Ex-Morgan Stanley adviser sentenced to U.S. prison for fraud

BOSTON (Reuters) - A former Morgan Stanley MS.N adviser was sentenced to 20 months in prison on Thursday after he admitted that he misused client funds to invest in and support a wind farm project that a friend had decided to start.

FILE PHOTO: The corporate logo of financial firm Morgan Stanley is pictured on a building in San Diego, California, U.S., September 24, 2013. REUTERS/Mike Blake/File Photo

Cornelius Peterson, 29, was sentenced by U.S. District Judge Nathaniel Gorton in Boston, who said the former financial adviser deserved a significant prison term for misusing hundreds of thousands of dollars from two clients’ accounts.

“You were someone who didn’t need the money,” Gorton said. “Well, today you find that fraud and financial crimes that hurt people don’t go unpunished.”

Peterson, who pleaded guilty in February to investment adviser fraud and bank fraud charges, did not speak during the hearing.

In a letter to Gorton, Peterson said he was “ashamed and remorseful.” His lawyer, Carol Starkey, in court argued that he played a minor role in a scheme that his supervisor orchestrated.

Peterson’s boss in Morgan Stanley’s Boston office, James Polese, pleaded guilty in April to related charges. He is scheduled to be sentenced in August.

According to his lawyers, in 2013 Peterson became friendly with an entrepreneur investing in wind farm projects and offered to help him raise money for a private equity fund called Commonwealth Bay that would invest in them.

In 2014, Peterson, who had become a member of the fund’s board of directors, transferred $100,000 from the account of one of his clients without his permission to invest in a wind farm project, prosecutors said.

He did so along with Polese, who had become an investor in the project, which needed financing, prosecutors said.

Both men later in 2015 used $400,000 from the account of an 86-year-old long-time client of Morgan Stanley to back a letter of credit in support of the wind farm project, prosecutors said.

In addition, both men without approval in 2016 transferred $350,000 from that same client’s account, which was used for a real estate investment and to pay for Polese’s own and family’s expenses, according to court papers.

“Mr. Peterson took advantage of his clients and took their money for his own uses,” Assistant U.S. Attorney Sara Bloom said.

New York-based Morgan Stanley fired both men in June 2017. The bank has said that it immediately terminated them after uncovering their misconduct and reported the matter to authorities.

In addition to the prison sentence, Peterson must pay $462,000 in restitution jointly with Polese.

Reporting by Nate Raymond in Boston; Editing by Leslie Adler