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How A Morgan Stanley Exec May Have Committed the Perfect Ops Crime. Well, Almost.
July 20, 2009
Barings, Societe Generale, Goldman Sachs and UBS: All Wall Street powerhouses where so-called rogue traders and quant executives made off with multimillions of dollars worth of profits or proprietary code.
Such cases have prompted plenty of scrutiny on how unscrupulous executives bypassed what should have been solid checks and balances in taking advantage of the front office, where trades get executed. But little attention has been drawn to how back-office executives, seemingly relegated to the mundane business of recordkeeping for trades already made, could do the very same thing.
That is until now. Morgan Stanley’s vice president of institutional securities Richard Garaventa Jr, is set to appear before Judge Gregory Caro in New York State Supreme Court for the District of Manhattan on July 21 on forty three counts of grand larceny, criminal possession of stolen property and falsifying business records in the theft of about $2.5 million over seven years.
He will likely plead guilty to the charges rather than face a trial, according to parties familiar with the case. If convicted by a jury of his peers, he instead could spend about 25 years in jail. Garaventa’s attorney, Lawrence Fredella of New York City, declined to comment on the case, since it has not yet been adjudicated.
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Court documents offer little explanation of how Garaventa got away with his crime, but according to prosecutors affiliated with the office of Southern District of New York, he was responsible for processing payments on corporate actions, such as dividends. He was also authorized to request or approve checks from one of the company’s in-house accounts, the prosecutors said. Calls to Jeremy Glickman, assistant district attorney in charge of Garaventa’s case, were not returned by press time.
Unclear is whether the in-house accounts from which Garaventa took the funds over the course of seven years were intended to reimburse Morgan Stanley employees for travel and other corporate expenses or pay dividends to Morgan Stanley customers, as part of their stakes in publicly traded companies. Fredella was quoted in a July 8th article in Bloomberg as saying Morgan Stanley wrote off the fraud and received tax breaks. Therefore, his client should not be required to reimburse Morgan Stanley for any lost funds. Such a statement implies that no shareholder monies were involved.
The court documents say that on Jan. 6 Garaventa admitted to Noah Perlman, head of special investigations for Morgan Stanley’s legal and compliance department that he created a fake company called NY Transfer in August 2001 for the sole purpose of receiving checks from an internal Morgan Stanley account. Garaventa was fired the following day and arrested in February.
Perlman, who joined Morgan Stanley in 2006 after two years as the division counsel for the United States Drug Enforcement Administration New York Division, is responsible for internal investigations and represents the company in regulatory and criminal matters.
