Close Close
ThinkAdvisor
9. Investment Fraud

Regulation and Compliance > Federal Regulation > SEC

Ex-Morgan Stanley Rep Ran Multimillion-Dollar Ponzi Scheme, SEC Says

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • An ex-Morgan Stanley rep allegedly ran a Ponzi scheme with victims including at least five clients of the firm.
  • The SEC filed an emergency action and charged him with defrauding clients and misappropriating millions of dollars.
  • Some of the clients' funds were spent on luxury cars and to pay credit card bills.

The Securities and Exchange Commission filed an emergency action and charged a former Morgan Stanley broker with defrauding clients and misappropriating millions of dollars of investor funds as part of a Ponzi scheme.

In a complaint filed Monday in U.S. District Court for the Eastern District of North Carolina, the SEC charged Shawn Good, 55, of Wilmington, North Carolina, with raising at least $4.8 million from five of his clients at Morgan Stanley to make supposedly low-risk investments in tax-free bonds and land-development projects.

“Good’s Ponzi scheme ensnared at least five investment advisory clients with limited investment knowledge and who relied on Good’s investment recommendations, including a single mother of two young children who depended upon the assets to pay living expenses, a divorced and retired violin teacher, and other retirees,” according to the complaint.

Instead of investing their money, the complaint alleges that Good used new investor funds to repay prior victims of his Ponzi scheme and to pay for his own personal expenses, including luxury cars, international travel and about $800,000 in credit card bills. In 2020 and 2021, Good used at least $1.6 million of new investments to repay other investors in the scheme, the complaint alleges.

About $13,000 of clients’ funds went towards Good’s Tesla Model 3 since July 2020, while $23,000 was spent on his Alfa Romeo Stelvio since September 2020 and $800,000 was spent on paying his credit card bills since January 2017, according to the complaint.

Another $110,000 was allegedly spent on Venmo payments to others, with memo lines such as “because youre sexy” (sic), “tattoo,” “Hotel for Destiny,” “Nailz” and “shopping,” the complaint alleges.

“Good appears to have returned about $2.8 million of victims’ funds (some of which included purported profits on fictitious investments), but secretly relied heavily on Ponzi victims’ investments to make the repayments,” according to the complaint.

All of the transactions involved in the scheme were financed outside of Morgan Stanley and, in most cases, the clients transferred funds from their accounts at the wirehouse to their individual bank accounts before sending the funds to an account controlled by Good, according to the complaint.

“This individual is no longer employed at Morgan Stanley,” a spokesperson for the wirehouse told ThinkAdvisor on Tuesday. “The conduct alleged in the complaint is plainly unacceptable. We are currently reviewing the matter, which affects a small number of clients, and are cooperating with the SEC and other government authorities.”

The SEC complaint charges Good with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

The SEC is seeking preliminary and permanent injunctive relief, an asset freeze, an accounting, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties.

In 2012, Good registered with the Financial Industry Regulatory Authority as a general securities representative through an association with Morgan Stanley, according to FINRA. In 2014, he became registered through Morgan Stanley as a general securities sales supervisor.

On March 10, 2022, Morgan Stanley filed a Form 5 Uniform Termination Notice disclosing that it terminated Good’s registration because he “declined to cooperate with an internal firm review following client accusations,” according to a FINRA letter of acceptance, waiver and consent that he signed on April 5. FINRA signed the letter on Thursday.

In signing the AWC letter, Good consented to a bar from the industry after he refused to appear for on-the-record testimony as part of FINRA’s investigation into his dismissal from Morgan Stanley. Not cooperating with a FINRA investigation is a surefire way for a broker to be barred.

Good and Joe Zeszotarski, a partner at the law firm Gammon, Howard & Zeszotarski who is representing him, did not immediately respond to requests for comment.

(Image: Shutterstock)