Born: 1958 / Cleveland, Ohio
Position: Founder, DH Strategic Partners, Inc. / Branch Manager, Lehman Brothers, Inc.
Crime: Frank Gruttadauria, along with multiple accomplices, masterminded what some are calling the largest private brokerage scandal in U.S. history. Gruttadauria has secretly withdrawn $54 million from client accounts and misappropriated more than $40 million of investor funds since 1996. Noted victims of his crimes include investors Sam Glazer, founder of Mr. Coffee, and George Forbes, then local head of the Cleveland NAACP. In 2002, after sending regulators a note confessing his crimes, Gruttadauria fled Cleveland and disappeared for a month.
Losses: Alleged investor losses are up to $125 million. In addition, Gruttadauria cost Ohio taxpayers $150 million in underperforming funds, as reported by the Cleveland Plain Dealer. Current Chairman of the Ohio GOP, Matt Borges, was the mastermind of a scheme to put Ohio tax dollars in the hands of Gruttadauria in return for a $50K campaign contribution to Borges’ boss at the time, Ohio Treasurer Joe Deters.
Charges/Sentencing: Gruttadauria was sentenced to seven years in prison by U.S. District Judge John Manos. In 2004, Cuyahoga County Common Pleas Judge Carolyn Friedland gave him more than four years behind bars to be served at the same time as his federal sentence. He was released from prison in 2008, but was almost immediately re-arrested on a charge of violating his probation after he communicated with other felons, submitted false documents to the state and did not provide full financial information to federal and state probation officers.
Gruttadauria’s case spawned the creation of FINRA Rules 3012 and 3013. He was a self-supervising branch manager at a wire firm, and he was audited 21 times by the SEC, NASD, NYSE and his firms in a 15 year period without detecting the fraud, even though evidence was plainly visible. Under new FINRA rules, branch managers must have direct supervision, especially if they are producing managers.