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To: Jack Hartmann who wrote (3750)	6/2/2002 7:31:05 PM
From: Raymond Duray	Respond to of 6922

Hi Jack, Re: I bet LEH will pay. Not like they couldn't have audited these accounts of Cowens. I watched a large part of the Congressional hearings last week on the Stout case before Rep. Sue Kelly's oversight committee. What I came away with was that Gruttadauria was a superb con man. While he managed about 1,500 accounts he only tampered with around 60 or so. There was not a single complaint or compliance action against him until his scheme finally blew up, at which time most of the de-frauded clients were amazed to find how they'd been deceived. The phony account statements appeared completely authentic. Guttadauria honored clients non-solicted orders, didn't appear to churn the false statements but was making a ton of money on churning the actual accounts. Red flags probably should have been raised, but the account activity was considered to be within norms by the understaffed compliance departments. What is also baffling is that the defrauded clients were paying capital gains tax based on false Form 1099s, and the IRS never corrected the overpayments, for reasons that weren't made clear during the Congressional hearing. It was a slick fraud, and I think Lehman is on fairly good legal ground for its restitution plan. From what I heard, there was not sufficient reason for alarm in the due diligence that Lehman did in the purchase of Cowan's accounts to show that Lehman was negligent. Interesting case. But quite a distraction. I looked at Kelly's hearing as a clever way for the Republicans to be appearing to do something about Wall Street's fraudulent practices, while doing nothing. Instead of hearings on Enron, Andersen, Price Waterhouse, Merrill's analyst scandal, off-shore tax swindles or a host of other industry crimes and ethical shortcomings, she concentrates instead on a single perpetrator who can easily be made a scapegoat, and a distraction from the really serious systemic corruption of the American financial system. -Ray