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One Broker Gone Bad: Punishing the Criminal, Making Victims Whole

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One Broker Gone Bad: Punishing the Criminal, Making Victims Whole ONE BROKER GONE BAD: PUNISHING THE CRIMINAL, MAKING VICTIMS WHOLE HEARING BEFORE THE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS SECOND SESSION MAY 23, 2002 Printed for the use of the Committee on Financial Services Serial No. 107–71 ( U.S. GOVERNMENT PRINTING OFFICE 82–396 PDF WASHINGTON : 2002 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 VerDate 11-MAY-2000 11:40 Oct 29, 2002 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 C:\DOCS\82396.TXT HBANK1 PsN: HBANK1 HOUSE COMMITTEE ON FINANCIAL SERVICES MICHAEL G. OXLEY, Ohio, Chairman JAMES A. LEACH, Iowa JOHN J. LAFALCE, New York MARGE ROUKEMA, New Jersey, Vice Chair BARNEY FRANK, Massachusetts DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania RICHARD H. BAKER, Louisiana MAXINE WATERS, California SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois PETER T. KING, New York NYDIA M. VELA´ ZQUEZ, New York EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York ROBERT W. NEY, Texas KEN BENTSEN, Texas BOB BARR, Georgia JAMES H. MALONEY, Connecticut SUE W. KELLY, New York DARLENE HOOLEY, Oregon RON PAUL, Texas JULIA CARSON, Indiana PAUL E. GILLMOR, Ohio BRAD SHERMAN, California CHRISTOPHER COX, California MAX SANDLIN, Texas DAVE WELDON, Florida GREGORY W. MEEKS, New York JIM RYUN, Kansas BARBARA LEE, California BOB RILEY, Alabama FRANK MASCARA, Pennsylvania STEVEN C. LATOURETTE, Ohio JAY INSLEE, Washington DONALD A. MANZULLO, Illinois JANICE D. SCHAKOWSKY, Illinois WALTER B. JONES, North Carolina DENNIS MOORE, Kansas DOUG OSE, California CHARLES A. GONZALEZ, Texas JUDY BIGGERT, Illinois STEPHANIE TUBBS JONES, Ohio MARK GREEN, Wisconsin MICHAEL E. CAPUANO, Massachusetts PATRICK J. TOOMEY, Pennsylvania HAROLD E. FORD JR., Tennessee CHRISTOPHER SHAYS, Connecticut RUBE´ N HINOJOSA, Texas JOHN B. SHADEGG, Arizona KEN LUCAS, Kentucky VITO FOSSELLA, New York RONNIE SHOWS, Mississippi GARY G. MILLER, California JOSEPH CROWLEY, New York ERIC CANTOR, Virginia WILLIAM LACY CLAY, Missouri FELIX J. GRUCCI, JR., New York STEVE ISRAEL, New York MELISSA A. HART, Pennsylvania MIKE ROSS, Arizona SHELLEY MOORE CAPITO, West Virginia MIKE FERGUSON, New Jersey BERNARD SANDERS, Vermont MIKE ROGERS, Michigan PATRICK J. TIBERI, Ohio Terry Haines, Chief Counsel and Staff Director SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS SUE W. KELLY, New York, Chair RON PAUL, Ohio, Vice Chairman LUIS V. GUTIERREZ, Illinois PETER T. KING, New York KEN BENTSEN, Texas ROBERT W. NEY, Texas JAY INSLEE, Washington CHRISTOPHER COX, California JANICE D. SCHAKOWSKY, Illinois DAVE WELDON, Florida DENNIS MOORE, Kansas WALTER B. JONES, North Carolina MICHAEL CAPUANO, Massachusetts JOHN B. SHADEGG, Arizona RONNIE SHOWS, Mississippi VITO FOSSELLA, New York JOSEPH CROWLEY, New York ERIC CANTOR, Virginia WILLIAM LACY CLAY, Missouri PATRICK J. TIBERI, Ohio (II) VerDate 11-MAY-2000 11:40 Oct 29, 2002 Jkt 000000 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 C:\DOCS\82396.TXT HBANK1 PsN: HBANK1 C O N T E N T S Page Hearing held on: May 23, 2002 ..................................................................................................... 1 Appendix: May 23, 2002 ..................................................................................................... 63 WITNESSES THURSDAY, MAY 23, 2002 Doherty, David, Executive Vice President for Enforcement, New York Stock Exchange ............................................................................................................... 12 Fazio, Carl, Defrauded Investor, Aurora, Ohio ..................................................... 8 Hommel, Thomas, Managing Director and Co-Head of Global Litigation, Leh- man Brothers ........................................................................................................ 37 Kaplan, Mark E., Managing Director and General Counsel, SG Cowen Securi- ties ......................................................................................................................... 35 Lackritz, Marc E., President, Securities Industry Association ............................ 43 Richards, Lori, Director, Office of Compliance, Inspections, and Examinations, Securities and Exchange Commission ................................................................ 11 Sibears, Daniel M., Senior Vice President and Deputy for Member Regulation, National Association of Securities Dealers ........................................................ 39 Skolnik, Bradley W., Indiana Securities Commissioner and Chairman, En- forcement Section, North American Securities Administrators Association ... 41 Stout, Golda Lewis, Defrauded Investor, Elgin, Illinois ....................................... 10 APPENDIX Prepared statements: Kelly, Hon. Sue W. ........................................................................................... 64 Oxley, Hon. Michael G. .................................................................................... 65 Jones, Hon. Stephanie Tubbs .......................................................................... 67 LaTourette, Hon. Steve C. ............................................................................... 68 Doherty, David .................................................................................................. 79 Fazio, Carl ......................................................................................................... 126 Hommel, Thomas .............................................................................................. 104 Kaplan, Mark E., .............................................................................................. 96 Lackritz, Marc E., ............................................................................................. 122 Richards, Lori ................................................................................................... 69 Sibears, Daniel M., ........................................................................................... 109 Skolnik, Bradley W., ........................................................................................ 116 Stout, Golda Lewis ........................................................................................... 129 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Kelly, Hon. Sue W.: Frank Gruttadauria letter to the Securities and Exchange Commission and the Federal Bureau of Investigation .................................................... 166 Jones, Hon. Stephanie Tubbs: Arbitration Agreements between Richard Lopardo v. Frank Gruttadauria 167 Duvin, Cahn & Hutton letter regarding Mr. Samuel Glazer, May 21, 2002 ................................................................................................................ 154 Gruttadauria Lawsuits Threaten Lehman Profits, Cleveland Plain Dealer, April 17, 2002 ................................................................................................ 152 NYSE Investigating Gruttadauria ex-aide, Cleveland Plain Dealer, April 27, 2002 .......................................................................................................... 150 (III) VerDate 11-MAY-2000 11:40 Oct 29, 2002 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 C:\DOCS\82396.TXT HBANK1 PsN: HBANK1 IV Page Jones, Hon. Stephanie Tubbs—Continued New York Stock Exchange Hearing Panel Decision, July 10, 1998 ............. 135 LaTourette, Hon. Steve C.: Account of Carl Fazio ....................................................................................... 157 Account of Dominic A. Visconsi, Sr., ............................................................... 158 Hommel, Thomas: Written response to questions from Hon. Stephanie Tubbs Jones ............... 186 Kaplan, Mark E.: Written response to questions from Hon. Stephanie Tubbs Jones ............... 190 Richards, Lori: SEC’s Examination Report on Frank Guttadauria, November 1993 ........... 133 Sarantakis, Georgia C., Defrauded Investor, prepared statement ...................... 159 Yale, Judy Meyerhoff, Defrauded Investor, prepared statement ......................... 163 VerDate 11-MAY-2000 11:40 Oct 29, 2002 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 C:\DOCS\82396.TXT HBANK1 PsN: HBANK1 ONE BROKER GONE BAD: PUNISHING THE CRIMINAL, MAKING VICTIMS WHOLE Thursday, May 23, 2002 U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS COMMITTEE ON FINANCIAL SERVICES Washington, D.C. The subcommittee met, pursuant to call, at 9:30 a.m., in Room 2128 House Office Building, Hon. Sue W. Kelly [chairwoman of the subcommittee] presiding. Present: Representatives Kelly, Ney, Cantor, Tiberi, Inslee, Jones of Ohio, Clay, and Oxley (ex officio). Also Present: Representatives Hastert and LaTourette. Chairman KELLY. Good morning, ladies and gentlemen. This hearing of the Oversight and Investigations Subcommittee of the House Committee on Financial Services will come to order. I want to thank all members of Congress who are present today. Without objection, all members present will participate fully in the hearing, and their opening statements and their questions will be made part of the official hearing record. On January 11, 2002, Frank Gruttadauria, a Cleveland branch manager and broker, mailed a letter to the FBI
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