Have you checked your brokerage account statement lately?<g>
nytimes.com
Eyes Wide Shut
By BOB HERBERT
The amount of the thievery was breathtaking, scores of millions of dollars at last count. And it seemed to go on forever. But the people who should have been watching the money at the SG Cowen and Lehman Brothers brokerage firms never even noticed.
When Samuel Glazer, the co-founder of Mr. Coffee, received his monthly statements from Lehman Brothers in 2001, they showed that he had nearly $24 million in extremely safe bonds, mostly U.S. Treasury bonds.
"He thinks that money is there waiting for him," said his lawyer, Robert Duvin, of Cleveland.
It wasn't. Mr. Glazer's money had been stolen. Last January he got a call from a Lehman official informing him that instead of $24 million, he really had just $15,000 in his account.
Mr. Glazer was one of many SG Cowen and Lehman Brothers customers whose assets were lost to the frenzied thievery of a broker named Frank Gruttadauria. Mr. Gruttadauria spent a month in hiding earlier this year and then surrendered to the F.B.I.
Federal investigators have said that over a 15-year period, Mr. Gruttadauria looted as much as $125 million from investors, papering over his scheme year after year with phony account statements that showed a total value of more than a quarter of a billion dollars. According to investigators, those statements were figments of Mr. Gruttadauria's larcenous imagination. They listed, among other things, nonexistent holdings and transactions that never occurred.
So how, you may wonder, could such monumental thievery go undetected for so long at firms of the stature of SG Cowen and Lehman Brothers? Assuming there were no other individuals directly involved in the fraudulent activity, there is only one conclusion that rings true. The people who should have known what was going on didn't want to know.
What we have here is a massive breakdown of the internal controls that are supposed to protect customers and promote confidence in the industry. Top officials at both companies kept their blinders firmly in place and covered their ears to make sure they wouldn't hear anything untoward.
Mr. Gruttadauria was a managing director of SG Cowen and ran its Cleveland office. When Lehman Brothers bought SG Cowen's brokerage arm in the fall of 2000, it not only failed to detect the continuing fraud, it offered Mr. Gruttadauria a $5 million bonus to stick around.
Except for The Wall Street Journal, this story has not gotten a lot of national attention. For individual investors, it goes right to the heart of the trust issue that has big business and the national markets in such turmoil.
Who's safe if a broker can steal money by the millions and get away with it for a decade and a half? In a letter that he sent to the F.B.I. in January, Mr. Gruttadauria said, "I can hardly believe that I could have done this without detection for so long."
The pain inflicted by this scheme has been profound. Several of Mr. Gruttadauria's clients were elderly, and the investments they thought he was making were supposed to carry them through retirement.
Mr. Glazer opened his account with $5 million in July 1998. Said his lawyer, Mr. Duvin: "He never got — and I want to say this slowly — he never got a single honest piece of paper out of the account. He never got a single honest transaction. Ten days after he opened it up, $800,000 was taken out of the account. And within a short period of time, everything was gone."
But Mr. Glazer continued receiving statements showing that his account was flourishing.
Investigators said that when a client wanted to withdraw money from an account, Mr. Gruttadauria would be forced to make fraudulent transfers from other accounts. The fraudulent activity became a way of life in his office, and still no one noticed.
Mr. Glazer and many of the other victims have sued SG Cowen and Lehman Brothers in an effort to recover the stolen money. Mr. Glazer is also seeking $500 million in punitive damages from each company.
In a significant ruling last Friday, a federal judge said that seven of the plaintiffs, including Mr. Glazer, could have their cases heard at a jury trial. The companies, which had hoped to force the cases into arbitration, have already appealed the ruling. |
