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Money made through dishonest practices will not last long.
-- Chinese proverb

Dear Shrink Rap: How could this poor old man, Mr. Fazio, who Maria Bartiromo interviewed on CNBC, allow himself to be swindled out of $26 million over many years by his broker? He claimed he was keeping notes of his stock picks and involved in the trading. How is this possible?I'd like to feel sorry for this unfortunate man, as his story sounds like a horror story. I mean, down to his last $1,800 and forced to sell his home? How pathetic is that after having $26 million? But how could anyone possibly watch this kind of money go down the drain year after year and not scream bloody murder? I don't get it. Your thoughts?
-- N.K.

Shrink Rap:

Yes, it's an interesting and alarming story. According to an

Associated Press

story, SG Cowen and Lehman Brothers broker Frank Gruttadauria is accused of defrauding as many as 470 clients, including Carl Fazio, the 85-year-old man you are referring to, out of millions of dollars.

According to the article:

The 15-year scheme went unnoticed by either the Securities and Exchange Commission or the firms he worked for, SG Cowen and Lehman Brothers. The commission dropped its 1993 investigation after failing to find evidence "sufficient to warrant further action." The agency found "significant trading" in the account, but "it appeared to be isolated to a few months in 1990." The customer was an experienced investor worth $5 million who, according to the firm and Gruttadauria, was directing the stock trades, said Richards, the SEC's director of compliance inspections and examinations. Thomas Hommel, a senior official at Lehman Brothers, said Gruttadauria's trading was low in value, he had a spotless compliance record, and none of his clients had complained about him. An official from SG Cowen said the firm is piecing together finance reports and will meet with clients about settlements within months. "I am unable, at the age of 85, to pay my bills as they become due and am forced to sell my home," said Fazio, founder of a Cleveland-area grocery store chain, who claims he lost as much as $26 million of his family's wealth. Gruttadauria was arrested in February. He faces civil and criminal charges and an SEC investigation.

This terribly unfortunate man seems to be an example of the

optimistic-gullible type of investor I wrote about in last week's column. But no matter how much of a swindler the despicable broker was, we have to ask some hard-nosed questions about the personal responsibility of his clients.

To begin with, it is difficult to believe that


who had the wherewithal to earn this much money over a lifetime and was committing it to the stock market could put it all in the hands of one broker and one brokerage, instead of diversifying through varied brokerages and multiple investments outside the stock market. Prudent and sophisticated investors with this kind of money simply don't allow all of their eggs to be tainted by putting them in one filthy basket.

The victimized Mr. Fazio claimed he was to some degree involved in picking the stocks for his portfolio, and yet how could he not, either personally or by proxy, be carefully checking all confirmations of individual positions and monthly statements that had to have been mailed to him over all the years? If he was involved in the picking of stocks, why wasn't he equally involved in keeping track of his portfolio?

In the same vein, how could he (or any of the other victims) have this much money invested in the market but not be savvy enough to have an accountant, lawyer, financial planner or some other knowledgeable professional checking his portfolio from year to year to warn him when major losses and problems were apparent?

And how could it go on for so long?

And how could he possibly have waited until he had lost


before speaking up to the brokerage and legal authorities?

I'd like to believe that perhaps there is something missing in the details reported of this story, that maybe we just don't have enough background to fill in the pieces. Because it is an inadequate explanation simply to blame a slimy, crooked, sociopathic broker and his foul play for the magnitude of these losses and the long period over which they occurred.

An alternative view -- one that might be offered by a psychologist who believes in the power of personality and trading types to dilute good judgment -- is that this poor investor and the others like him could be so foolish simply because of their personality bias toward gullibility, and their naive belief that others will be as honest and as scrupulous as


are. As I mentioned in my previous article, for these people, it is important that they have a trusted and knowledgeable partner with whom to discuss and review their investments.

Steven J. Hendlin Ph.D. is a clinical psychologist in Irvine, Calif. He has been in private practice for the last 26 years, investing for the last 20 years, and actively trading online as a position trader and long-term investor since 1996. He is the author of

The Disciplined Online Investor and maintains a site at He is pleased to receive your comments and questions for publication in his public forum columns at , but please remember that he is unable to provide personal counseling or psychotherapy through the mail. has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from