Thursday, August 29, 2002 at 4:16 PM
Former Lehman Brothers broker Frank Gruttadauria has reached an agreement with federal prosecutors. Gruttadauria masterminded what some are calling the largest private brokerage scandal in U.S. history. The broker bilked millions of dollars from wealthy investors and created millions more in false profits, that clients wove into the fabric of their lives. Now, many of those investors are out of money, looking to place the blame for Gruttadauria's behavior - on his employers. ideastream's Janet Babin reports.
Janet Babin: Gruttadauria pleaded guilty to four counts, including securities fraud, mail fraud, bank fraud and identity theft. As part of the agreement, the top producing broker admits to withdrawing $54 million from client accouts without authorization, and misappropriating more than $40 million of investor funds since 1996.
In earlier court documents, federal prosecutors said that Gruttadauria looted or lost nearly than three times that amount from unsuspecting clients.
Gruttadauria's attorneys, Joan and Roger Synenberg, say their client didn't take the money for himself, but instead transferred in from investor to investor, and now, they say, he's indigent.
Under the agreement, Gruttadauria forfeits his 2000 Chevy Tahoe, and the $37,000 of U.S. cash and additional British pounds and Swiss francs investigators found in his vehicle when he turned himself in earlier this year. Synenberg says Gruttadauria's home is tied up by the Securities and Exchange commission investigation.
As part of his scheme, Gruttadauria courted wealthy clients over the years, urging them to invest millions of dollars with him. He made trades with their money, and for several years was a top earning broker, collecting millions in commissions. But about 10 - 15 years ago, prosecutors say he started taking money without client authorization. To cover his tracks, he sent bogus account statements to investors, and re-routed the real statements to sham post office boxes he set up.
Attorney Robert Duvin represents former Gruttadauria investors Sam Glazer, who founded Mr. Coffee, and George Forbes, the head of the Cleveland NAACP. Duvin says he would guess that Gruttadaura took some of his clients' money for himself, but he's only a minor figure in the scandal. Instead, Duvin blames the companies he worked for, Lehman Brothers and SG Cowan, and the system of self regulation in the securities industry that allowed Gruttadauria to steal for so long.
A Lehman Brothers spokeswoman says she can't comment on the case, and SG Cowan couldn't be reached for comment, but in earlier stories, a Lehman Brothers executive told 90.3 that investors should be held accountable to some extent, for blindly believing their investments were consistently outpacing the market. Attorney Duvin compares that ideology to a rape victim being blamed for enticing a molester.
Both SG Cowan and Lehman Brothers wish to settle the numerous investor claims in private arbitration. They lost the first round when US District Judge John Manos ruled that the cases should be tried in court, but the companies are appealing that decision to the Sixth Circuit Court of Appeals. A decision is expected in 3 to 4 months.
Lehman Brothers closed the Cleveland office two weeks ago, but said the decision was unrelated to its former office manager's fraudulent behavior.
Gruttadauria will be sentenced in November. Under the plea agreement, he'll receive between 6 1/2 - 8 years in prison, instead of the 60 years he might have faced if convicted by a jury. For NPR News, I'm Janet Babin in Cleveland.