CINCINNATI (TDB) -- Wall Street's giant investment house Lehman Bros. Inc. has been ordered to pay $10.4 million to swindled investors, including members of the wealthy Visconsi family, which lost some its shopping mall/real estate fortune in a massive fraud orchestrated by Cleveland-based stockbroker Frank D. Gruttadauria.
Lehman is a global investment banking company, and the ruling is clearly a major setback in its attempts to avoid being tarred with the rogue broker's corrupt activities.
A three-judge panel of the 6th Circuit U.S. Court of Appeals in Cincinnati upheld an arbitrators' award in favor of the victims, whose $21 million investment with the crooked broker dwindled to a few thousand dollars. Yet their statements fictitiously showed millions growing in investment accounts.
Lehman contended the plaintiff's actually profited during the time the company managed their funds. But the appeals court did not buy into the investment bank's claim. Instead, it said Gruttadauria dissipated most of their money before joining Lehman from another brokerage, S.G. Cowen, then stole from other clients to keep his fraud running. The court said there was evidence that Lehman "was aware of significant irregularities" when it bought SG Cowen's business.
The full-text of the 6th Circuit's decision is 12 pages long, and notes that Lehman waged a vigorous legal battle to get its case in front of the arbitrators instead of the courts. Then, when it was hit with the decision for Gruttadauria's victims, Lehman wanted the dispute back in the courts.
"Unhappy with the panel's award -- issued in the very forum it had fought so hard to get into -- Lehman filed in the district court a motion to vacate the arbitration award, arguing that the award was issued in manifest disregard of the law. In February 2006, the district court denied this motion acknowledging that there was 'sufficient support in the record and case law to support a conclusion that Lehman [was] jointly and severally liable.'"
The court said there was little doubt the wealthy Visconsi's were victims of a shady operator.
"Plaintiff s gave $21 million to Gruttadauria, not to hide under a rock or lock in a safe, but for the express purpose of investment, with a hope -- indeed a reasonable expectation -- that it would grow . . . Had Gruttadauria invested plaintiff's money as requested, their funds would have likely grown immensely, especially considering that plaintiffs invested primarily through the mid-1990s, which, had they hired an honest broker or a watchful company that reasonably supervised its employees, would have placed their money in the stock market during one of the strongest bull markets in recent memory."
The court calculated the victims missed out on more than $37.9 million in growth from their investments.