Lehman Brothers and SG Cowen to Pay $7.5 Million Fine

Regulators concluded that the two firms failed to detect and prevent one of the "most egregious examples of misconduct in the securities industry."

Lehman will pay $5 million and SG Cowen will pay $2.5 million, with the amounts split equally between the SEC and the NYSE, in connection with the frauds perpetrated by their stockbroker, Frank Gruttadauria. According to the regulators, the firms had inadequate systems to handle brokerage account transfers and insufficient procedures for correspondence. The failures allowed Gruttadauria to steal client funds and falsify their account statements.

Moreover, the regulators faulted the firms for allowing Gruttadauria to operate as the branch office manager with complete control over the office, even supervising his own compliance officer who was supposed to supervise him.

A special, expedited arbitration process is being established to bring claims against the two brokerage firms.

Source: Wall Street Journal, August 15, 2003