UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17418 / March 18, 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)
FEDERAL COURT IN CLEVELAND GRANTS PRELIMINARY INJUNCTION AGAINST FORMER LEHMAN BROS. BRANCH MANAGER, FRANK D. GRUTTADAURIA
The Securities and Exchange Commission announced today that, on March 11, 2002, Judge Patricia A. Gaughan of the federal district court for the Northern District of Ohio granted the Commission's motion for a preliminary injunction against Frank D. Gruttadauria, formerly the branch manager for the Cleveland Ohio office of Lehman Bros. Inc. On February 21, 2002, the Commission filed a complaint charging Gruttadauria and two entities controlled by him, DH Strategic Partners, Inc. and JYM Trading Trust, with securities fraud. On February 26, 2002, Judge Gaughan had granted the Commission's motion for a temporary restraining order against Gruttadauria and froze his assets. Gruttadauria, who is in federal custody awaiting criminal charges, waived an appearance at the March 11 hearing and did not contest the entry of a preliminary injunction. The court also continued the freeze on Gruttadauria's assets.
The Commission's complaint alleges that over at least the last six years, while he worked at Lehman Brothers, Inc. and SG Cowen Securities Corporation, Gruttadauria, 44, of Gates Mills Ohio, stole at least $40 million in the course of defrauding more than 50 clients. 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 also alleged 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.
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 charged 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 named 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 alleged 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. Judge Gaughan's order permits the sale of the Lear Jet, but requires the deposit of the proceeds into escrow pending a final judgment on the Commission's complaint.
The Commission thanks the New York Stock Exchange for its assistance in this matter. The Commission's investigation is continuing.