of the Oral and Maxillo-facial Surgery Center Ltd. Pension Plan and Trust; Erickson Brothers Inc. and Richard W. Erickson and Rita R. Erickson, trustees of the Erickson Brothers Inc. Employees' Profit-Sharing Plan and Trust; Robert E. Warenski and Sawn H. Warenski; and Marden Broadbent, Norma N. Broadbent and Nancy J. Broadbent.
On Nov. 4, the first four sets of plaintiffs joined in a motion to consolidate the cases. The motion notes that their claims are filed against Hutton and two of the company's former employees, Thomas C. Kocherhans and Stewart F. Hughes, Hutton account executives who managed the plaintiffs' accounts.
The plaintiffs claim the accounts experienced excessive trading and suffered substantial losses through both the commissions charged and other improper charges, as well as losses caused by imprudent investment in speculative Most of the improper purchases and sales took place over a period of approximately one year between December, 1986, and December of 1987, the plaintiffs contend.
Two other suits in the consolidated case - those by the Warenskis and the Broadbents - make similar claims, but do not name Hughes as a defendant.
It adds that the accounts "experienced excessive trading and sustained substantial losses both through the commissions and other improper charges against those accounts . . . as well as losses occasioned by imprudent investment in speculative securities.
The Warenski suit alleges that more than half of their $39,000 in losses were attributable to wrongful conduct, including excessive trading.
The Broadbent suit, the most recent filed, claims Hutton, Kocherhans and others "were trading in new offerings and other non-safe, non-conservative, risky and speculative securities . . . the defendants were churning . . . to generate commissions for themselves."
Nationally, E.F. Hutton is in more legal trouble. In May, the Securities and Exchange Commission announced that E.F. Hutton's new owners - Shearson Lehman Hutton Inc. - had uncovered possible money-laundering at several of the Hutton branch offices in New York.
Shortly before that, Shearson pleaded guilty on Hutton's behalf to three criminal counts of money laundering and conspiracy at Hutton's branch in Providence, R.I. A fine of more than $1 million resulted from the pleas.