Lehman, SG Cowen to Settle Broker Claims
Lehman Bros. Holdings Inc., the fourth-biggest securities firm, and SG Cowen Securities Corp. have agreed to pay $7.5 million to settle regulators’ allegations they failed to supervise a former broker in Ohio who stole more than $115 million from his clients.
The Securities and Exchange Commission and the New York Stock Exchange announced the settlement Thursday. The broker, Frank Gruttadauria, pleaded guilty last year in a Cleveland federal court to stealing from investors by making sham trades and falsifying account statements.
SEC investigators now believe Gruttadauria misappropriated more than $115 million during a 15-year period beginning in 1987, according to a commission statement. Gruttadauria stole $68.5 million while employed by the two firms from 1998 to 2002, the agency now says. Previous SEC complaints listed about $40 million.
“At both SG Cowen and Lehman Bros., the primary responsibility for overseeing Gruttadauria’s daily retail brokerage activity was entrusted to Gruttadauria’s own subordinates,” said Stephen Cutler, director of the SEC’s enforcement division. “We have grave doubts that such a structure -- absent frequent and meaningful involvement by independent supervisors -- could ever be effective.”
Lehman, which employed Gruttadauria from October 2000 to January 2002, paid $2.5 million. SG Cowen, where he worked from July 1998 to October 2000, paid $5 million as part of the settlement.
“I’m a little surprised by the amount of the fine given the amount of expense the SEC put into investigating Mr. Gruttadauria,” said Roger Synenberg, who represented Gruttadauria in the criminal case with his wife, Joan Synenberg. “They probably spent several million more than what they’ve been willing to settle for.”
Both firms also agreed to have consultants review their internal policies on the use of personal computers, post office accounts and third-party disbursements. The SEC said its investigation of the Gruttadauria case continues.
Gruttadauria, 45, was sentenced to seven years in prison in November. Prosecutors said the Cleveland broker inflated the value of his customers’ accounts by $275 million, making it one of the largest cases of broker fraud in recent years. The matter led to accusations that the securities firms were lax in supervising their brokers.
