Brokerage firms to pay $7.5 million in penalties to settle case

CLEVELAND -- Two brokerage firms that employed a stockbroker who bilked clients out of millions of dollars agreed to pay $7.5 million in penalties, securities regulators announced Thursday.

SG Cowen Securities Corp. agreed to pay $5 million and Lehman Brothers Inc. will pay $2.5 million as part of a settlement announced by the Securities and Exchange Commission and the New York Stock Exchange. The money will be split equally between the SEC and NYSE.

The SEC and NYSE determined that SG Cowen and Lehman Brothers failed to adequately supervise stockbroker Frank Gruttadauria and didn't maintain complete and accurate books and records.

Seven-year sentence

Gruttadauria was sentenced Nov. 14 in Cleveland to seven years in prison. He pleaded guilty a year ago to securities, wire and bank frauds and identity theft.

The firms agreed to the settlement without admitting or denying the findings.

SG Cowen also agreed to pay back Gruttadauria customers who lost money, which the firm said Thursday it had done. Lehman last year paid back its clients, the SEC said.

From 1987 until 2002, Gruttadauria is believed to have misappropriated over $115 million from his customers.

The SEC and NYSE said Gruttadauria stole approximately $47 million of this total during the 27-month period that SG Cowen employed him and $21.5 million during the 15-month period that he worked for Lehman Brothers.

In statements, both firms said they cooperated with the investigation.