In the criminal case brought against them, two ex-Morgan Stanley (MS) investment advisers, James S. Polese and Cornelius Peterson, have pleaded guilty to the criminal charges against them. Polese was charged with conspiracy, aggravated identity theft, investment adviser fraud, and multiple counts of bank fraud. Peterson is charged with conspiracy, investment adviser fraud, and bank fraud.
In a parallel civil case, the US Securities and Exchange Commission claims that beginning in 2014, the two men defrauded three clients of almost half a million dollars. The allegations include:
*Stealing almost $450K from one client and using the funds to make their own investments and pay for Polese’s credit card bills and the college tuition of his children.
*Using a client’s assets to obtain loan financing for an entity in which they were investors.
*Investing client monies in a venture in which they both had a financial stake without telling the client.
*Getting a loan with unfavorable terms for a client.
*Charging one client advisory fees that were 50% more than what he told her they would be.
The SEC is alleging breach of fiduciary duty, violations of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, the Investment Advises Act of 1940, and aiding and abetting violations of the Adviser Act and Rule 204-2 thereunder. Now, the regulator wants penalties, injunctions, disgorgement, and prejudgment interest imposed against the Boston-based financial advisers.
Although the regulator’s complaint doesn’t identify the two clients, Salem News reports that one of them was Ralph Bates, age 86. Polese managed Bates’ investments starting in 2010. The elder investor, who in the SEC’s complaint is referred to as client B, said that he lent Polese $50K, which the latter has not paid back nor did he tell Morgan Stanley, his employer at the time, about the loan. Bates is also the one whose $400K the two brokers are accused of using as collateral for a credit line for their own investments. The elderly investor was charged $12K in related fees.
Prosecutors say that it was from Bates’ account that the Polese and Peterson took $350K by forging his signature, and that they intended to each invest $50K of that in a particular venture. It was also from Bates’ account that Polese allegedly took over $93K for bills and tuition, including overpaying one tuition bill by $20K so that the college would give him back that money in cash. Bates claims that Polese tried to persuade him to sign documentation stating that he had verbally given the then-Morgan Stanley broker permission to handles his finances the way he did.
Peterson and Polese are accused of using $100K of another client’s money for a wind farm investment. They were fired by Morgan Stanley Wealth Management last year. The Financial Industry Regulatory Authority has barred them from ever working as brokers again.
Throughout the US, our broker fraud law firm represents investors that have lost money because of fraud. One of our investment adviser fraud attorneys would be happy to give you a free case consultation to explore whether you have grounds for a securities claim or lawsuit. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.
The SEC Complaint (PDF)
Two ex-Morgan Stanley advisers to plead guilty to U.S. fraud charges, Reuters, January 31, 2018
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