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A former Morgan Stanley investment adviser has pleaded guilty to conspiring to evade the bank’s internal controls by bribing a Chinese official to win lucrative real estate investments for the bank and himself.
Garth Peterson, a 42-year-old American who ran Morgan Stanley’s global real estate practice in Shanghai, pleaded guilty in a New York court and faces up to five years in prison when he is sentenced on July 17.
Mr Peterson also settled civil allegations of bribery with the Securities and Exchange Commission for allegedly helping Morgan Stanley win investments in the region and striking side deals with the unnamed Chinese official involving stakes in apartment complexes. The SEC also alleges Mr Peterson split $1.8m in “finder’s fees” with the Chinese official.
He agreed to pay about $250,000 and forfeit his stake in an apartment complex he secretly acquired from Morgan Stanley through offshore entities. The stake, the SEC has alleged, is worth $3.4m. Mr Peterson also agreed to a permanent bar from practising in the securities industry.
“Peterson crossed the line not once, but twice. He secretly bribed a government official to illegally win business for his employer and enriched himself in violation of his fiduciary duty to Morgan Stanley’s clients,” said Robert Khuzami, director of the SEC’s enforcement division.
Mr Peterson’s lawyer could not be reached for comment.
The Department of Justice said it declined to bring any charges against Morgan Stanley given systems it had in place to prevent employees from engaging in bribery. It said the bank co-operated in the investigation.
Morgan Stanley said it was “pleased that this matter is resolved.”
The charges come as the DoJ and the SEC have placed increased emphasis on foreign bribery cases with a number of investigations involving transactions in Asia. The SEC is investigating numerous banks and investment funds’ dealings with sovereign wealth funds, but no charges have been filed.
It is unusual for a Wall Street banker to be accused of violating foreign bribery laws. So far, large conglomerates and pharmaceutical and energy companies have paid hundreds of millions of dollars in fines to resolve foreign bribery investigations.
According to the SEC complaint, Mr Peterson began working for Morgan Stanley in Hong Kong in 2002 and was put in charge of the Shanghai office in 2007 where he was involved in at least 28 Chinese transactions.
From 2004 through 2007, the SEC alleged, he was engaged in the bribery scheme. Mr Peterson allegedly funnelled payments to the then-chairman of Yongye Enterprise, a real estate development arm of the Luwan district government in Shanghai, to help Morgan Stanley complete real estate investments. The Chinese official was not charged with any wrongdoing.
Additional reporting by Tracy Alloway