Fox Valley woman faces huge loss from investment scheme
By Daniel Duggan
ELGIN — Shocked and numb.
That's how Golda Stout felt in January when she realized her stockbroker had been giving her false statements on her account since 1991 and her nearly million-dollar investment had dwindled to almost nothing.
The 87-year-old woman, who had invested at least $850,000, is left with less than $86,000. She faces a substantial legal battle and a long ordeal.
"It's something that has brought such a terrific shock that it's taking me a long time for it to feel like it's real and not a dream," Stout said.
She has in her corner, however, powerful allies, including U.S. House Speaker Dennis Hastert of Yorkville, who recently accompanied her to a congressional hearing on the issue, where she testified on her experience.
Stout has hired an attorney, who has filed a lawsuit in U.S. District Court in Chicago seeking $2.5 million, in addition to other monetary damages from the companies that employed her broker.
She faces a long fight.
It all started, she said, when she invested $100,000 in 1991 with Frank Gruttadauria, a stockbroker with New York-based SG Cowen Securities Corp.
Multimillion-dollar balance
She received regular account updates and made deposits totaling $750,000 between 1991 and 1997, according to her testimony to the House Subcommittee on Oversight and Investigations. At times, her balance was as high as $3.4 million, she believed.
Much of the money came from her husband's co-ownership of Stout Funeral Home in Elgin. Her husband, Hugh, who died in 1996, sold his share of the funeral home about 20 years ago.
Her money was to be used as a legacy for her grandchildren and a means for her survival, but it all has been washed away, she said.
"I looked forward to passing on a valuable legacy to my children, grandchildren and great-grandchildren," she said. "But all that has changed since January 2002."
Gruttadauria had been involved in a complicated scheme for more than 15 years, according to court documents and congressional testimony. The process involved about 60 clients. Their real account statements were sent to a post office box and the statements received by clients were fabricated by Gruttadauria, the complaint in federal court states.
In many cases, the statements were inflated to hundreds of millions of dollars.
When a client asked to withdraw money, Gruttadauria reportedly used money from another client to pay them — creating a vicious circle, according to Mark Kaplan, SG Cowen managing director and general counsel. Kaplan testified during the congressional hearing.
"It's like he was robbing Peter to pay Paul," Kaplan said.
As a result, Gruttadauria is being held in an Ohio jail, facing a long list of charges.
Who is responsible?
In a phone call in January, Stout learned that she has only $86,000 in her account.
The federal suit seeks to reclaim some of the money from SG Cowen and Lehman Brothers because they employed Gruttadauria. SG Cowen was bought by Delaware-based Lehman Brothers Inc. in October 2000.
"Gruttadauria's actions were generally foreseeable by SG Cowen and Lehman and were a natural incident of his employment," Stout's complaint states. "Gruttadauria's actions were calculated to promote both his interests and the interests of SG Cowen and Lehman."
But Lehman Brothers spokesman Bill Ahearn said the lost money isn't his company's responsibility.
Lehman Brothers bought the retail brokerage services branch of SG Cowen in 2000, he said. Since then, they believe, only $25,000 is missing from Stout's account.
"In terms of our responsibility, we have looked at what the assets were versus what was in the accounts and agreed to repay any of the deposits not in the account," he said. "In this case, that's the $25,000."
The remaining liability rests with SG Cowen, he said.
Sophisticated fraud
During the congressional hearing, Kaplan said that many of the records of transactions are in warehouses and part of masses of paperwork generated after the sale of the brokerage branch.
"We are attempting to unravel a scheme that escaped detection notwithstanding due diligence, compliance procedures and independent reviews by several distinct responsible companies, law firms and other outside entities," Kaplan said.
"The fact that Gruttadauria was able to continue his various acts of misconduct for so long at so many different companies while evading detection underscores the complexity and sophistication of this fraud."
In the meantime, Stout is trying to pick up the pieces and get by. She has been depending on the support of her family, she said, and might have to do so into the future.
"I have two sons who say that I won't have to worry," she said.
suburbanchicagonews.com
I bet LEH will pay. Not like they couldn't have audited these accounts of Cowens.
Jack |
