UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17369 / February 21, 2002
Securities and Exchange Commission v. Frank D. Gruttadauria, DH Strategic Partners, Inc., JYM Trading Trust, Defendants, and Sarah Z. Emamy, Charlie Whiskey, LLC, And Laurene U. English, Relief Defendants, Civil Action No. 1:02CV324 (Judge Gaughan) (filed February 21, 2002)
SEC FILES FRAUD CHARGES AGAINST FORMER LEHMAN BROS. BRANCH MANAGER, FRANK D. GRUTTADAURIA. SEEKS RECEIVER AND ASSET FREEZE.
The Securities and Exchange Commission today filed an action charging Frank D. Gruttadauria, formerly the branch manager for the Cleveland Ohio office of Lehman Bros. Inc., with securities fraud. The Commission's Complaint alleges that over the last six years, while he worked at two different brokerage firms, Gruttadauria, 44, of Gates Mills Ohio, stole at least $40 million in the course of defrauding more than 50 clients. Also charged with securities fraud were two entities controlled by Gruttadauria, DH Strategic Partners, Inc. and JYM Trading Trust, which Gruttadauria used to misappropriate the funds from his clients. The Commission also is seeking a temporary restraining order, a preliminary injunction, asset freezes, accountings, the appointment of a receiver for Gruttadauria, DH Strategic Partners, and JYM Trading Trust, as well as other emergency relief. A hearing has been scheduled for Tuesday, February 26 on the Commission's motions.
The Commission's complaint alleges that over a period of many years, Gruttadauria falsely told customers that he had bought or sold securities for their accounts, when, in fact, he had misappropriated their funds for his own purposes. He also materially misrepresented the value of and the positions held in customer accounts, often falsely telling customers that their accounts contained a wide variety of holdings worth millions of dollars. In some instances, Gruttadauria induced customers to give him funds by claiming that he had opened accounts for them when, in fact, no account ever existed for the client and he simply misappropriated the funds.
The complaint alleges that Gruttadauria misappropriated funds from customers and directed the funds to other customers either as purported returns on non-existent investments or to satisfy withdrawal requests from accounts as to which Gruttadauria had deceived the account holders into believing that they had sufficient funds to make transfers. In particular, from at least 1996 through October 2000, while employed at Cowen & Co. and SG Cowen Securities Corporation, Gruttadauria misappropriated over $25 million in customer funds by fraudulently directing the money into an account that he controlled in the name of JYM Trading Trust, and using it to make payments to other customers. Beginning in October 2000, Gruttadauria similarly misappropriated and funneled over $15 million in customer funds through a bank account he controlled in the name of DH Strategic Partners, Inc.
The complaint further alleges that, to conceal his fraud, Gruttadauria created and sent defrauded customers unauthorized and falsified account statements that greatly overstated the value of the customers' accounts, reflected holdings that did not exist and securities transactions that had never occurred, and failed to disclose the unauthorized withdrawals from the accounts. The most recent false account statements for the accounts of at least 50 of Gruttadauria's customers reflected an aggregate value of about $278 million, whereas the actual value of accounts held for these customers at Lehman Brothers was about $1.8 million. Without the knowledge or authorization of these customers, Gruttadauria caused their actual brokerage account statements to be sent to entities or post office boxes under his control.
The Commission's complaint charges Gruttadauria, DH Strategic Partners, Inc. and JYM Trading Trust with violations of the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5.
The complaint also names as relief defendants Sarah Z. Emamy, a resident of Gates Mills, Ohio, Laurene U. English, Gruttadauria's former sales assistant, and Charlie Whiskey, LLC, a limited liability company of which Gruttadauria is a 50% owner, and which owns a Lear Jet. The complaint alleges that the Gruttadauria unjustly enriched the relief defendants by transferring to them over $3.4 million in money and assets derived from his illegal conduct.
The Commission's investigation is continuing.