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On Thursday, a former real estate dealmaker of Morgan Stanley was sentenced to 9 months in prison for working around the internal controls of the bank to enrich himself and a Chinese government official. The dealmaker, Garth Peterson, 43, had pleaded guilty in April to his acts of conspiring to skirt the internal controls that Morgan Stanley required to maintain under the U.S. Foreign Corrupt Practices Act.
Peterson was posted in Shanghai as a managing director in Morgan Stanley’s real estate investment and fund advisory business when he erred. He was fired from his job in 2008 during an investigation into a doubtful real estate deal. His case is one of the first sentences in the financial services industry under the FCPA.
The nine-month prison term ordered by U.S. District Judge Jack Weinstein in Brooklyn was much shorter than the 51-60 months sought by federal prosecutors.
During the sentencing, Peterson apologized to his former employer and admitted that he had travelled down “the wrong track†when entering into a suspect deal with an official from the Chinese government-owned real estate investment corporation, Yongye.
Prosecutors alleged that Peterson had helped the Chinese official and a Canadian lawyer to secretly buy a stake in a valuable Shanghai property owned by Morgan Stanley. Prosecutors also said the deal was made in exchange of the promise from a Chinese official to help find investment opportunities for Morgan Stanley in China. The stake in the property transferred at discounted rates was worth at least $5.4 million more than that paid by Peterson and his accomplices.
Prior to his termination, Peterson was held by his peers as a rising star in Morgan Stanley. Though Peterson contended that he brought the Chinese official into the deal as an expression of “guanxi,†or the Chinese custom of exchanging professional favors, the prosecutors did not buy his argument and said Peterson had used the deal for personal profit.
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Morgan Stanley was not charged in the case, and Peterson settled a related SEC civil case by agreeing not to re-enter the securities industry ever again, and relinquishing his share in the real estate deal. The SEC valued Peterson’s personal stake in the deal at $3.4 million.
