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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

April 21, 2004

ADMINISTRATIVE PROCEEDING
File No. 3-11460


In the Matter of

Frank D. Gruttadauria,

Respondent.


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ORDER INSTITUTING ADMINISTRATIVE
PROCEEDINGS PURSUANT TO SECTIONS
15(b) AND 15B(c) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND SECTION
203(f) OF THE INVESTMENT ADVISERS
ACT OF 1940

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Sections 15(b) and 15B(c) of the Securities Exchange Act of 1934 ("Exchange Act") and Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Frank D. Gruttadauria ("Respondent" or "Gruttadauria").

II.

After an investigation, the Division of Enforcement alleges that:

1. Gruttadauria, 46, was a registered representative of Lehman Brothers, Inc. ("Lehman Brothers") and the manager of its Cleveland, Ohio branch office from October 2000 through January 2002. From July 1998 to October 2000, Gruttadauria was a registered representative of SG Cowen Securities Corporation ("SG Cowen") and the manager of its Cleveland branch office. At the time of Gruttadauria's employment, Lehman Brothers and SG Cowen were both broker-dealers and investment advisers registered with the Commission. Both firms were also engaged in the business of a municipal securities broker-dealer during the period that they employed Gruttadauria. From May 1989 through July 1998, Gruttadauria was a registered representative of Cowen & Co., and, beginning in 1990, he was also the manager of its Cleveland branch office. Gruttadauria was employed as a registered representative at L.F. Rothschild & Co., Inc. from January 1984 through November 1987, and at Hambrecht & Quist, Inc. from November 1987 through May 1989. At the time of Gruttadauria's employment, Cowen & Co., L.F. Rothschild & Co., and Hambrecht & Quist, Inc. were broker-dealers registered with the Commission.

2. On March 22, 2004, a final judgment was entered against Gruttadauria, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in the civil action entitled Securities and Exchange Commission v. Frank D. Gruttadauria, et al., Civil Action Number 1:02CV324, before the United States District Court for the Northern District of Ohio, Eastern Division.

3. The Commission's complaint alleged that, from 1987 through 2002, in connection with the offer, purchase, or sale of securities, Gruttadauria: (1) lied to customers about the holdings in their accounts; (2) overstated the value of their accounts; (3) falsely told customers that he used the funds that they deposited into their accounts to buy securities; (4) misrepresented that he had bought or sold other securities in their accounts; (5) told customers that they had returns on what were non-existent holdings; (6) misrepresented that the funds used to cover withdrawal requests came from customers' brokerage accounts when those accounts, in fact, had insufficient remaining funds to satisfy those requests; (7) falsely told customers that he had opened accounts for them when, in fact, he took their money; (8) sent customers falsified account statements; (9) made unauthorized transfers out of some customer accounts to other customers (often through intermediary bank and brokerage accounts) to make it appear that the latter customers had sufficient assets in their brokerage accounts to cover their withdrawal requests. Further, the complaint alleged that this conduct of Gruttadauria's operated as a fraud and deceit on his customers.

III.

In view of the allegations made by the Division of Enforcement, the Commission deems it necessary and appropriate in the public interest that public administrative and cease-and-desist proceedings be instituted to determine:

  1. Whether the allegations set forth in Section II are true and, in connection therewith, to afford Respondent an opportunity to establish any defenses to such allegations; and

  2. What, if any, remedial action is appropriate in the public interest against Respondent pursuant to Sections 15(b)(6) and 15B(c)(4) of the Exchange Act and Section 203(f) of the Advisers Act.

IV.

IT IS ORDERED that a public hearing for the purpose of taking evidence on the questions set forth in Section III hereof shall be convened at a time and place to be fixed, and before an Administrative Law Judge to be designated by further order as provided by Rule 200 of the Commission's Rules of Practice, 17 C.F.R. 201.200.

IT IS FURTHER ORDERED that Respondent shall file an Answer to the allegations contained in this Order within twenty (20) days after service of this Order, as provided by Rule 220 of the Commission's Rules of Practice, 17 C.F.R. 201.22

0.

If Respondent fails to file the directed answer, or fails to appear at a hearing after being duly notified, the Respondent may be deemed in default and the proceedings may be determined against him upon consideration of this Order, the allegations of which may be deemed to be true as provided by Rules 155(a), 220(f), 221(f) and 310 of the Commission's Rules of Practice, 17 C.F.R. 201.155(a), 201.220(f), 221(f) and 201.310.

This Order shall be served forthwith upon Respondent personally or by certified mail.

IT IS FURTHER ORDERED that the Administrative Law Judge shall issue an initial decision no later than 210 days from the date of service of this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice.

In the absence of an appropriate waiver, no officer or employee of the Commission engaged in the performance of investigative or prosecuting functions in this or any factually related proceeding will be permitted to participate or advise in the decision of this matter, except as witness or counsel in proceedings held pursuant to notice. Since this proceeding is not "rule making" within the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to the provisions of Section 553 delaying the effective date of any final Commission action.

For the Commission, by its Secretary, pursuant to delegated authority.

Jonathan G. Katz
Secretary

 

http://www.sec.gov/litigation/admin/34-49589-o.htm


Modified: 04/22/2004