Two ex-Morgan Stanley advisors agreed to plead guilty to allegedly misusing almost $500,000 in client assets while at the firm, according to federal prosecutors.
James Polese, 51, and Cornelius Peterson, 28, were each charged with one count of conspiracy and advisor fraud and three counts of bank fraud for allegedly manipulating client assets to prop up a wind farm project, in which Polese had invested and Peterson was involved, according to the U.S. Attorney’s Office for Massachusetts.
The Boston-area advisors took $100,000 from a client’s account in 2014 to invest in the project after funding dried up, according to prosecutors. Then, in 2015, they took $400,000 out of another client’s account to back a letter of credit in support of the plan, prosecutors said.
Polese also allegedly obtained loans on “unfavorable terms” for two clients, and in one case charged a client an advisory fee 50% higher than the quoted rate, according to documents from parallel civil charges brought by the SEC.
Both advisors have agreed to plead guilty to the charges, according to prosecutors.
Polese, who resides in Wenham, Massachusetts, used more than $35,000 of the misappropriated funds to pay for college expenses for two children and almost $60,000 to pay back credit card bills, prosecutors said. Attorneys for Polese did not return requests for comment.
"Cory Peterson is a minor participant in the charges alleged by the government," says Carol A. Starkey, an attorney for Peterson. "We anticipate this matter will be resolved swiftly and fairly in court."
Peterson, who resides in Newton, Massachusetts, joined Morgan Stanley in 2011 and had a clean disciplinary record before his termination from the firm over allegations of misappropriating client assets, according to FINRA BrokerCheck records. Polese joined the firm in 2010 and was previously registered with UBS and Wachovia Securities, per BrokerCheck.
Both ex-advisors were fired from Morgan Stanley in June and barred by FINRA in December, according to BrokerCheck.
“Through our internal supervision of the employees, the firm uncovered the fraudulent conduct by the former employees, immediately terminated their employment and referred the misconduct to regulatory and law enforcement agencies,” a Morgan Stanley spokeswoman said in a statement. “Morgan Stanley is strongly committed to the protection of client assets, and to act quickly when fraudulent activity is uncovered.”
The conspiracy and investment fraud charges against Polese and Peterson carry a sentence of up to five years in prison, three years of supervised release and a fine of at least $250,000, prosecutors said.