The SEC fined Morgan Stanley $15 million after finding the firm failed to adopt and implement policies designed to prevent representatives from misusing and misappropriating funds from their customers. According to the report, Morgan Stanley financial advisors Michael Carter, Chingyuan “Gary” Chang, Douglas McKelvey, and Jesus Rodriguez misappropriated nearly $10 million from firm clients, all while the firm's policy failures led to supervisory deficiencies as well.
Specifically, Morgan Stanley purportedly failed to adopt policies and procedures to detect unauthorized automated clearing house (ACH) payments. An ACH payment occurs when a customer or entity at one financial institution pays another, usually for online payments or money transfers. Unauthorized ACH payments occur when an unauthorized person at a third-party financial institution requests and obtains payment from a receiving financial institution without consent of the customer whose funds are being deducted.
When the unauthorized person is a broker or investment advisor, the stakes increase because of the representative's easy access to their clients' accounts.
For example, in barring Michael Barry Carter (CRD #3232017) from the industry, the SEC wrote that Carter carried out his scheme by falsifying internal forms to effect approximately 60 unauthorized cash wire transfers from the customers' accounts to an account held at another institution. Carter pled guilty to criminal counts alleging that he misappropriated over $6 million from customers and clients while he served as their financial advisor through numerous unauthorized transactions.
Specific to ACH, Chingyuan "Gary" Chang (CRD #2922898) purportedly initiated unauthorized ACH transfers from customer accounts to Chang's personal accounts.
In the case of Doug Marshall McKelvey (CRD #4502849), his fraudulent scheme involved misappropriation of $1.7 million from accounts of two elderly relatives who were also his brokerage customers (McKelvey also pled guilty to money laundering).
Finally, Jesus Rodriguez (CRD #4888685) earned his industry bar for refusing to cooperate with FINRA's investigation into alleged use of client line of credit for his personal benefit. Rodriguez's BrokerCheck file is a laundry list of customer complaints, notably one settled for $2.5 million that alleged forgery and misappropriation of funds from the client's account.
If you invested with Morgan Stanley or any firm that failed to adequately supervise brokers or financial advisors who in turn engaged in unauthorized transactions or misappropriation of funds through bogus ACH payments, like the SEC alleges that Carter, Chang, McKelvey, and Rodriguez did, please call an experienced arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.