US Brokerage Firms Settle With SEC Over Rogue Stockbroker

by Glen Shapiro, LawAndTax-News.com, New York

18 August 2003

The US Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE) announced on Thursday that SG Cowen Securities Corp., and Lehman Brothers have agreed to pay a combined $7.5 million in settlement over the activities of rogue stockbroker, Frank Gruttadauria.

During his time at the two brokerage firms, Gruttadauria - who was sentenced last year to seven years in prison - stole around $115 million from the accounts of investors.

Speaking to CBS Marketwatch last week, Stephen Cutler, director of enforcement for the SEC, revealed that: 'At both SG Cowen and Lehman Brothers, the primary responsibility for overseeing Gruttadauria's daily retail brokerage activity was entrusted to Gruttadauria's own subordinates.'

SG Cowen is set to pay $5 million to the US securities regulators, whilst Lehman Brothers will pay $2.5 million in penalties.

Although both firms have paid back to their customers monies taken from their accounts between 1987 and 2002, the settlement also reportedly put in place an arbitration process for investors to lodge claims for estimated lost investment profits.

However, according to an Associated Press report, SG Cowen announced on Thursday that the $125 million already paid to its clients also covers potential profits lost as a result of Gruttadauria's actions.

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