The SEC on Tuesday charged a former executive at Morgan Stanley with violating the Foreign Corrupt Practices Act (FCPA) as well as securities laws for investment advisers.   The individual secretly acquired millions of dollars worth of real estate investments for himself and an influential Chinese official who, in turn, steered business to Morgan Stanley’s funds.  The SEC filed its complaint in U.S. District Court for the Eastern District of New York. Peterson's Role with Morgan Stanley. Peterson's principal responsibility at Morgan Stanley was to evaluate, negotiate, acquire, manage and sell real estate investments on behalf of Morgan Stanley’s advisers and funds. He was terminated in 2008 due to his FCPA misconduct. According to the SEC, Peterson led Morgan Stanley’s effort to build a Chinese real estate investment portfolio for its real estate funds by cultivating a relationship with the Chinese official and taking advantage of his ability to steer opportunities to Morgan Stanley and his influence in helping with needed governmental approvals. Morgan Stanley thus partnered with Yongye on a number of significant Chinese real estate investments. At the same time, Peterson and the Chinese official expanded their personal business dealings both in a real estate interest secretly acquired from Morgan Stanley as well as by investing together in Chinese franchises of well-known U.S. fast food restaurants. Peterson failed to disclose these investments in annual disclosures that Morgan Stanley required him to make as part of his employment. SEC Findings and Allegations. Garth Peterson, from 2004 through 2007, was a managing director in Morgan Stanley’s real estate investment and fund advisory business.  Unbeknownst to others, Peterson had a personal friendship and secret business relationship with the former Chairman of a Chinese state-owned entity with influence over the success of Morgan Stanley’s real estate business in Shanghai. Peterson is alleged to have secretly arranged to have at least $1.8mn paid to himself and the Chinese official - disguising it as finder’s fees that Morgan Stanley’s funds owed to 3rd parties.  Peterson also secretly arranged for him, the Chinese official, and an attorney to acquire a valuable Shanghai real estate interest from a Morgan Stanley fund.  In the process of acquiring an interest from the fund, Peterson somehow managed to negotiate both sides of the transaction. In return for Peterson's largesse, the Chinese official helped Peterson and Morgan Stanley obtain business while personally benefiting from some of these same investments.  Peterson’s deception, self-dealing, and misappropriation breached the fiduciary duties he owed to Morgan Stanley’s funds as their representative. Allegedly, a Morgan Stanley compliance officer specifically informed Peterson in 2004 that employees of Yongye, the Chinese state-owned entity, were government officials for purposes of the FCPA. Peterson also received at least 35 FCPA compliance reminders from Morgan Stanley, but nonetheless committed the FCPA violations.

“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."  -- Robert Khuzami, SEC Enforcement Director.

SEC Sanctions. To settle the SEC charges, Peterson agreed to be permanently barred from the securities industry, pay over $250K in disgorgement, and relinquish his interest in the valuable Shanghai real estate - currently valued at $3.4mn) that he secretly acquired through his misconduct.  The SEC’s complaint charges Peterson with violations of:  (i) the anti-bribery, books and records and internal control provisions of the FCPA, and, (ii) with aiding and abetting violations of the anti-fraud provisions of the Investment Advisers Act of 1940. The U.S. Department of Justice has filed a related criminal case against Peterson. SEC Staff Credits. Investigation was conducted by David Neuman of the Asset Management Unit and Assistant Director Greg Faragasso, and the litigation was led by Richard Hong. For further details, go to:  [SEC PR 12-78, 4/25/12] and    [SEC Complaint].