Hutton and Thayer: clearing the ledgers

Two prominent business names are making news this week -- but the kind of news that delights business' critics and saddens its friends. E. F. Hutton & Co. must make costly restitution for defrauding some 400 commercial banks of at least $8 million. And Paul Thayer, former Deputy Defense Secretary and chairman of LTV Corp., was sentenced to four years in jail for obstruction of justice. Such white-collar crimes often happen when individuals and companies start sailing so close to the legal wind that they lose their sense of where clever practice turns into lawbreaking. That seems to have occurred at Hutton and, to some extent, with Thayer as well. If there is any lesson for business in both these depressing events, it is that executives and companies that want to avoid the kind of disgrace for which Hutton and Thayer are now paying should ask their lawyers how to stay well inside the law, not test its outer limits. Most people have probably written checks on funds not yet credited to their account, often unaware that doing so may be unlawful. Indeed, many banks delay crediting depositors' checks, to make money on uncollected funds. Some people are saying that Hutton only did to banks what banks often do to their customers. What that view overlooks is that Hutton systematically used a sophisticated and far-flung operation over 20 months to make interest-free use of over $1 billion in funds belonging to its banks. This was fraud pure and simple.

Thayer's case is, if anything, more tragic. The government charges that he violated insider trading laws, not for his own monetary benefit but for other people, including a woman friend. He pleaded guilty to obstructing the government's probe into this charge. Many prominent people asked the judge to deal lightly with Thayer, arguing, among other things, that the offense was his first in a distinguished career. However, Thayer was not only a well-known business executive but, more important, also a public official . . . . To have shown him more leniency would defeat the deterrence that punishment is intended to promote.