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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 49760 / May 24, 2004

INVESTMENT ADVISERS ACT OF 1940
Release No. 2243 / May 24, 2004

Admin. Proc. File No. 3-11460


In the Matter of

Frank D. Gruttadauria



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ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS BY DEFAULT

The Securities and Exchange Commission (Commission) initiated this proceeding on April 21, 2004, with an Order Instituting Proceedings (OIP), 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. The OIP was served on Respondent Frank D. Gruttadauria (Gruttadauria) on April 26, 2004, and his answer was due on May 17, 2004. See 17 C.F.R. 201.220(b).

Gruttadauria has not filed an Answer. Gruttadauria is in default within the meaning of Rules 155(a) and 220(f) of the Commission's Rules of Practice, 17 C.F.R. 201.155(a), .220(f), and an administrative law judge may determine the proceeding against him upon consideration of the record, including the OIP, the allegations of which may be deemed to be true. I find the following allegations in the OIP to be true:

Gruttadauria, who is forty-six years old, 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, Inc., and SG Cowen Securities Corporation were both broker-dealers and investment advisers registered with the Commission. Both firms were also engaged in the business as 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., Inc., and Hambrecht & Quist, Inc., were broker-dealers registered with the Commission.

On March 22, 2004, the United States District Court for the Northern District of Ohio, Eastern Division, entered a final judgment 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 SEC v. Gruttadauria, Civil Action Number 1:02CV324.

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; and (9) made unauthorized transfers out of some customer accounts to other customers (often through intermediary bank and brokerage accounts) to make it appear as though the latter customers had sufficient assets in their brokerage accounts to cover their withdrawal requests. Further, the complaint alleged that Gruttadauria's conduct operated as a fraud and deceit on his customers.

On the basis of the foregoing, it is necessary and appropriate in the public interest to impose the following sanctions against Gruttadauria.

IT IS ORDERED, pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934, that Frank D. Gruttadauria, be, and he hereby is, BARRED from association with any broker or dealer;

ITS IS ORDERED, pursuant to Section 15B(c)(4) of the Securities Exchange Act of 1934, that Frank D. Gruttadauria, be, and he hereby is, BARRED from association with any municipal securities dealer; and

IT IS FURTHER ORDERED, pursuant to Section 203(f) of the Investment Advisers Act of 1940, that Frank D. Gruttadauria, be, and he hereby is, BARRED from association with any investment adviser.

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Robert G. Mahony
Administrative Law Judge


http://www.sec.gov/litigation/admin/34-49760.htm


Modified: 05/24/2004