Lehman Brothers’ response to charges in Gruttadaria case

NBC NIGHTLY NEWS (1) Lehman Brothers does not have, and should not be charged with, criminal responsibility for Frank Gruttadauria’s acts. What is now known is that Mr. Gruttadauria engineered his scheme long before joining Lehman Brothers, and concealed it at Lehman Brothers by engaging in conduct that was in clear violation of Lehman’s policies and procedures as well as beyond the scope of his authority at Lehman. (2) Lehman Brothers from the very outset has agreed in writing to pay and has paid in full any of its clients who have suffered any theft of funds from their accounts while at Lehman. In fact, Lehman has reimbursed all amounts wrongfully diverted by Mr. Gruttadauria from any client’s account during the Lehman Brothers period, without requesting a release of the ability to assert any claims. There were only seven such clients at Lehman who had any funds misappropriated. Four of the clients who received full reimbursements are still maintaining legal proceedings against Lehman. The only issues that remain unresolved between Lehman and those affected by Mr. Gruttadauria’s actions are claims for the so-called “fictitious profits”. These are the gains that never were realized by the clients but were reported by Mr. Gruttadauria on fictitious account statements. Substantially all of these “fictitious profits” were reflected on statements the customers received prior to Mr. Gruttadauria becoming employed by Lehman. In fact, many of the clients who still assert claims against Lehman withdrew from Lehman amounts far in excess — in some cases, several million dollars — of any amounts that were ever deposited in their Lehman accounts. Those funds were misappropriated from the other customers whom Lehman has fully reimbursed. (4) Lehman has reached settlements with a substantial number of the complaining clients who either had funds wrongfully withdrawn from their accounts or who received false account statements from Mr. Gruttadauria. The cases that remain unresolved generally involve claims for fictitious profits that never existed. Lehman nonetheless has attempted, from the moment Mr. Gruttadauria’s activities were uncovered, to engage these clients in negotiations, and will continue to do so. As set forth above, all customers have been fully reimbursed for any funds misappropriated from their accounts while at Lehman. (5) Mr. Gruttadauria’s scheme, which encompassed 15 years, was effectuated by him at Lehman Brothers for a total of only 15 months. Certain supervisory procedures were circumvented because Lehman did not receive from SG Cowen the correct addresses for the accounts at issue when those accounts were acquired among over 60,000 accounts as part an asset purchase agreement with SG Cowen in October 2000. Nonetheless, we believe that Lehman’s overall supervisory procedures were, at least in part, responsible for the termination of his wrongful activities. NGEDOCS:07239N.0847:855566.2

NBC NIGHTLY NEWS

(1) Lehman Brothers does not have, and should not be charged with, criminal responsibility for Frank Gruttadauria’s acts. What is now known is that Mr. Gruttadauria engineered his scheme long before joining Lehman Brothers, and concealed it at Lehman Brothers by engaging in conduct that was in clear violation of Lehman’s policies and procedures as well as beyond the scope of his authority at Lehman.

(2) Lehman Brothers from the very outset has agreed in writing to pay and has paid in full any of its clients who have suffered any theft of funds from their accounts while at Lehman. In fact, Lehman has reimbursed all amounts wrongfully diverted by Mr. Gruttadauria from any client’s account during the Lehman Brothers period, without requesting a release of the ability to assert any claims. There were only seven such clients at Lehman who had any funds misappropriated. Four of the clients who received full reimbursements are still maintaining legal proceedings against Lehman. The only issues that remain unresolved between Lehman and those affected by Mr. Gruttadauria’s actions are claims for the so-called “fictitious profits”. These are the gains that never were realized by the clients but were reported by Mr. Gruttadauria on fictitious account statements. Substantially all of these “fictitious profits” were reflected on statements the customers received prior to Mr. Gruttadauria becoming employed by Lehman. In fact, many of the clients who still assert claims against Lehman withdrew from Lehman amounts far in excess — in some cases, several million dollars — of any amounts that were ever deposited in their Lehman accounts. Those funds were misappropriated from the other customers whom Lehman has fully reimbursed.

(4) Lehman has reached settlements with a substantial number of the complaining clients who either had funds wrongfully withdrawn from their accounts or who received false account statements from Mr. Gruttadauria. The cases that remain unresolved generally involve claims for fictitious profits that never existed. Lehman nonetheless has attempted, from the moment Mr. Gruttadauria’s activities were uncovered, to engage these clients in negotiations, and will continue to do so. As set forth above, all customers have been fully reimbursed for any funds misappropriated from their accounts while at Lehman.

(5) Mr. Gruttadauria’s scheme, which encompassed 15 years, was effectuated by him at Lehman Brothers for a total of only 15 months. Certain supervisory procedures were circumvented because Lehman did not receive from SG Cowen the correct addresses for the accounts at issue when those accounts were acquired among over 60,000 accounts as part an asset purchase agreement with SG Cowen in October 2000. Nonetheless, we believe that Lehman’s overall supervisory procedures were, at least in part, responsible for the termination of his wrongful activities.