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SEC Charges Two Boston, Massachusetts Morgan Stanley Brokers with Fraud

Posted on Tuesday, February 6th, 2018 at 12:06 pm    

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Warning former customers and former customers of Morgan Stanley financial advisors James Polese (CRD# 2636427) and Cornelius Peterson (CRD# 5769919), who are alleged to defraud multiple clients by stealing nearly half a million dollars of client assets.

Polese and Peterson were each barred by FINRA in December 2017.

In January 2018, the Securities and Exchange Commission (SEC) filed an enforcement action charging Polese and Peterson with stealing nearly half a million dollars of assets from several clients, among other breaches of their fiduciary duties. The U.S. Attorney’s Office for the District of Massachusetts also brought criminal charges against Polese and Peterson.

According to the SEC’s complaint, Polese and Peterson engaged in various schemes to defraud their clients, beginning in 2014. The complaint alleges that Polese and Peterson stole nearly $450,000 from an elderly client and fraudulently misappropriated $350,000 of their client’s money, using $100,000 of those funds to make investments in their own names, and directing the remaining $250,000 to Polese’s personal bank account. And, from March through May 2017, Polese made numerous unauthorized withdrawals from the same client’s account totaling approximately $93,000 to pay credit card and college tuition expenses for his children.

It is alleged that Polese and Peterson breached their fiduciary duty to their clients by:

  • Secretly putting client funds at risk by using a client’s assets as collateral to secure loan financing for a private entity in which Polese and Peterson were investors
  • Investing client funds into an investment in which defendants held a financial interest, without informing the client or disclosing their conflict of interest
  • Obtaining a loan from a client on unfavorable terms to the client
  • Charging a client advisory fees 50% higher than the rate he repeatedly promised to charge her

Polese was registered with Morgan Stanley in Boston, Massachusetts from 2010 to July 2017, when he was terminated regarding, “Allegations of conduct involving misappropriating client assets.” Polese has been the subject of three customer complaints in 2017, according to his CRD report:

November 2017. “Claimants alleged, inter alia, Financial Advisors misappropriated claimant’s funds – August 2014.” The case is currently pending.

May 2017. “Client alleges misrepresentation with respect to managed account fees. January 2015 – may 2017. Damages unspecified.” The case is currently pending.

May 2017. “Client alleges misrepresentation with respect to managed account fees. January 2015 – may 2017. Damages unspecified.” The case was settled for $33,260.

Peterson was registered with Morgan Stanley in Boston, Massachusetts from 2011 to July 2017, when he was terminated regarding, “Allegations of conduct involving misappropriating client assets.” Peterson has been the subject of one customer complaint, according to his CRD report:

November 2017. “Claimants alleged, inter alia, Financial Advisors misappropriated claimant’s funds – August 2014.” The case is currently pending.

Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Morgan Stanley may be liable for investment or other losses suffered by Polese and Peterson’s customers.

Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.