Broker disappears, $100M missing

Article from: United Press International
Article date: January 23, 2002

A Lehman Brothers Inc. executive was missing Wednesday along with at least $100 million in investor funds allegedly stolen over a 15-year period.

Computer records indicate that Frank D. Gruttadauria created bogus monthly statements and tax records for the victims. The documents purported to show how the money had increased over the years when in fact it was diverted. The real statements were mailed to post office boxes established by Gruttadauria.

"If these numbers turn out to be accurate, this appears to be the largest scam of retail investors ever" by an individual broker, New York securities lawyer Jacob Zamansky told the Wall Street Journal. "It certainly eclipses the high-profile boiler-room cases of the early 1990s."

(The full text of the article was printed on January 23, 2002).

Naperville Attorney John J. Malm represented the specific legatees under a Will in a contested probate trial in a DuPage County Court, where Frank D. Gruttadauria had been serving as Executor of the multi-million dollar decedent’s estate. Gruttadauria, the Lehman Brothers broker, had previously managed money for the elderly woman during her lifetime. The trial in DuPage County was unrelated to Gruttadauria’s yet undiscovered securities fraud, but Gruttadauria’s behavior as executor of the estate appeared strange.

The issues presented at trial involved an apparent fraud surrounding two invalidly-executed deeds conveying the decedent’s California property, which were recorded before the decedent passed away. According to attorney John Malm, “we never suspected Gruttadauria had anything to do with the deeds, but we could not understand his odd behavior. As the executor of the estate, Gruttadauria was supposed to work with us in marshalling and recovering assets, especially if someone was stealing from the estate. Instead, he was ignoring compelling evidence of forgery and fraud, which we had uncovered for our clients. His testimony was, at times, particularly evasive, and I sensed he was lying about what he might have known. Why was he afraid to bring attention to what was happening inside the estate? What was he hiding?”

After the trial concerning two fraudulently-executed real estate deeds (which I, along with co-counsel, won for our clients), Gruttadauria’s attorneys placed an urgent call and advised us that “Frank” would never be seen or heard from again. The strange message was accompanied by the suggestion that we pick up a copy of a newspaper in the morning and “read all about it.”

“I recall that he made the cover The Wall Street Journal after faking his own disappearance near his Cleveland office. I was surprised -- not at the nature of his reported actions -- but that his scheme in defrauding investors had been so successful, and for so long. After all, he hadn’t held up very well to simple questions about his role as an executor. The clever, well-dressed millionaire was no longer able to perpetuate the elaborate, but fragilely-constructed, scheme of fraud that was so vital to his well-appointed lifestyle.”

“I remember that we took a copy of The Journal with us to court the very next day. It was surreal. I produced the newspaper article concerning Gruttadauria’s reported disappearance as Exhibit ‘A’ to our petition to remove Gruttadauria as executor, for good cause. His attorneys did not oppose the petition, and Frank was removed from office by order of court, immediately.”

“We later learned that Frank Gruttadauria had been hiding out near a ski resort, where he remained until he finally turned himself in to the FBI. My advice: If your broker has his own private jet, and he won’t allow you to see your account statements on-line, you should probably consider a different broker.”