November 27, 2018 / 9:03 PM / 21 days ago

Ex-Morgan Stanley adviser gets five years in U.S. prison for fraud

BOSTON (Reuters) - A former Morgan Stanley adviser was sentenced to five years in prison on Tuesday after he admitted that he misused client funds to invest in a wind farm project and to cover his own personal expenses, including college tuition for his children.

James Polese, 52, was sentenced by U.S. District Judge Mark Wolf in Boston, who said he could not understand how the investment adviser could be “so greedy and stupid” by carrying out the fraud when he was already financially successful.

“It wasn’t just wrong,” Wolf said. “It was dumb, and it inflicted harm on the people you cared about.”

The proceedings came after a former employee of the New York-based financial services firm who worked under Polese, Cornelius Peterson, was sentenced in June to 20 months in prison for participating in the scheme.

Polese, who pleaded guilty in April to investment adviser fraud and bank fraud charges, in court apologized to his victims and Morgan Stanley, which employed him as a Boston-based adviser.

“I’m sorry for tarnishing their name through my actions,” he said.

In addition to prison, Wolf also ordered Polese to pay a $30,000 fine and $462,000 in restitution jointly with Peterson.

According to court papers, in 2014, Polese and Peterson transferred $100,000 from a Morgan Stanley client’s account without his permission to invest in a private equity fund created to support a wind farm project.

Prosecutors said Peterson was on the fund’s board of directors, and Polese had himself invested money in the wind farm project, which needed additional funding.

Both men later in 2015 used $400,000 from the account of an elderly Morgan Stanley client, Ralph Bates, to back a letter of credit in support of the project, causing him to incur $12,000 in fees, prosecutors said.

Without Bates’ approval, in 2016 they also transferred $350,000 from his account, which was used for a real estate investment and to pay for Polese’s personal expenses, according to court papers.

Polese also in 2017 used more than $93,000 from Bates’ account to make college tuition payments for two of his children and to pay his own credit card bills, prosecutors said.

Bates, an 87-year-old philanthropist, said in court on Tuesday that Polese had “ripped me off for big bucks.

“I’m at a loss for words,” he said.

Morgan Stanley fired Polese and Peterson in June 2017 and has said it terminated them immediately after uncovering their misconduct.

The case is U.S. v. Polese, U.S. District Court, District of Massachusetts, No. 18-cr-10028.

Reporting by Nate Raymond in Boston; Editing by Dan Grebler

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