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Ex-Morgan Stanley Advisor Who Defrauded Seniors Gets 5-Year Prison Sentence

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What You Need to Know

  • The ex-broker and RIA pleaded guilty last year to charges of wire and investment advisor fraud.
  • In addition to criminal charges, he was also the target of an SEC complaint for his scheme.
  • Morgan Stanley terminated the advisor in July 2019, after learning of his activities, it says.

The former Morgan Stanley advisor who pleaded guilty in July to wire and investment advisor fraud for stealing more than $6 million from clients including senior citizens was sentenced by U.S. District Judge Paul W. Grimm on Thursday to five years in federal prison, according to the Justice Department.

The prison sentence will be followed by three years of supervised release, Acting U.S. Attorney for the District of Maryland Jonathan F. Lenzner said. Grimm also ordered Carter to pay a money judgment in the amount of the net proceeds he obtained from the scheme, which was at least $4.355 million, according to Lenzner.

Michael Barry Carter, 47, of Potomac Falls, Virginia, worked for Morgan Stanley from 2006-2019 other than a brief stint at Ameriprise in 2011, according to his report on the Financial Industry Regulatory Authority’s BrokerCheck website. He is no longer registered as an RIA or broker, according to BrokerCheck.

“Morgan Stanley is strongly committed to the protection of client assets, and to act quickly when fraudulent activity is uncovered,” a company spokeswoman said in a statement provided to ThinkAdvisor on Friday.

Carter’s employment was “terminated as soon as his activity came to our attention in July 2019, and we immediately reported the matter to the appropriate law enforcement and cooperated with their investigation,” she added. “There were a limited number of clients impacted and any money misappropriated by the advisor was returned.”

Attorneys who represented Carter did not immediately respond to a request for comment on Friday.

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

The Securities and Exchange Commission also separately charged Carter with misappropriating about $6 million from brokerage customers, including a senior citizen related to him and an elderly investment advisory client, from about October 2007 through May 2019. The money he misappropriated included money held in 529 college savings plan accounts and involved the falsification of documents while he worked for Morgan Stanley in McLean, Virginia, according to the complaint filed July 20 in U.S. District Court for the District of Maryland.

“For more than 12 years, Michael Carter perpetrated a brazen scheme that defrauded victim account holders at a global bank of their life savings,” Lenzner said Friday in announcing the sentencing.

“When his fraud was discovered, Carter repaid some victims by stealing money from other victim accounts, and ultimately he stole close to $5 million,” according to Lenzner. “This case reflects the reality that large-scale fraud can still occur at a global institution with a robust compliance program, and it also reflects our commitment to holding bad actors accountable in order to provide restitution to victims and restore confidence in our system.”

More Details

According to Carter’s guilty plea, from Aug. 7, 2006 to April 29, 2011, and again from Nov.16, 2011 to July 29, 2019, Carter managed and had authority over multiple investment accounts maintained by “Victims 1 through 5” (as they were identified in the indictment) with Morgan Stanley, which contained a mix of assets including securities and cash deposits, according to Lenzner.

As detailed in the statement of facts, from at least October 2007 to at least July 2019, Carter made many unauthorized transactions from the victim accounts for his personal benefit, defrauding the victims of at least $5 million, Lenzner said. Carter used the money to pay for his lifestyle expenses, including mortgage, credit card bills and country club membership fees, according to Lenzner.

Among his admissions, Carter said he met with Victim 1 at her home and answered her phone in order to authorize transactions, unbeknownst to the client, Lenzner said. “Carter did this in order to overcome the financial institution’s multi-factor verification system required to execute the transactions,” according to Lenzner.

According to the plea agreement, over the course of his scheme, Carter made at least 53 unauthorized transfers from his clients’ accounts to his own accounts, and also admitted to embezzling more than $50,000 from a nonprofit sports organization located in Loudoun County, Virginia, Lenzner said.

Before his offenses were detected, Carter returned $1.8 million to the victims, according to Lenzner. After learning his fraud was discovered, in October 2019, Carter also repaid the nonprofit organization for its loss. However, of the total repaid, $1.1 million was repaid through transfers Carter made from other victim accounts, Lenzner said.