Does Early-Life Bad Behavior Foreshadow Rogue Broker Activity?
A former Morgan Stanley financial advisor who said on regulatory forms that he had “drastically” changed his life philosophy after a college arrest for forgery was sentenced on Tuesday to two years in federal prison for defrauding a widowed client of more than $5 million.
Gregory Walsh, who was allowed to “voluntarily resign” from Morgan Stanley in 2013 after working at its Tucson, AZ branch since 2000, received the prison sentence and another three years of supervised release, according to the U.S. Attorney’s office in Oregon.
He pled guilty to fraudulently persuading his client between 2011 and 2013 to give his brother, a bank vice president in Oregon, over $3 million to buy real estate and for withdrawing another $2 million without her authorization to invest in a marijuana company.
His brother used about half of the money to pay off personal debts and titled the property he bought in his own name and in the name of a related business, the federal prosecutor said. Walsh also wired $100,000 from the client’s account to a friend of his brother.
Walsh’s confessions are not good news for brokers and lawyers who argue for a loosening of regulatory requirements that brokers disclose on annual forms all criminal charges of felonies and financial misdemeanors—including ones that may have originated as high-school or college pranks—and that can show up on the Financial Industry Regulatory Authority’s publicly available BrokerCheck records.
In 1993, seven years before Walsh registered as a broker, he was charged with forgery and theft of less than $1,501 resulting from a 1993 forgery and theft arrest while he was attending the University of Arizona, according to his BrokerCheck history.
“I committed a grave error and extreme lapse of judgement which had an extreme affect [sic] upon my life,” Walsh wrote in his BrokerCheck comment. “The event drastically changed my views and how I approach life.”
Jason Doss, a plaintiff’s lawyer in Atlanta, Ga., said Walsh’s history fuels the arguments of regulators and consumer protection advocates for full disclosures and for continuing to make expungement of criminal complaints difficult. (To convince regulators to remove criminal charges from registration records is difficult and usually requires a judge to take the unusual action of agreeing to seal a court record, lawyers said.)
“Sometimes these things from the past can…be glaring red flags,” Doss said.
Walsh’s sentence recalls the guilty plea last week of two former Morgan Stanley brokers in Boston to stealing around $500,000 from two clients.
James Polese, the senior broker, was charged in 1986 with stealing under $200 worth of sweatshirts, T-shirts and hats from a dormitory at Princeton University, some nine years before registering as a broker. “Case can be expunged from record at any time,” Polese wrote in a comment on his BrokerCheck history.
Walsh, whose BrokerCheck history includes no client complaints or regulatory disciplinary events throughout his 13-year registration history, could not be reached for comment.
Matthew Schindler, who represented Walsh as a public defender, said the broker was deceived by his older brother and did not receive any financial benefit from the outside business activities. “We had the misfortune of going in front of a judge who believes all white-collar offenders should go to prison even in the absence of financial gain,” Schindler said.
Schindler said that Walsh’s college theft was irrelevant to his career as a broker. “He conducted tens of thousands of transactions for hundreds of clients that were in their best interest,” the lawyer said.
Dochtor Kennedy, whose AdvisorLaw practice in Denver, Colo., specializes in helping brokers expunge complaints from their regulatory records, said that he generally remains sympathetic to people who stumbled into a criminal event long before they became brokers.
Citing the legal maxim that “it’s better to let nine guilty guys go free than put one innocent guy in jail,” he said that the vast majority of U-4/BrokerCheck criminal disclosures are “minimal” events, “really just pranks that people pulled on their buddies in college.”
To be sure, expungement lawyers such as Kennedy devote most of their practices to eliminating customer, rather than criminal, complaints. The Financial Industry Regulatory Authority has proposed tightening its expungement process relating to customer complaints.
Doss, the plaintiff’s lawyer, argued that preserving complaints of all sorts is valuable for the industry as well as the public.
“The information should be on there not just so that investors can make wise decisions on selecting an investment adviser, but so firms can look into background of who they hire,” he said.
A spokeswoman for Morgan Stanley declined to comment on Walsh and on Polese, each of whom has been permanently barred from the brokerage industry by Finra.
—Jed Horowitz contributed to this story.