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U.S. Securities and Exchange Commission

Litigation Release No. 18678 / April 23, 2004

Securities and Exchange Commission v. Frank D. Gruttadauria, DH Strategic Partners, Inc., JYM Trading Trust, Laurene English, Defendants, and Sarah Z. Emamy, Charlie Whiskey, LLC, and Margo Gruttadauria, Relief Defendants, Civil Action No. 1:02CV324 (N.D. Ohio) (Judge Gaughan)


The Honorable Patricia A. Gaughan, United States District Court Judge for the Northern District of Ohio, on March 11, 2004, granted the Commission's motion for summary judgment and permanently enjoined Frank D. Gruttadauria, the former Cleveland broker, and two entities that he created to facilitate his fraud from violating certain antifraud provisions of the federal securities laws. Judge Gaughan also ordered Gruttadauria to disgorge monies he misappropriated and compensation he received during the fraud. Gruttadauria is presently in federal custody serving a seven-year jail term. The Commission's lawsuit was filed in February 2002, alleging that Gruttadauria had defrauded scores of his customers over a fifteen-year period. The Commission also alleged that Gruttadauria misappropriated millions of dollars and sent falsified account statements that, at the time the fraud ended in January 2002, overstated the actual holdings in customer accounts by over $280 million.

In her March 11 Order, Judge Gaughan found that, from 1987 through January 2002, Gruttadauria engaged in a massive scheme to defraud many of his customers. The court found that, among other things, Gruttadauria lied to customers about purchases and sales of securities in their accounts, falsely told customers that he used the funds deposited into their accounts to buy securities, and created false customer account statements that reflected account values far in excess of their actual balances. Judge Gaughan also found that, to disguise his fraudulent scheme, Gruttadauria misappropriated funds from the accounts of some customers to meet withdrawal requests from other customers. Judge Gaughan permanently enjoined Gruttadauria and two entities he created, DH Strategic Partners, Inc. and JYM Trading Trust, from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Court also ordered Gruttadauria to disgorge the monies that he misappropriated, totaling almost $105 million, and $20.8 million in compensation (salaries, bonuses, and commissions) that he received from his employers while committing his fraud. The Court found that Gruttadauria had received this compensation as a direct result of his fraudulent activities.

For further information, see Litigation Release Nos. 17369 (February 21, 2002), 17418 (March 18, 2002), 17590 (June 27, 2002) and 18549 (January 21, 2004), and Administrative Procedure Releases Nos. 48335 and 48336 (August 14, 2003) and 49589 (April 21, 2004).

The Commission is continuing its investigation in this matter.



Modified: 04/23/2004