“Two major securities firms, under pressure from regulators, have begun to repay as much as $100 million to investors who lost money in a high-profile case involving a broker who falsified customers’ account statements over 15 years,” writes Charles Gasparino in today’s Wall Street Journal.

“The broker, Frank Gruttadauria, became well known on Wall Street earlier in the year after he alerted federal authorities that he had stolen client funds and falsified their account statements as a high-powered financial consultant for Lehman Brothers Holdings Inc. and SG Cowen Securities, a unit of France’s Societe Generale SA. After a nationwide manhunt, Mr. Gruttadauria turned himself in to federal authorities and now is serving a seven-year prison term.”

“The case shined a light on Wall Street’s compliance, or trading-rules, practices, and investigators from the Securities and Exchange Commission and the New York Stock Exchange launched an inquiry into how Lehman and Cowen could have missed Mr. Gruttadauria’s activities.”

“As part of the settlement agreement being proposed by regulators, Lehman and Cowen will repay investors the money they entrusted to Mr. Gruttadauria, plus a rate of return that currently is being negotiated, according to people close to the inquiry. In addition, both Lehman and Cowen could face civil allegations of failing to properly supervise Mr. Gruttadauria, who was the Cleveland branch manager for both firms, these people add.”

“Officials from Lehman and Cowen declined to comment on the continuing negotiations with securities regulators. Mr. Gruttaduaria joined Cowen in 1989, and stayed with the firm until Lehman purchased Cowen’s brokerage business in October 2000. In 1999, he was Cowen’s top broker, earning about $5 million a year in commissions, and his contacts within Cleveland’s business community were a major reason why Lehman bought the brokerage unit. He disappeared from Lehman in January of this year, and surrendered a month later.”

” ‘Virtually all of the false inflation in the fictitious statements occurred before Lehman acquired the accounts at issue from S.G. Cowen in October 2000,’ Lehman said in a statement. ‘In addition, Lehman has paid approximately $21 million, which represents the full reimbursement to every customer at Lehman Brothers for the net amount of any misappropriation from their accounts during the 15-month period Mr. Gruttadauria was employed at Lehman Brothers.’ “

“A spokesman for Cowen said the firm has cooperated fully with regulators and with its ‘former customers to uncover the full extent of Gruttaduaria’s wrongdoing and work out any dispute regulators and former customers have with us.’ The spokesman added that the firm has settled ‘disputes with a number of our former customers and continues to work with many others to try to resolve their claims as well.’ “