“Lehman Brothers is taking steps to repay clients allegedly victimized by former star stockbroker Frank Gruttadauria, as regulators and some politicians question whether Wall Street compliance procedures are strong enough to protect investors from unscrupulous practices,” writes Charles Gasparino in today’s Wall Street Journal.

“The big securities firm, owned by Lehman Brothers Holdings Inc., has made an effort to repay at least two investors who were longtime clients of Mr. Gruttadauria, including a payment to one wealthy Cleveland businessman for $2.025 million, lawyers familiar with the matter say. Both former clients say they are rejecting the offers because they represent small portions of what they believe their brokerage accounts were worth.”

“Lehman spokesman William Ahearn declined to comment on how many offers and how much money have been extended. ‘What we have been doing is looking at each individual account and where we can identify instances where it is appropriate to credit accounts for missing money we are doing so,’ he says.”

“Still, the moves are significant. They come as regulators and some politicians begin to ramp up pressure on big Wall Street firms to police brokers better. Federal authorities are investigating allegations that Mr. Gruttadauria stole $125 million during a 15-year period by creating phony account statements and sending them to his unsuspecting customers. Investors were led to believe the combined value of their holdings had risen to as much as $300 million while Mr. Gruttadauria worked primarily at two firms, Lehman and SG Cowen Securities, a unit of French bank Societe Generale.”

“SG Cowen hasn’t made any settlement offers to investors, according to officials representing investors. In a statement, a spokesman for SG Cowen said the firm is ‘committing tremendous resources to getting to the bottom of this highly complex scheme that spanned an unusually long time frame.’ The spokesman added that this firm is working to ‘understand how much each customer invested and withdrew in order to do a fair and accurate accounting and resolve each customer’s situation fairly.’ “

“Moreover, Lehman hasn’t offered money to all of Mr. Gruttadauria’s former clients. ‘We haven’t received any money,’ says Gerald Messerman, a Cleveland lawyer representing Andrew Rayburn, a former client of Mr. Gruttadauria’s who is missing in excess of $50 million, according to people familiar with the matter.”

“Meanwhile, the New York Stock Exchange has launched a broad examination of compliance procedures on Wall Street, people with knowledge of the exchange’s activities say. It is asking firms to provide information on ways to increase oversight of brokers in light of the Gruttadauria matter. A spokesman for the Big Board had no comment. Mr. Ahearn, the Lehman spokesman, said: ‘The Gruttadauria case is not a reflection on brokerage practices and oversight’ and that the firm’s compliance procedures helped end his activities even though it was Mr. Gruttadauria himself who brought the alleged fraud to Lehman’s attention. In mid-January, Mr. Gruttadauria had an apparent crisis of conscience and alerted federal authorities. A spokesman for SG Cowen hadn’t any comment on the matter.”