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Brokers as Branch Managers; Is There an Inherent Conflict?

The NYSE wants to know.

The NYSE is surveying securities firms to determine how they monitor brokers who also manage branch offices, according to sources at several major U.S. firms.

The NYSE action follows charges that a Lehman Brothers manager/broker stole $125 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,” a broker said.

Cleveland-based Lehman broker and branch manager Frank Gruttadauria was accused of creating phony account statements, according to reports. A criminal complaint was filed and, 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, 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 West Coast Prudential Securities broker. “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,” a broker said.

A producing Salomon Smith Barney branch manager acknowledges: “There can be a conflict of interest.”

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