Warning to larcenous advisers: Don't try anything in Massachusetts.
That is the message that federal investigators in that state have sent in recent weeks, nabbing several advisers who allegedly defrauded and embezzled funds from clients and co-workers — in some cases to pay off gambling debts or purchase real estate and airplanes for their own use.
In just the first half of this month, the U.S. attorneys and the FBI have charged two advisers with counts of fraud and money laundering — with one adviser accused of stealing close to $60 million from his clients.
John Doorly, who oversaw the trusts of a wealthy Boston family, was indicted March 4 by U.S. attorneys in Boston, who claim that the adviser "systematically overcharged" millions of dollars in fees and also looted as much as $13 million from an internal money market fund he managed.
Mr. Doorly, whose clients claimed that he led a "double life" for years, allegedly used that money to buy several airplanes and houses for his family and mistresses, and also to pay off "extravagant credit card expenses," according to court documents.
Just several days after indicting him, these same Massachusetts investigators last week charged another adviser — Ryan Nestor, a representative at an affiliate of
MassMutual Financial Group, a unit of the Massachusetts Mutual Life Insurance Co. in Springfield — with wire fraud after they discovered an alleged Ponzi scheme in which he bilked two clients out of more than $750,000.
Both these charges come shortly after federal investigators in Massachusetts busted an executive at Boston-based Anchor Capital Advisors LLC — who also allegedly ran an adult-escort business on the side — for stealing $368,000 from his firm's 401(k) plan last year. Mark Harrington, a former vice president of the firm, allegedly used the money to cover losses from gambling and a divorce, and also to buy a home for his girlfriend.
SPOTLIGHT ON INDUSTRY
"The spotlight is clearly on the financial services industry," said Steve Barth, a partner in the transactional and securities practice at Milwaukee-based law firm Foley & Lardner LLP. "And the [Securities and Exchange Commission] can't police all of these firms by itself, so it makes sense for certain U.S. Attorneys' Offices and other federal bodies to get more involved here."
In Massachusetts, for example, the U.S. attorney and FBI officials already appear to be working in tandem to zero in on investment advisers, specifically.
"That's only if they have the resources and expertise, however," Mr. Barth said.
Spokespeople for the U.S. Attorneys' Offices in Massachusetts and New York declined to say if they were staffing up to place any additional emphasis on the financial services sector.
The FBI recently launched a "hiring blitz" to fill more than 2,000 critical positions, said spokesman Bill Carter. He pointed out that in January, the agency identified financial and accounting positions as one of about 20 key areas of need.
"It is a matter of foot soldiers, yes," said Walter Zebrowski, chief operating officer of private-equity firm Hedgemony Partners of New York, and the chairman of the Regulatory Compliance Association, also of New York. "But broader oversight and policing will only go so far."
Even if the FBI and U.S. Attorneys' Offices staff up accordingly, it may make them only slightly more effective in cracking down on crimes in the financial services industry, Mr. Zebrowski.
In conjunction with increased oversight, he said, the industry needs to undertake a "comprehensive, uniform and authentic initiative" to educate its employees and increase their understanding of compliance and regulatory issues.
"That's the only way we'll ever substantially reduce, or come close to eliminating, all of the bad apples," Mr. Zebrowski said.
"There's an obvious need for more, or at least improved, oversight these days," said Cary Carbonaro, an adviser and founder of Family Financial Research in New York. "And I'm sure we can all expect to see a lot more scrutiny."
E-mail Mark Bruno at [email protected].
