A Virginia-based investment advisor misappropriated about $6 million in funds from brokerage and investment advisory clients by making unauthorized transfers from brokerage accounts to his own bank account over the span of 12 years, the SEC charged in a complaint filed Monday.
Michael Barry Carter falsified about 60 transfers in total from client accounts to his own personal bank account, according to the SEC complaint.
To conceal the unauthorized transfers, he created fake account statements, diverting clients’ actual account statements to a post office box and email address he controlled. With the funds, he paid off hundreds of thousands of dollars in credit card bills, made thousands of dollars in cash withdrawals and paid for his mortgage as well as a luxury car.
"As a financial advisor, Carter was entrusted with millions of dollars belonging to his brokerage customers, his advisory clients, and their families," said Marc P. Berger, director of the SEC's New York Regional Office. "As alleged in our complaint, Carter instead took advantage of that trust for his personal gain."
In addition to the SEC charges, Carter also pleaded guilty to criminal charges filed by the U.S. Attorney’s Office for the District of Maryland.
Carter worked for Morgan Stanley as a registered rep and investment advisor between fall 2006 and spring 2011, and again from winter of that year until July 2019, when he was fired because of his conduct, according to the complaint. In order to cover his unauthorized transfers of one investor’s funds, he would create false documents and go as far as to forge her signature on transfers over $100,000.
To hide the deception, he created fictitious business entities as the account holder and used different variations on his own home address as the mailing address, according to the complaint. The SEC asserted that from October 2007 to August 2014, he drained the investor’s account of at least $2.4 million through 28 wire transfers.
Starting in November 2017, Carter also began misappropriating the funds of an 84-year-old advisory client who held several accounts at the firm. Carter, who was the sole advisor assigned to the unnamed investor, made about $1.5 million in unauthorized cash transfers from her account, according to the complaint. He sent most of the funds to himself but also used some of the money to repay funds he’d misappropriated from another client, according to the SEC.
That same month, he also opened a line of credit in the investor’s name, according to the SEC. From December 2017 until May 2019, he drew out about $835,000 against the line of credit, wiring the money to his own account. The elderly investor had no idea of the line of credit’s existence, much less the withdrawal of funds, according to the complaint.
Carter also misappropriated about $345,000 from a 529 plan the investor set up at another institution to help pay for her grandchildren’s college expenses, according to the complaint. After getting access to the 529 plan, he liquidated those accounts’ securities, transferred them to his own firm and then used the money for other means, according to the SEC.
“Morgan Stanley is strongly committed to the protection of client assets, and to act quickly when fraudulent activity is uncovered,” a company spokeswoman said in a statement. “The advisor’s employment was terminated as soon as his activity came to our attention, and we immediately reported the matter to the appropriate law enforcement and regulatory authorities and have been cooperating with their investigations. There were a limited number of clients impacted and any money misappropriated by the advisor was returned.”
In addition to injunctive relief, the SEC sought the return of any allegedly ill-gotten gains, as well as prejudgment interest and a civil penalty. In criminal court, Carter could face as much as 20 years in federal prison for wire fraud and as much as five years for investment advisor fraud, according to the Maryland U.S. Attorney’s Office.
Carter could not be reached for comment.