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Former Morgan Stanley Advisors Charged with Bilking Clients

Two former Morgan Stanley advisors plead guilty to fraud, the pitfalls of robos using ETFs, and a man dies shortly after winning the lottery.

Two former Morgan Stanley advisors are charged with defrauding clients by stealing nearly $500,000. The Securities and Exchange Commission filed the complaint in federal court in Boston against James Polese and Cornelius Peterson, who allegedly used clients’ money for various purposes, including making investments of their own, directing it to Polese’s personal bank account and paying off credit cards and college tuition expenses. In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts filed criminal charges against the two, who have since been barred from the industry. The two pled guilty to the prosecutor’s charges. 

Most Robos Use ETFs, But That’s a Mistake

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Most automated advice platforms use ETFs to build their underlying portfolios, and as long as markets are going well, that’s OK, writes Dan Tammas-Hastings on the CFA Institute’s Enterprising Investor blog. But they are blunt instruments, and the goal of automation, even in investing, is precision, particularly when market risk rises. “When equity risk is the focus of robo advice, ETFs work reasonably well. They are a cheap way to access a diversified portfolio. But as the inevitable reweighting toward fixed income occurs, there is an assumption that integrating fixed-income ETFs into the mix will be easy. This too is naive,” he writes. ETFs used for fixed income in robo allocations will likely underperform their index, force a one-size-fits-all risk/return profile on customers and “be the next collateralized debt obligation risk,” he says.

Upstate NY Man Dies Weeks After Winning Lottery

After winning $1 million on a lottery ticket just after the new year, Donald Savastano seemingly did everything right. He planned to save for retirement, invest some and maybe buy a new truck. He also scheduled a trip to the doctor. Turns out that Savastano, a self-employed carpenter in Sidney, N.Y., was battling brain and lung cancer and didn’t know it. Just a few weeks after he won the lottery, he died, WCVB.com reports. “He was self-employed, he didn’t have insurance, he hadn’t been feeling good for a while I guess, and when he got the money he went in to the doctor,” Danielle Scott, the cashier who sold him the ticket told the TV station. “He had a friend come and talk to me, and they told me that he was very sick and that he had brain and lung cancer and that he was in the hospital and they didn’t think he was gonna make it.” Savastano was born in Queens and grew up on Long Island. He learned the carpentry trade from his father. According to his obituary, Savastano “was known for his high-quality work and perfectionism. He always tried to reach out and help those he could by teaching them ‘the right way to do things.’”

 

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