SEC charges former Morgan Stanley rep with stealing $6 million from clients

Michael Barry Carter pleads guilty in a parallel criminal action in Maryland federal court

The Securities and Exchange Commission on Monday charged a former Morgan Stanley representative with stealing approximately $6 million from brokerage customers and an elderly investment advisory client.

The SEC complaint, filed in a Maryland federal district court, alleges that Michael Barry Carter, a former adviser in a Morgan Stanley office in McLean, Virginia, falsified internal forms to make 60 unauthorized transfers from customer accounts from October 2007 through May 2019.

In the press release announcing the action, the SEC said Carter pleaded guilty to parallel criminal charges filed on Monday by the U.S. Attorney’s Office for the District of Maryland.

“As a financial advisor, Carter was entrusted with millions of dollars belonging to his brokerage customers, his advisory clients, and their families,” Marc P. Berger, director of the SEC’s New York regional office, said in a statement. “As alleged in our complaint, Carter instead took advantage of that trust for his personal gain.”

Morgan Stanley fired Carter in July 2019 after allegations that he misappropriated client funds, according to his BrokerCheck report. He was barred by the Financial Industry Regulatory Authority Inc. in September 2019.

Morgan Stanley said it cooperated with the investigations of its former rep.

“Morgan Stanley is strongly committed to the protection of client assets, and to act quickly when fraudulent activity is uncovered,” a firm spokesperson said in a statement. “The advisor’s employment was terminated as soon as his activity came to our attention, and we immediately reported the matter to the appropriate law enforcement and regulatory authorities and have been cooperating with their investigations. There were a limited number of clients impacted and any money misappropriated by the advisor was returned.”

Carter concealed his fraud from his clients by giving them false account statements while diverting authentic ones to post office boxes and fake email addresses he controlled.

“Carter used the funds that he misappropriated from the investors to support his lifestyle, which included hundreds of thousands of dollars of credit card bills, thousands of dollars of cash withdrawals, payments for a substantial home mortgage, and a luxury car,” according to the SEC complaint.

The SEC complaint said Carter, who was dually registered as a broker and investment adviser, began his fraudulent activity in October 2007 by stealing from a 72-year-old brokerage client with whom he had “familial ties.” At the end of his scheme — between December 2017 and May 2019 — he made approximately $1.5 million in unauthorized cash transfers from an 84-year-old advisory client’s account.

The SEC said it will seek disgorgement of Carter’s ill-gotten gains and impose a civil monetary penalty.