Broker Disappears, $100M Missing

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

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, a former Lehman Brothers broker, had managed the elderly woman’s finances during her lifetime. While the trial in DuPage County was unrelated to Gruttadauria’s yet undiscovered securities fraud, his behavior as executor of the estate raised suspicions.

The issues at trial centered on an apparent fraud involving two invalidly executed deeds conveying the decedent’s California property, which were recorded before her passing. According to attorney John Malm, “We never suspected Gruttadauria had anything to do with the deeds, but his behavior was inexplicably odd. As executor, he was responsible for marshalling and recovering assets, especially if theft was occurring. Instead, he ignored compelling evidence of forgery and fraud that we had uncovered for our clients. His testimony was evasive, and I had the distinct impression he was lying about his knowledge. Why was he reluctant to address the misconduct within the estate? What was he hiding?”

After successfully litigating the case concerning the fraudulent real estate deeds, Malm and his co-counsel secured a victory for their clients. Shortly after the trial, Gruttadauria’s attorneys made an urgent call, cryptically advising that “Frank” would never be seen or heard from again. They suggested that Malm and his team pick up a newspaper the following morning for further details.

The next day, Malm was stunned to see Gruttadauria’s disappearance make the front page of The Wall Street Journal. Gruttadauria had faked his own disappearance near his Cleveland office. Malm recalls, “I was not surprised by his reported actions, but rather by how long he had managed to successfully defraud investors. He hadn’t held up well under questioning about his role as executor, so it was remarkable that his intricate fraud scheme had remained intact for so long.”

When Malm arrived in court that day, he presented the newspaper article about Gruttadauria’s disappearance as Exhibit ‘A’ in a petition to remove him as executor for good cause. Gruttadauria’s attorneys did not oppose the motion, and the court immediately ordered his removal.

Subsequent reports revealed that Frank Gruttadauria had been hiding near a ski resort until he eventually turned himself in to the FBI. Reflecting on the case, Malm advises, “If your broker owns a private jet and refuses to let you access your account statements online, you should probably consider a different broker.”