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Regulation and Compliance > Federal Regulation > SEC

Former Morgan Stanley Advisor Pleads Guilty to $6M Fraud

By Melanie Waddell

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A former Morgan Stanley financial advisor pleaded guilty Monday to federal charges of wire fraud and investment advisor fraud for stealing more than $6 million, mainly from senior investors, the Justice Department said.

Michael Barry Carter, 47, stole at least $6.1 million over a nearly 12-year period, according to the DOJ. The ex-advisor faces up to 20 years in federal prison for wire fraud and up to five years for investment advisor fraud.

Also on Monday, the Securities and Exchange Commission charged Carter with stealing millions from older clients’ accounts, including money held in 529 plan accounts, via falsified documents while he worked for Morgan Stanley in McLean, Virginia.

According to the plea agreement he reached with the U.S. Attorney’s Office for the District of Maryland, Carter made at least 53 unauthorized transfers from his clients’ accounts to his own accounts from October 2007 through May 2019.

In addition, Carter admitted that he embezzled over $50,000 from a nonprofit sports organization located in Loudoun County, Virginia.

U.S. District Judge Paul W. Grimm has scheduled sentencing for Nov. 9.

Lengthy Fraud Case

From about late 2007 to mid-2019, Carter misappropriated about $6 million from brokerage clients and an older investment advisory client while he served as their financial advisor at Morgan Stanley, according to the SEC complaint.

Of that sum, Carter misappropriated roughly $2.5 million in the last five years, the complaint states.

Carter’s victims include people close to him who knew and trusted him through familial ties and friendship.

According to the complaint, to generate some of the funds that he misappropriated, Carter sold securities without customer authorization.

Prior to his offenses being detected, Carter returned close to $1.8 million to some victims, the DOJ said.

“After learning that his fraud had been discovered, in October 2019, Carter also repaid the nonprofit organization for its loss,” the DOJ states. Of the total amount repaid, $1.1 was repaid through transfers Carter made from other victim accounts.

As part of his plea agreement, Carter will be required to pay $4.4 million, an amount equal to the net proceeds he obtained.

“As alleged, Carter employed various methods to conceal his misconduct from his brokerage customers, including diverting account statements to addresses he controlled,” the complaint states.

More Details

The SEC complaint further alleges that Carter made almost $1.5 million in unauthorized transfers from the accounts of an elderly advisory client, sending nearly $1 million to himself and using some of the remainder to repay funds he had taken from a brokerage customer.

Carter allegedly misappropriated about $345,000 from the client that originated from 529 college savings plan accounts held at another financial institution for the benefit of her grandchildren, according to the complaint.

The complaint alleges that Carter used the funds he misappropriated from his customers and client for credit cards, mortgage payments and a luxury car.

“As a financial advisor, Carter was entrusted with millions of dollars belonging to his brokerage customers, his advisory clients, and their families,” said Marc Berger, director of the SEC’s New York Regional Office, in a statement. “As alleged in our complaint, Carter instead took advantage of that trust for his personal gain.”

The SEC’s complaint, filed in the U.S. District Court for the District of Maryland, charges Carter with violations of the anti-fraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The SEC is seeking injunctive relief, the return of allegedly ill-gotten gains plus prejudgment interest, and a civil penalty.

In a statement, Morgan Stanley said it “is strongly committed to the protection of client assets, and to act quickly when fraudulent activity is uncovered.”

The advisor “was terminated as soon as his activity came to our attention, and we immediately reported the matter to the appropriate law enforcement and regulatory authorities and have been cooperating with their investigations,” the wirehouse said.

“There were a limited number of clients impacted, and any money misappropriated by the advisor was returned,” it explained.

— An earlier version of this story misstated Carter’s broker-dealer affiliation. This has been corrected.

Melanie Waddell

@Think_MelanieW

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