Morgan Stanley Brokers Allegedly Misappropriated more than $10 Million
Morgan Stanley Smith Barney will reportedly pay a $15 million fine to settle SEC allegations that it failed to prevent four financial advisors—Michael Carter, Chingyuan “Gary” Chang, Douglas McKelvey, and Jesus Rodriguez—from misappropriating nearly $10 million from clients over a period of at least five years. The SEC reportedly accused the firm of supervisory and compliance failures that allowed these advisors to use unauthorized wire transfers and automated clearing house payments to steal funds.
The alleged misconduct occurred between 2015 and 2022, despite Morgan Stanley’s previous settlement with FINRA in 2015 over similar issues.
Jesus Rodriguez, El Paso, Texas
The SEC reportedly filed charges in January 2024 against former financial advisor Jesus Rodriguez (CRD# 4888685) for allegedly defrauding ten clients of over $3.475 million through more than 250 unauthorized disbursements. While employed with Morgan Stanley in El Paso from 2014 to 2021, Rodriguez allegedly misappropriated funds to cover personal expenses such as credit card bills, car purchases, and payments to family members.
Rodriguez also reportedly faced criminal charges, including wire fraud, following his arrest by the FBI on January 12. He had previously reportedly been arrested in October at the Mexico border for exploiting an elderly couple and embezzling $56,000. Rodriguez worked as a registered representative at Morgan Stanley in El Paso from 2009 until 2021, according to his FINRA BrokerCheck profile.
The SEC’s complaint alleges that Rodriguez incurred debt secured by clients’ securities portfolios and misused proceeds from securities sales to fund his scheme. To conceal his actions, he allegedly fabricated authorizations and provided false information to his employer.
Chingyuan “Gary” Chang, Cupertino, California
The SEC reportedly instituted public administrative and cease-and-desist proceedings against broker Chingyuan “Gary” Chang (CRD #2922898) for fraudulent misappropriation of client funds while reportedly employed as a registered representative and investment adviser at Morgan Stanley. Between September 2021 and June 2022, Chang allegedly misappropriated $58,560 from four clients by making unauthorized Automated Clearing House (ACH) transfers to his personal accounts via online payment apps.
In some cases, Chang sold securities in client accounts shortly before allegedly transferring the funds. The SEC found that Chang willfully violated Section 10(b) of the Exchange Act and Rule 10b-5, as well as Sections 206(1) and 206(2) of the Advisers Act.
Financial Industry Regulatory Authority (FINRA) reportedly barred Chang in 2022 from working as a broker after he reportedly failed to provide information in an investigation. According to his broker record, between August 1997 and January 2016, Chang was registered with six different FINRA members. Chang was reportedly affiliated with Morgan Stanley in Cupertino, California from February 2016 through August 2022.
Michael Carter, McClean, Virginia
Michael Barry Carter, a former Morgan Stanley financial advisor, was reportedly sentenced to five years in prison for stealing over $6.15 million from clients. Carter pleaded guilty to making 60 unauthorized transfers from customer accounts between October 2007 and May 2019, falsifying internal forms to execute the thefts.
Carter, affiliated with Morgan Stanley from 2009 to 2011 and again from 2011 to 2019, was reportedly discharged in July 2019 for allegations of misappropriating client funds. He also reportedly admitted to embezzling over $50,000 from a non-profit sports organization, allegedly using stolen funds to cover personal expenses, including his mortgage, credit card bills, and country club fees.
As part of his sentence, Carter reportedly had to serve three years of supervised release and pay at least $4.36 million in restitution. Before his fraud was discovered, he had reportedly returned $1.79 million to victims and repaid the non-profit. The SEC filed parallel charges against him in 2020.
Douglas McKelvey, Southlake, Texas
On January 24, 2024, a settlement was reached in the case of former Morgan Stanley advisor Douglas McKelvey (CRD #4502849), who allegedly defrauded two elderly clients, misappropriating over $1.7 million. The SEC accused McKelvey of making over 300 unauthorized fund disbursements between June 2013 and February 2022 to cover personal expenses, including credit card payments.
McKelvey pleaded guilty to criminal charges in June 2023, with judgment entered in November 2023. As part of the settlement, he is barred from the securities industry and from participating in penny stock offerings. McKelvey reportedly worked at Morgan Stanley for 12 years before being barred by FINRA in 2022.
Morgan Stanley Accepts Censure, Pays Fine
Morgan Stanley reportedly terminated the advisors involved, conducted internal investigations, reported them to authorities, and compensated affected clients. While the firm neither admitted nor denied the SEC’s findings, it agreed to pay the fine, accepted a censure and a cease-and-desist order, and will hire an external compliance consultant to improve its controls.
Free Consultation with Securities Fraud Attorneys
If you have suffered losses investing with Morgan Stanley, please contact the securities attorneys at The White Law Group. For a free consultation, please call the offices at 888-637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.
We represent investors in FINRA arbitration claims in all 50 states. Our attorneys have recovered millions of dollars from many brokerage firms in the past, including Morgan Stanley.
The Financial Industry Regulatory Authority (FINRA) operates the largest securities dispute resolution forum in the United States, and has extensive experience in providing a fair, efficient and effective venue to handle a securities-related dispute.
Last modified: December 10, 2024
