A former Morgan Stanley monetary advisor has been sentenced to greater than seven years in jail after admitting he ran a $7 million Ponzi scheme on the agency for greater than a decade.
However despite the fact that the rip-off focused Morgan Stanley shoppers and the advisor admitted utilizing a Morgan Stanley product to hold it out, the agency has fought efforts to carry it accountable.
Victims say not solely has Morgan Stanley resisted their efforts to get well cash from the agency, it is usually persevering with to carry them chargeable for strains of credit score that the advisor fraudulently satisfied them to open. Morgan Stanley is America’s sixth-largest brokerage agency, with greater than $1.3 trillion below administration. The agency made $11 billion in income final 12 months.
“I can liken the entire course of to being assaulted in a again alley whilst you’re on mind-altering medicine like roofies,” mentioned Caitlin Andrews, 43, of Carolina Seashore, North Carolina, a single mom of two boys who misplaced $1.7 million, or just about her complete web value. “After which someday you get up within the police station and you need to watch the video time and again and go over financial institution statements of when issues occurred and hearken to cellphone calls time and again. It is traumatizing.”
The advisor, Shawn Edward Good, was a vp in Morgan Stanley’s Wilmington, North Carolina, workplace from 2012 till early final 12 months, when he was abruptly fired after the rip-off got here to gentle. Final September, he pleaded responsible in federal courtroom to at least one rely of cash laundering and one rely of wire fraud.
Prosecutors mentioned that Good, 56, conned not less than a dozen shoppers into paying him greater than $7.24 million that they thought was going towards “low threat” investments. Good instructed them to borrow in opposition to their portfolios utilizing a Morgan Stanley product referred to as a Liquidity Entry Line of Credit score, switch the cash to him and he would maintain the remainder.
Fraudulent transfers
Shawn Good, former Morgan Stanley dealer
CNBC
“Entry the money it’s essential fund your targets, with the power of Morgan Stanley behind you,” says a company video touting the Liquidity Entry Line of Credit score.
However as a substitute of investing the funds as promised, Good spent the cash on houses, luxurious automobiles, European holidays and funds to a number of girls. Investigators discovered digital cash transfers with memo strains resembling “Resort for Future,” “as a result of youre [sic] attractive” and “Nailz.” By the point the rip-off got here to gentle in 2022, he had racked up $800,000 in bank card payments, in keeping with courtroom filings.
“Shawn Good spent that cash to prop up a lavish life-style,” Michael F. Easley Jr., U.S. legal professional for the Jap District of North Carolina, mentioned in an interview. “It was an indicator of anyone who each single day of their life selected greed over good.”
Using the Morgan Stanley strains of credit score gave the transfers an air of legitimacy.
“So, successfully, Morgan Stanley is lending cash to the victims of this scheme and that cash then will get diverted into Shawn Good’s pocket,” Easley mentioned.
Nevertheless it additionally meant that whereas they have been unwittingly funding Good’s rip-off, the victims additionally have been on the hook for curiosity to Morgan Stanley for as a lot as $2,000 monthly.
“Shawn Good satisfied them he would get sufficient return that he may earn a living and pay again his liquidity entry mortgage principal and curiosity and nonetheless come out forward,” Easley mentioned. “That did not occur.”
Prosecutors mentioned that along with the cash he spent on himself, Good used a few of it to pay different traders, in a basic Ponzi scheme.
On Might 24, a federal choose in Raleigh sentenced Good to 87 months in jail and ordered him to pay greater than $3.6 million in restitution. It isn’t practically sufficient to make the victims entire, prosecutors and victims mentioned. And due to the character of the rip-off, a lot of the cash Good pilfered is lengthy gone.
A query of supervision
That’s the place Morgan Stanley is available in. A few of Good’s shoppers filed arbitration claims in opposition to the agency — normal account agreements bar brokerage prospects from suing in courtroom. The victims alleged that the agency didn’t fairly supervise its worker.
“I believe every other brokerage agency would have detected this exercise,” mentioned legal professional Marc Fitapelli of New York, who represents Andrews and her mom. Andrews’ mom additionally misplaced the whole lot she had, roughly $1 million.
The arbitration course of, below the auspices of the Monetary Trade Regulatory Authority, is confidential. Whereas the agency settled with not less than one shopper below undisclosed phrases, Fitapelli mentioned Morgan Stanley has pushed again in opposition to claims that it was one way or the other chargeable for Good’s actions. And several other of Good’s victims mentioned the agency remains to be holding them to their strains of credit score, and it’s nonetheless charging them curiosity.
One sufferer, Charles Hayward of Wilmington, mentioned which means he has no alternative however to maintain his account at Morgan Stanley to at the present time.
“It is terrible laborious to pay that debt off to maneuver my cash away, or I simply give all of them my cash after which transfer no matter’s left away,” he mentioned.
In accordance with a courtroom submitting, Hayward misplaced $150,000 within the rip-off.
Morgan Stanley, which topped earnings expectations Tuesday thanks largely to its wealth administration enterprise, declined an interview request. In a press release, a spokesperson for the agency mentioned: “After discovering Mr. Good’s fraud, he was promptly terminated from Morgan Stanley. We’ve got and can proceed to cooperate totally with legislation enforcement and different authorities and to work with counsel for Morgan Stanley shoppers to handle their claims.”
It wasn’t Morgan Stanley that found Good’s fraud, in keeping with a number of legislation enforcement sources. These sources mentioned that federal and state investigators in North Carolina, who have been wanting into Good’s funds, started contacting his shoppers early final 12 months. A type of prospects was the primary to alert the agency. Solely after Good refused to be interviewed by investigators did Morgan Stanley hearth him.
After this text was first printed, a Morgan Stanley spokesperson provided a further assertion.
“The fraud dedicated by Shawn Good was performed exterior Agency techniques and concerned transfers to Good that have been created from shopper accounts held elsewhere,” the assertion mentioned.
Nonetheless, the assertion mentioned, the agency “has labored with all shoppers who’ve raised claims to amicably resolve them.”
Earlier this month, the agency reached an settlement in precept with Caitlin Andrews and her mom to settle their claims.
Buying and selling on belief
Caitlin Andrews mentioned she started investing with Good in 2014, opening her Morgan Stanley account with roughly $1.7 million from a divorce settlement. She mentioned that she noticed no cause to not belief him. Good was already dealing with her mom’s investments, and earlier than that he had labored together with her grandmother.
“He simply appeared actually invested in our household,” she mentioned. “He simply appeared very reliable and pleasant.”
However extra vital than all of that, she mentioned, was that he labored for Morgan Stanley.
“Morgan Stanley does the homework about who they rent,” she mentioned. “And he is not just a few man on a avenue nook with an indication.”
Caitlin Andrews, Morgan Stanley shopper
CNBC
Andrews mentioned that she harassed to Good from the outset that the cash was the whole lot that she had. As a single mom, her incomes energy was restricted.
“It is what I lived off of, it is what I paid groceries off of, it is what I paid my mortgage off of,” she mentioned, explaining what she instructed Good. “It was my sons’ faculty schooling, it was medical health insurance, it was the whole lot.”
Ultimately, she mentioned, Good pitched her on a plan that might permit her to leverage her holdings to spend money on an Airbnb in her beach-side group, incomes her further revenue with minimal threat.
“I’ve acquired a excessive yield, low threat bond that pays out each three months. So, in three months, you are going to get $15,000 and that might be nice for this toilet,” she mentioned he instructed her. “After which within the subsequent three months, $15,000 shall be nice for, you recognize, that kitchen improve.”
Good would organize for the purchases by her Liquidity Entry Line of Credit score. What she mentioned she had not understood, as a novice investor, was that the funds for the bonds have been going from her line of credit score into Good’s private account.
The rip-off unravels
It wasn’t till early final 12 months that she had any concept one thing was mistaken. That is when investigators from the IRS and the North Carolina State Bureau of Investigators contacted her in regards to the cash transfers from her brokerage account to Good.
“I bear in mind one of many girls was very nice, and she or he mentioned, ‘Have you learnt that you’re lacking X sum of money?'” Andrews recalled. “And I mentioned, ‘No, I am not.'”
She mentioned she then pulled up her account on her cellphone, and it confirmed her holdings have been nonetheless there. However then the agent instructed her to scroll right down to the part about her line of credit score.
“When you go right down to how a lot I owed, no, I did not have any cash,” Andrews mentioned. At that time, the agent began crying, she mentioned. “And I knew that when the legislation enforcement agent begins crying in your behalf, that issues are actually dangerous.”
‘I would like my cash’
Stuffed with adrenaline and confusion, Andrews mentioned she determined to confront Good and report the entire thing. The cellphone conversations would finally turn out to be a part of the courtroom report.
“How do we all know it is not a Ponzi scheme?” she is heard asking Good on Feb. 2, 2022.
“It isn’t! I imply, I imply, the cash’s there. It is coming again. It isn’t,” he mentioned.
“OK, and I’ll belief you since you work at Morgan Stanley. And you must know this stuff,” Andrews replied.
However by this level, Good was not touting his Morgan Stanley credentials. That turned even clearer in Andrews’ second cellphone name to Good per week later.
“I would like my cash. And I would like it in my arms,” Andrews instructed Good on Feb. 9, 2002. “I’ve two boys. I’m their solely father or mother. That is all of my cash. And also you took it!”
“And you’ve got all of it, Caitlin. You might have all of it, we’ll get all of it transferred again,” Good replied.
However, he mentioned, “In the event that they go to Morgan Stanley, they may hearth me. I imply, I’ll lose my job.”
On the recordings, Good might be heard telling Andrews that going to the agency, and even contacting an legal professional, would “hamstring” his efforts to get her a reimbursement. And within the recordings he’s heard instructing her to correspond with him utilizing a personal electronic mail deal with and never his Morgan Stanley account.
Studying the pink flags
Good’s efforts to cover his rip-off from Morgan Stanley don’t absolve the agency, mentioned Louis Straney, a 43-year veteran of the securities trade who consults in arbitration instances however is not concerned with this one.
“They need to have detected it and prevented it on the outset,” mentioned Straney, the founder and managing associate at Arbitration Perception in Santa Fe, New Mexico. “They need to have been extra proactive. As a result of the pink flags, the alerts have been there.”
In accordance with courtroom filings, Good’s automobiles included a 2010 Lexus RX350, a 1997 Porsche Boxster, a 2019 Tesla Mannequin 3 and a 2018 Alfa Romeo Stelvio. His journey locations included France, Italy, Spain, and the Netherlands. Straney mentioned Good’s life-style alone ought to have been a lifeless giveaway.
“As a supervisor, you are wanting on the advisors that give you the results you want and figuring out whether or not or not their life-style matches their revenue,” he mentioned. “I managed a few of the greatest and largest producers at my agency, and none of them had a life-style that matched this, not one.”
The truth that just about all of Good’s shoppers had opened strains of credit score and so they have been actively utilizing them was a second pink flag.
“You actually must justify why they’re borrowing,” Straney mentioned.
Beneath the radar
Morgan Stanley workplace in Wilmington, N.C. the place Good labored.
CNBC
It was additionally not the primary time that staff went behind Morgan Stanley’s again utilizing unofficial channels, and the agency failed to note.
Final 12 months, the agency paid a $125 million effective to the Securities and Alternate Fee after admitting to the “widespread and longstanding failure of Morgan Stanley staff all through the agency” to observe guidelines prohibiting “off-channel communications” on private units and messaging apps way back to 2018, following an investigation that started in 2021.
Fitapelli mentioned that meant the agency was already on discover about the identical form of conduct Good was partaking in.
“The exercise that they are being fined for is precisely what occurred,” he mentioned. “And, so, the hurt is foreseeable.”
Sense of abandonment
Caitlin Andrews was Good’s greatest sufferer, in keeping with courtroom filings.
She mentioned the fraud upended her life. She was compelled to maneuver together with her boys into the cottage, nonetheless below building, that she had been planning to show into an Airbnb. With no cash to pay her contractors, she is making an attempt to do the development by herself, little by little. The household has no medical health insurance and with no cash for little one care, she will be able to’t work a full-time job.
“The stress on me is comprehensible. However what I hate is the quantity of stress on my children,” she mentioned. “I attempt to be sturdy. I believe I’m sturdy, and I attempt to speak about it, not cowl it up, however not less than not let it bleed into the whole lot. However the kids know precisely what’s taking place and the way their life has modified.”
Andrews mentioned that at one level, she even thought-about suicide, and was saved solely by her love for her kids, in addition to a therapist who insisted on treating her at no cost.
“You are simply on this darkish void of empty abandonment, since you’re deserted by your monetary advisor who took the whole lot. You are deserted by the agency whose dedication is that will help you,” she mentioned.
At his sentencing listening to in Might, a disheveled-looking Good mentioned “there is not any excuse” for what he did, and that “the guilt and regret is overwhelming.”
A number of of his victims spoke on the sentencing, as nicely, all describing how Good stole not solely their cash but in addition their belief.
“He took my boys out for ice cream whereas he was stealing their faculty funds,” Andrews instructed the choose.
Not in courtroom, nor anyplace close to it, was anybody from Morgan Stanley.
When you or somebody you recognize is in disaster, name 988 to succeed in the Suicide and Disaster Lifeline.
