BOSTON, June 28 (Reuters) - A former Morgan Stanley adviser was sentenced on Thursday to 20 months in prison after he admitted that he misused client funds to invest in and support a wind farm project that a friend had decided to start.
Cornelius Peterson, 29, was sentenced by U.S. District Judge Nathaniel Gorton in Boston, who said the former financial adviser deserved a significant prison term for misusing around $500,000 from two clients' accounts.
"You were someone who didn't need the money," Gorton said. "Well, today you find that fraud and financial crimes that hurt people don't go unpunished."
Peterson, who pleaded guilty in February to conspiracy, investment adviser fraud and bank fraud charges, did not speak during the hearing. But his lawyer, Carol Starkey, said he played a minor role in the scheme, which his supervisor orchestrated.
Peterson's boss in the Boston office of Morgan Stanley, James Polese, pleaded guilty in April to charges that he used clients' funds to make his own investments and to pay personal expenses. He is scheduled to be sentenced in August.
According to his lawyers, in 2013, Peterson became friendly with an entrepreneur investing in windfarm projects and offered to help him raise money for a private equity fund called Commonwealth Bay that would invest in them.
Without a client's consent, in 2014, Peterson, who had become a member of the fund's board of directors, transferred $100,000 from the account of one of his clients to invest in a windfarm project, prosecutors said.
He did so along with Polese, who had become an investor in the project, which needed financing, prosecutors said.
Both men later in 2015 used $400,000 from the account of an 86-year-old long-time client of Morgan Stanley to back a letter of credit in support of the wind farm project, prosecutors said.
In addition, both men without approval in 2016 transferred $350,000 from that same client's account, which was used for a real estate investment and to pay for Polese's own and family’s expenses, according to court papers.
"Mr. Peterson took advantage of his clients and took their money for his own uses," Assistant U.S. Attorney Sara Bloom said in court.
New York-based Morgan Stanley fired both men in June 2017. The bank has said that it immediately terminated them after uncovering their misconduct and reported the matter to authorities.
In addition to the prison sentence, Peterson must pay $462,000 in restitution jointly with Polese. (Reporting by Nate Raymond in Boston Editing by Leslie Adler)