The Wall Street watchdog's civil action comes a day after Douglas McKelvey, who worked at a Morgan Stanley office in Southlake, Texas, for nearly 11 years,
The Securities and Exchange Commission accuses McKelvey, 58, of arranging more than 300 unauthorized disbursements from customer accounts held by his mother, only identified in court documents by the initials C.M., and his mother-in-law, identified as D.D. The transactions, according to the SEC, occurred between June 2013 and February 2022.
The SEC alleges McKelvey would often transfer money out of his relatives' brokerage accounts to make credit payments to another financial institution, which is identified as Citibank in the criminal documents. He also fabricated reports to conceal his fraud, according to prosecutors.
McKelvey's lawyer, Heather Barbieri, the founder of Plano, Texas-based Barbieri law firm, said her client demonstrated by pleading guilty to criminal charges this week that he is willing to work with law enforcement.
"He regrets his actions and is committed to making amends," Barbieri said in a statement.
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Robert Pearce, a securities lawyer at the Law Offices of Robert Wayne Pearce in Boca Raton, Florida, said cases of advisors taking advantage of their relatives in this way are fairly rare in his experience. In his 40 years of representing investors, he estimates, he has worked on fewer than five with similar circumstances.
"A lot of people who retire, they don't know what to do with their money," Pearce said. "And then if they have a son or relative in the business, of course they entrust them with the money versus a stranger."
Louis Straney, a regulatory expert at the consulting firm Arbitration Insight, said investors who are working with relatives are more apt to let down their guard than they would if they were in an arm's length relationship with an advisor.
"People tend to trust their family members and think, 'You'll take care of me and work in my best interests,'" Straney said. "So it's a ripe area for misconduct."
The SEC's case against McKelvey charges him with violations of antifraud provisions of the Securities and Exchange Act of 1934. Alongside disbarment from the industry, he's faced with having to pay back his ill-gotten gains. His related criminal case carries a maximum of 10 years in prison.
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A spokesperson for Morgan Stanley said the firm initially detected the suspect activity.
"Morgan Stanley terminated McKelvey and amicably resolved the matter with his relatives," the spokesperson said in a statement.
Before joining Morgan Stanley, McKelvey had stints at Citigroup Global Markets in Southlake from 2008 to 2009 and UBS Financial Services in Dallas from 2002 to 2008.
His BrokerCheck shows five disclosures of customer disputes and similar matters. All of them concern his alleged misdeeds at Morgan Stanley, save for the first one — a complaint of an alleged authorized security sale dating to 2008. That matter was resolved for $175,000.
