Broker who prayed with clients is said to have bilked them
The FBI is investigating a stockbroker accused of wiping out investments of scores of clients, including members of his Boca Raton synagogue.
BY DAN CHRISTENSEN
Of The Oakland Press
Posted on Sun, Feb. 17, 2008
CANDACE WEST / MIAMI HERALD STAFF
Henry and Rosalind Drabin said stockbroker Gary Gross cost them half a million dolars.
With a prayer shawl draped over his shoulders, stockbroker Gary Jay Gross cradled the Torah at the Chabad of Boca Raton -- praying with worshipers and recruiting them as investors.
One was the rabbi. Another was an elderly widow. Another was a Holocaust survivor who met the broker at a Jewish scholarship dinner.
For their trust, the charismatic stockbroker promised to watch over their retirement accounts -- persuading congregation members and others to funnel their money into the brokerage where he worked.
For years, Gross convinced clients he was honoring his pledges -- in some cases, boasting double-digit returns on their investments.
But what the elderly clients say they didn't know: The self-styled investment guru was wiping out their accounts in risky, highly volatile securities -- losing millions -- while racking up huge commissions for himself, according to arbitration complaints.
Along the way, investors say, he falsified reports to cover his tracks and hide the losses.
PROBE UNDER WAY
The FBI has just begun an investigation into a case that shows losses nearing $20 million in the past decade -- the numbers rising with more clients emerging, according to arbitration claims.
Some clients have put their homes up for sale; others are seeking help from bankruptcy lawyers.
''I was suicidal when I found out,'' said Sheila Kramer, 72, of Deerfield Beach, who lost $1 million.
The investigation is a case study of a state regulatory system unable to stop a troubled broker who left a trail of red flags.
Years before the latest wave of complaints, the Florida Division of Securities was warned about Gross -- with numerous investors stepping forward -- but no disciplinary action was taken, The Miami Herald found.
To this day, Gross has one of the longest records of complaints in the nation.
A Miami Herald analysis of nearly 600,000 stockbrokers found that he had more complaints against him than 99.9 percent of all brokers.
Nearly 100 of his former clients at Boca Raton's Axiom Capital Management -- including actor Henry ''The Fonz'' Winkler of TV's Happy Days -- are now his creditors.
''I had such faith,'' said widow Carol Hoffer, 75, who entrusted her entire savings to Gross before her husband died. ``I thought Gary was such a temple-goer that he would be honest in his dealings.''
Gross has tried to distance himself from the scandal, resigning in January from the Boca Raton brokerage where he worked for five years. He has not been charged with any crimes.
The firm has paid nearly $3.8 million to some of the former investors.
For now, Gross, 56, says he doesn't want to talk about the investigation. ''These clients had investments that went down,'' he said. ``It's that simple.''
But lawyers and investors say that it's not that simple, that for years he parlayed his position as a member of an established synagogue to meet new customers -- and later betrayed them.
Nearly a dozen investors said they trusted Gross, in part because of the devotion he showed to Orthodox Judaism, promoting himself as mishpoche: part of the family. Sometimes, he would wear his prayer shawl to the office, literally cloaking himself in Yiddishkeit.
That wasn't the only thing that impressed his clients. Gross showed all the signs of success: expensive clothes; a Jaguar XJ; a home and country club membership at the Boca Raton Polo Club.
And he was eager to share with his clients, buying them show tickets and taking them to fancy restaurants, according to interviews.
''He would always pick up the check,'' said Joan Ezersky, 75, a retired schoolteacher from Baltimore who has put her home up for sale. 'I used to joke with him: `Am I paying for it?' ''
From hundreds of court and arbitration records, a snapshot of Gross' career emerges: A business graduate of Hofstra University, he owned dry cleaners before obtaining a broker's license in November 1993 -- shortly before filing for his first bankruptcy.
His first job was with Smith Barney in Boca Raton, and eventually he moved to Raymond James in 1996.
The following year, customers began to accuse him of sinking their money into unsuitable securities -- not in keeping with investment objectives. But in each case, the brokerage denied the claims.
Gross moved to his third brokerage, CIBC World Markets Corp., in 1998, incurring new complaints -- allegations of unsuitable investments -- with his employer making several settlements.
But it wasn't until he moved to UBS Financial Services in 2000 that the first big wave of complaints began -- with investors claiming much bigger losses, records show.
One of those customers was Elyse Handelsman, a blind widow who lived in a Delray Beach condo. Gross would go there to read her monthly statements to her.
''He would tell her how she was doing wonderful when she was getting creamed,'' said her attorney, Adam Smith. ``She loved him. She thought he was like a son.''
Handelsman died in 2003 at age 79 without ever realizing she had lost about $900,000, said Smith, who struck a confidential settlement on behalf of her estate.
With complaints mounting, Gross was allowed to resign from the brokerage ''for conduct inconsistent with firm policies and standard business practices,'' industry records state.
But it wasn't so easy to move to his next firm. When he reapplied with the state to work at Axiom -- a standard requirement -- regulators began an inquiry.
Numerous investors were interviewed and hundreds of documents inspected by the state, but no actions were taken -- even though lawyers for a half-dozen investors managed to settle more than $1 million in claims with UBS.
Instead of stopping Gross, the state agreed in 2003 to allow him to continue selling stocks. But regulators required him to be placed under ''heightened supervision'' -- a form of self-monitoring in which the brokerage takes responsibility for a broker's actions.
However, the supervising broker put in charge of Gross, David V. Siegel, had troubles of his own.
In the late 1990s, Siegel was censured, fined and suspended by out-of-state regulators for charging consumers unfair prices, records show. The day his supervisory duties began, he was in personal bankruptcy.
THE LOSSES MOUNT
The state's decision to allow Gross to continue as a broker proved costly.
Over the next four years, dozens of Axiom customers -- some recruited at the synagogue -- claimed they lost millions of dollars in personal investments turned over to Gross, in some cases their life savings.
At least 23 customers alleging a host of misdeeds -- including fraud, mispresentation, excessive trading and falsifying statements -- lost at least $10 million, according to industry records.
Henry Drabin, 81, who survived the Nazis at Buchenwald, and his wife, Rosalind, 75, said they met Gross in late 2005 at a Boca Raton scholarship fundraiser.
They told Gross about the experience in the concentration camp ''because we wanted him to know how hard it was to accumulate that money,'' Rosalind Drabin recalled. ``He said he'd take care of us because of that.''
The couple invested $1 million with the broker -- requesting their money go into conservative investments.
Instead, Gross plowed their savings into highly speculative penny stocks and private investments -- reaping ''outrageous'' commissions, arbitration records state.
''In six months, I lost half of my portfolio,'' Rosalind Drabin said. ``I was lucky I pulled out when I did.''
Other investors accused Gross of falsifying account statements.
Sheila Kramer of Deerfield Beach said that when she pressed Gross about losses on monthly statements, he would cross out figures, saying the numbers were wrong. ''He would put in much higher [numbers] than what was stated,'' she said. 'He said, `Just trust me.' ''
By October 2006, investors had begun to file a flurry of claims against the brokerage, alleging breakdowns in supervision and illegal practices by Gross.
Not only did the Drabins press a complaint against the brokerage, they went after Gross personally.
Last November, an arbitration panel awarded them $418,000 in punitive damages against him, concluding that he ''manifested a reckless and gross disregard'' toward the Drabins.
That same day, Gross filed for bankruptcy, halting all claims and further upsetting past clients.
Coral Springs attorney Scott Silver, who represents a dozen former investors, said his clients have been devastated by the turn of events.
''You're talking about people in their 60s and 70s and 80s who trusted him and had their life savings taken away,'' Silver said. ``You're talking about their ability to buy better healthcare, take vacations, all the things you do in your retirement.''
Amid the mounting complaints, Gross resigned from Axiom last year, with the firm settling numerous claims for nearly $3.8 million.
''There were all sorts of allegations, even forging documents,'' said Axiom's New York lawyer, Ted Krebsbach. ``We listened, and we settled a lot of cases.''
A review of records by The Miami Herald shows that the state failed to enforce its own safeguards when it allowed Gross to keep trading.
No follow-up was carried out to ensure that Axiom was complying with the terms of the heightened supervision. And as customer complaints piled up, state examiners never took note.
State officials say it was up to the brokerage to inform them of problems. ''I'm not aware that any examination actually came up because of the fact of customer complaints not being received by us,'' said William Reilly, chief of Florida's Bureau of Securities Regulation.
Siegel refused to comment.
Silver and other lawyers put the blame squarely on the state. ''The writing was on the wall that Gary Gross was going to take advantage of his customers, but they gave him his license and he went out and did this again,'' Silver said.
Florida regulators have not taken action against Axiom or Siegel. But after talking with a Miami Herald reporter last month, state examiners said they would now investigate.
Last June, Gross began working for a new firm, Arjent Ltd. in Manhattan, but at his bankruptcy deposition, he said the firm fired him in January for a lack of production.
LOOKING FOR ASSETS
Bankruptcy lawyers are now hoping to find some of the money that Gross made. But he says nothing is left, aside from his home and personal property that he valued at a combined $2.7 million -- assets that can't be touched by creditors.
Under oath, he said he spent more than $1 million in the past 18 months, including money going to support his adult sons and for his own household expenses.
But his credit-card bills show that he paid for everything from iTunes downloads to $500-a-night rooms at the Loews Regency in Manhattan.
Gross testified that he even bought a new set of teeth for his mother-in-law.
''Millions of dollars going out the window,'' he said, leafing through American Express card statements as lawyers watched. ``You're trying to get blood from a stone. You can try all you want. There's nothing there.''
Miami Herald staff writers Rob Barry and Elinor Brecher contributed to this report.