UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 49589 / April 21, 2004
INVESTMENT ADVISERS ACT OF 1940
Release No. 2228 / April 21, 2004
File No. 3-11460
ADMINISTRATIVE PROCEEDINGS INSTITUTED AGAINST FRANK D. GRUTTADAURIA
On April 21, 2004, the Commission entered an 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 (Order) against Frank D. Gruttadauria (Gruttadauria). In the Order, the Division of Enforcement alleges that, 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 Securities Exchange Act of 1934 (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. The violations occurred from 1987 through 2002, during which time Gruttadauria was a registered representative at a series of broker-dealers registered with the Commission.
In particular, Gruttadauria, 46, was a registered representative of Lehman Brothers, Inc. 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 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.
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.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Gruttadauria an opportunity to dispute these allegations, and to determine what remedial sanctions, if any, are appropriate and in the public interest. The Commission directed that an administrative law judge shall issue an initial decision in this matter within 210 days from the date of service of the Order.
See also the Order in this matter