Morgan Stanley Wins $372,000 Stolen by Barred Boston Broker
(Updated on July 2, 2018 to reflect, in fourth paragraph, another arbitrator’s decision that Polese owes Morgan Stanley $841,380 plus interest and lawyers’ fees on promissory note balances.)
James Polese, who in the past year was fired by Morgan Stanley and barred by the Financial Industry Regulatory Authority, has been told by an arbitrator to pay the brokerage firm almost $372,000 for stealing, fraud and breach of fiduciary duty.
The money is the full claim that Morgan Stanley made against the former broker, who in January agreed to plead guilty to federal criminal charges of misappropriating client funds and who is also facing fraud charges from the Securities and Exchange Commission.
The award, made by a single arbitrator on Thursday, does not spell out details of Morgan Stanley’s claim against the broker but says that Polese did not file a statement of answer to the claim nor hire a lawyer to represent him. The arbitrator also ordered Polese to reimburse Morgan Stanley $1,600 for the non-refundable filing fee and a decision fee paid to Finra.
(Editor’s Note: On June 29, 2018, another sole arbitrator ordered Polese to pay Morgan Stanley $841,380 that the firm claimed he owed on promissory notes, plus interest and attorneys’ fees. Polese did not respond to Morgan Stanley’s claim that was filed in September 2017, according to the arbitration award decision.)
Polese and his junior partner Cornelius Peterson stole about $500,000 from two customers that they used to invest in a wind farm project, according to the U.S. Attorney’s Office in Boston that negotiated the guilty plea with the advisors. Polese also paid his children’s college tuition and credit card bills with the stolen funds.
Polese is scheduled to enter his criminal plea on April 26 and Peterson has a sentencing hearing in May, according to court documents. Polese’s lawyer in the criminal proceeding, Mark D. Smith of the Boston law firm Laredo & Smith, did not return a call for comment.
If Polese directly pays an underlying customer as part of his plea agreement, that amount will be deducted from what he has been ordered to pay to Morgan Stanley, according to the decision.
The complaint implies that Morgan Stanley has made payments to the brokers’ clients and underscores firms’ zeal to recover money from rogue brokers. In September, Ameriprise won an arbitration claim for $657,000 from a broker to cover a settlement it reached with a client who accused it of supervisory failures.
Ralph Bates, an elderly former client of Polese, said he has received about $100,000 from Morgan Stanley but is owed additional money that the broker took that was unrelated to his brokerage account.
A spokeswoman for Morgan Stanley did not return a request for comment.
In January, Morgan Stanley fired the two senior partners of Polese’s team, James R. “Bob” Willing and John H. Buck III, who had over 50 years of experience. Willing said at the time that the charges were unrelated to those brought against Polese and Peterson.