A former vice president and advisor at Morgan Stanley pleaded guilty yesterday to charges of swindling two elderly clients out of at least $1.5 million, according to the U.S. Attorney’s Office for the Eastern District of Texas. According to accounts by the Dallas Morning News and Barron's, the two clients were the advisor's mother and mother-in-law.

Doug M. McKelvey, 58, of Southlake, Texas, pleaded guilty to money laundering charges before U.S. Magistrate Judge Kimberly C. Priest Johnson. He faces up to 10 years in federal prison.

According to a separate complaint filed yesterday by the U.S. Securities and Exchange Commission, from June 2013 to February 2022, McKelvey, while employed as a vice president and financial advisor in the Southlake, Texas, office of Morgan Stanley, initiated more than 300 fraudulent and unauthorized disbursements of funds from the accounts of his two relatives to pay for personal expenses including vacations, cruises, and salon and restaurant charges.

The SEC said McKelvey made 50 separate unauthorized transfers from the account of one relative for more than $600,000. He used three primary means to carry out his scheme, the complaint said: In 2013 and 2014, he issued checks from the relative's account to make payments to another account at a bank for a credit card that was used by either McKelvey or his wife. In 2015 (and one instance in 2022), he initiated Automated Clearing House (ACH) transfers through the bank, which did not require authorization from the account holder, to withdraw funds from the relative’s account to pay balances on his credit card. In 2015 and 2016, McKelvey also fraudulently transferred funds via internal cash journal transfers from the relative’s account to a trust account that he owned and controlled at Morgan Stanley. He then used the money to fund ACH payments for the credit card. The SEC said he repeatedly lied on internal forms that he had received a verbal request from the relative requesting the cash journal transfer from her individual account to the trust account. 

“Virtually all of the unauthorized journal transfers from the [customer’s] individual account to the trust account were followed in a few days by ACH transfers of an identical value from the trust account to pay the financial institution credit card,” the complaint said.

All this was done without the relative's knowledge and authorization, the complaint said.

McKelvey also frequently sold securities in his relative's account to generate cash so he could misappropriate the proceeds of those sales, the complaint said. It also pointed out that the unauthorized withdrawals from the relative’s account were a loan advance taken against the securities holdings in the account and therefore constituted a sale of the securities. The relative client did not authorize McKelvey to sell these securities or “withdraw the proceeds for his own personal use,” something McKelvey knew or disregarded, the complaint said.

In the case of the other relative, the complaint said McKelvey stole more than $1.1 million from the account between August 2016 and February 2022 through more than 250 separate unauthorized transfers. As he did with his other client relative, he took liberty with the account and made ACH transactions and journal transfers and sold securities in the account, none of which were authorized, the complaint said.

The SEC said McKelvey also took steps to hide his fraud, but his relative noticed a payment to a bank from her account and inquired about it. McKelvey falsely told her that it was normal practice for Morgan Stanley to route customer funds through that bank. The complaint said on another occasion he told the second client that he was using money in her account to invest in an annuity that would provide her with benefits. That, too, was a lie. He handed her a bogus annuity document to substantiate his claim, the complaint said.

McKelvey began his career at UBS Financial Services in 2002, according to BrokerCheck. He moved to Citigroup Global Markets in 2008 and joined Morgan Stanley in 2009, where he stayed until he was fired in April 2022 for “unauthorized activity and misappropriation of funds from client accounts.”

McKelvey was barred by the Financial Industry Regulatory Authority in August 2022 for refusing to provide information and documents for an investigation into the allegations, according to BrokerCheck, which shows two settlements by Morgan Stanley over the misappropriated funds, in the amounts of $450,000 in February of this year and $1.4 million in May 2022.