The NYSE is conducting a survey with securities firms to find out how they monitor brokers who also manage branch offices, according to brokers and branch managers from several major firms around the country.
The NYSE's action comes in the aftermath of a Lehman Brothers broker being accused of stealing $40 million from clients. The NYSE sent a questionnaire to branch managers across the country asking about "procedures when branch managers serve as producing brokers, and how the managers are supervised,'' according to a broker.
Cleveland-based Lehman Brothers broker and branch manager Frank Gruttadauria was accused of boosting the value of his clients accounts by about $275 million, according to reports. A criminal complaint was filed. According to an SEC report, the regulatory organization found that Gruttadauria stole from 50 clients over a period of six years while working at SG Cowen Securities Corp., which was bought by Lehman in October 2000.
"This brings to the forefront the delicate situation of a producing broker functioning as a branch manager," says a Prudential Securities broker on the West Coast. "There are conflicts. It's not always a good situation."
For instance, if a broker leaves a firm, the producing branch manager can divvy up the departing broker's accounts, yet keep the "most lucrative ones or the best ones for himself," according to a broker.
Even a producing Salomon Smith Barney branch manager admits "there can be a conflict of interest."