The cost of employing a dodgy broker was brought home today as a billion dollar lawsuit was filed today in U.S. District Court against Lehman Brothers and SG Cowen Securities Corp., seeking damages for fraud, breach of fiduciary duty, negligence, breach of contract and civil conspiracy.

Retired businessman Samuel Glazer, co-founder of Mr. Coffee, is seeking full restitution and US$500 million in punitive damages against each defendant over the conduct of Cleveland broker Frank Gruttadauria. According to the complaint, for more than 15 years, Lehman and SG Cowen either directly caused or tolerated blatantly illegal actions by Gruttadauria, the director of Lehman’s Cleveland office. That office had been owned until 2000 by SG Cowen. The allegations have not been proven in court.

The suit alleges that Gruttadauria systematically violated securities laws and regulations and company rules. It says that he looted client accounts of over US$100 million, falsified records, forged documents and misdirected the account statements of numerous clients. The suit asks that the two companies be held responsible for failing it.

“This is a case of Lehman Brothers and SG Cowen — two of the most elite and highly regarded financial institutions in the nation — failing to protect their clients from more than 15 years of criminal fraud, theft, embezzlement, and deception at the hands of one its most highly paid brokers,” said Robert Duvin, attorney for Glazer with the Cleveland firm of Duvin Cahn and Hutton. “If this could happen to an experienced investor like Mr. Glazer, it could happen to anyone who entrusts his money to a respected brokerage firm, and will further undermine public confidence in the financial markets already weakened by the Enron scandal. Lehman’s and Cowen’s negligence could have very serious repercussions for the entire investment industry.”

The complaint was filed in the U.S. District Court for the Northern District of Ohio Eastern Division.