International Courant
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 though the rip-off focused Morgan Stanley purchasers 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 better cash from the agency, it’s also persevering with to carry them liable for traces 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 earnings final yr.
“I can liken the entire course of to being assaulted in a again alley when you’re on mind-altering medication like roofies,” stated Caitlin Andrews, 43, of Carolina Seaside, North Carolina, a single mom of two boys who misplaced $1.7 million, or nearly her complete web value. “After which in the future you get up within the police station and it’s important to watch the video many times and go over financial institution statements of when issues occurred and take heed to cellphone calls many times. It is traumatizing.”
The advisor, Shawn Edward Good, was a vp in Morgan Stanley’s Wilmington, North Carolina, workplace from 2012 till early final yr, when he was abruptly fired after the rip-off got here to gentle. Final September, he pleaded responsible in federal courtroom to 1 rely of cash laundering and one rely of wire fraud.
Prosecutors stated that Good, 56, conned not less than a dozen purchasers into paying him greater than $7.24 million that they thought was going towards “low danger” investments. Good instructed them to borrow in opposition to their portfolios utilizing a Morgan Stanley product often known as a Liquidity Entry Line of Credit score, switch the cash to him and he would deal with the remaining.
Fraudulent transfers
Shawn Good, former Morgan Stanley dealer
CNBC
“Entry the money you should 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 an alternative of investing the funds as promised, Good spent the cash on houses, luxurious vehicles, European holidays and funds to a number of girls. Investigators discovered digital cash transfers with memo traces comparable to “Lodge 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, stated in an interview. “It was an indicator of someone who each single day of their life selected greed over good.”
The usage of the Morgan Stanley traces 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 stated.
However it additionally meant that whereas they had been unwittingly funding Good’s rip-off, the victims additionally had been on the hook for curiosity to Morgan Stanley for as a lot as $2,000 per thirty days.
“Shawn Good satisfied them he would get sufficient return that he might make cash and pay again his liquidity entry mortgage principal and curiosity and nonetheless come out forward,” Easley stated. “That did not occur.”
Prosecutors stated that along with the cash he spent on himself, Good used a few of it to pay different buyers, in a traditional 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 is not practically sufficient to make the victims entire, prosecutors and victims stated. 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 purchasers filed arbitration claims in opposition to the agency — customary account agreements bar brokerage prospects from suing in courtroom. The victims alleged that the agency did not fairly supervise its worker.
“I believe another brokerage agency would have detected this exercise,” stated legal professional Marc Fitapelli of New York, who represents Andrews and her mom. Andrews’ mom additionally misplaced every little thing she had, roughly $1 million.
The arbitration course of, below the auspices of the Monetary Business Regulatory Authority, is confidential. Whereas the agency settled with not less than one shopper below undisclosed phrases, Fitapelli stated Morgan Stanley has pushed again in opposition to claims that it was by some means liable for Good’s actions. And several other of Good’s victims stated the agency remains to be holding them to their traces of credit score, and it’s nonetheless charging them curiosity.
One sufferer, Charles Hayward of Wilmington, stated meaning he has no alternative however to maintain his account at Morgan Stanley to this present day.
“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 stated.
Based on 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 stated: “After discovering Mr. Good’s fraud, he was promptly terminated from Morgan Stanley. We now have and can proceed to cooperate absolutely with regulation enforcement and different authorities and to work with counsel for Morgan Stanley purchasers to handle their claims.”
It wasn’t Morgan Stanley that found Good’s fraud, in keeping with a number of regulation enforcement sources. These sources stated that federal and state investigators in North Carolina, who had been trying into Good’s funds, started contacting his purchasers early final yr. A type of prospects was the primary to alert the agency. Solely after Good refused to be interviewed by investigators did Morgan Stanley fireplace him.
After this text was first printed, a Morgan Stanley spokesperson supplied a further assertion.
“The fraud dedicated by Shawn Good was performed outdoors Agency programs and concerned transfers to Good that had been comprised of shopper accounts held elsewhere,” the assertion stated.
Nonetheless, the assertion stated, the agency “has labored with all purchasers 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 stated she started investing with Good in 2014, opening her Morgan Stanley account with roughly $1.7 million from a divorce settlement. She stated 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 stated. “He simply appeared very reliable and pleasant.”
However extra necessary than all of that, she stated, was that he labored for Morgan Stanley.
“Morgan Stanley does the homework about who they rent,” she stated. “And he is not just a few man on a road nook with an indication.”
Caitlin Andrews, Morgan Stanley shopper
CNBC
Andrews stated that she pressured to Good from the outset that the cash was every little thing 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 stated, explaining what she informed Good. “It was my sons’ faculty training, it was medical health insurance, it was every little thing.”
Finally, she stated, Good pitched her on a plan that might enable her to leverage her holdings to put money into an Airbnb in her beach-side neighborhood, incomes her additional earnings with minimal danger.
“I’ve acquired a excessive yield, low danger 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 lavatory,” she stated he informed her. “After which within the subsequent three months, $15,000 might be nice for, you recognize, that kitchen improve.”
Good would organize for the purchases by her Liquidity Entry Line of Credit score. What she stated she had not understood, as a novice investor, was that the funds for the bonds had been going from her line of credit score into Good’s private account.
The rip-off unravels
It wasn’t till early final yr that she had any concept one thing was flawed. 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 he or she stated, ‘Are you aware that you’re lacking X sum of money?'” Andrews recalled. “And I stated, ‘No, I am not.'”
She stated she then pulled up her account on her cellphone, and it confirmed her holdings had been nonetheless there. However then the agent instructed her to scroll all the way down to the part about her line of credit score.
“For those who go all the way down to how a lot I owed, no, I did not have any cash,” Andrews stated. At that time, the agent began crying, she stated. “And I knew that when the regulation enforcement agent begins crying in your behalf, that issues are actually unhealthy.”
‘I would like my cash’
Full of adrenaline and confusion, Andrews stated she determined to confront Good and document the entire thing. The cellphone conversations would finally turn out to be a part of the courtroom document.
“How do we all know it is not a Ponzi scheme?” she is heard asking Good on Feb. 2, 2022.
“It is not! I imply, I imply, the cash’s there. It is coming again. It is not,” he stated.
“OK, and I will belief you since you work at Morgan Stanley. And you need to know this stuff,” Andrews replied.
However by this level, Good was now 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 fingers,” Andrews informed Good on Feb. 9, 2002. “I’ve two boys. I’m their solely dad or mum. That is all of my cash. And also you took it!”
“And you’ve got all of it, Caitlin. You’ve all of it, we are going to get all of it transferred again,” Good replied.
However, he stated, “In the event that they go to Morgan Stanley, they’ll fireplace me. I imply, I’ll lose my job.”
On the recordings, Good will be heard telling Andrews that going to the agency, and even contacting an legal professional, would “hamstring” his efforts to get her a refund. And within the recordings he’s heard instructing her to correspond with him utilizing a personal e mail handle and never his Morgan Stanley account.
Studying the purple flags
Good’s efforts to cover his rip-off from Morgan Stanley don’t absolve the agency, stated Louis Straney, a 43-year veteran of the securities trade who consults in arbitration circumstances however is not concerned with this one.
“They need to have detected it and prevented it on the outset,” stated 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 purple flags, the alerts had been there.”
Based on courtroom filings, Good’s vehicles 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 stated Good’s life-style alone ought to have been a useless giveaway.
“As a supervisor, you are trying on the advisors that be just right for you and figuring out whether or not or not their life-style matches their earnings,” he stated. “I managed a number of the finest and largest producers at my agency, and none of them had a way of life that matched this, not one.”
The truth that nearly all of Good’s purchasers had opened traces of credit score and so they had been actively utilizing them was a second purple flag.
“You actually should justify why they’re borrowing,” Straney stated.
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 yr, the agency paid a $125 million high-quality to the Securities and Alternate Fee after admitting to the “widespread and longstanding failure of Morgan Stanley staff all through the agency” to comply with guidelines prohibiting “off-channel communications” on private gadgets and messaging apps way back to 2018, following an investigation that started in 2021.
Fitapelli stated that meant the agency was already on discover about the identical sort of conduct Good was partaking in.
“The exercise that they are being fined for is precisely what occurred,” he stated. “And, so, the hurt is foreseeable.”
Sense of abandonment
Caitlin Andrews was Good’s largest sufferer, in keeping with courtroom filings.
She stated the fraud upended her life. She was pressured 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 attempting to do the development by herself, little by little. The household has no medical health insurance and with no cash for youngster care, she will’t work a full-time job.
“The stress on me is comprehensible. However what I hate is the quantity of stress on my youngsters,” she stated. “I attempt to be sturdy. I believe I’m sturdy, and I attempt to discuss it, not cowl it up, however not less than not let it bleed into every little thing. However the youngsters know precisely what’s taking place and the way their life has modified.”
Andrews stated that at one level, she even thought-about suicide, and was saved solely by her love for her youngsters, 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 every little thing. You are deserted by the agency whose dedication is that can assist you,” she stated.
At his sentencing listening to in Might, a disheveled-looking Good stated “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 properly, all describing how Good stole not solely their cash but additionally their belief.
“He took my boys out for ice cream whereas he was stealing their faculty funds,” Andrews informed the choose.
Not in courtroom, nor wherever close to it, was anybody from Morgan Stanley.
For those who or somebody you recognize is in disaster, name 988 to succeed in the Suicide and Disaster Lifeline.