By Simon Miller
The US's Securities and Exchange Commission (SEC) has charged a former Morgan Stanley executive Gareth Peterson with violating the Foreign Corrupt Practices Act (FCPA).
In addition, the SEC charged Peterson with breaching securities laws for investment advisers by secretly acquiring 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 alleges that Peterson, who was a managing director in Morgan Stanley’s real estate investment and fund advisory business, had a personal friendship and secret business relationship with the former chairman of Yongye Enterprise – a Chinese state-owned entity - with influence over the success of Morgan Stanley’s real estate business in Shanghai.
It said Peterson had secretly arranged to have at least $1.8m paid to himself and the Chinese official that he disguised as finder’s fees that Morgan Stanley’s funds owed to third parties.
It is also alleged that Peterson secretly arranged for him, the Chinese official, and an attorney to acquire a valuable Shanghai real estate interest from a Morgan Stanley fund. Peterson was acquiring an interest from the fund but negotiated both sides of the transaction. In exchange for offers and payments from Peterson, the Chinese official helped Peterson and Morgan Stanley obtain business while personally benefitting from some of these same investments.
The SEC said Peterson’s deception, self-dealing, and misappropriation breached the fiduciary duties he owed to Morgan Stanley’s funds as their representative.
Peterson agreed to a settlement of the SEC’s charges in which he will be permanently barred from the securities industry, pay more than $250,000 in disgorgement, and relinquish his interest in the valuable Shanghai real estate (currently valued at approximately $3.4m) that he secretly acquired through his misconduct. The US Department of Justice has filed a related criminal case against Peterson.
“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 Division of Enforcement.
Kara Novaco Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit, added: “As a rogue employee who took advantage of his firm and its investment advisory clients, Peterson orchestrated a scheme to illegally win business while lining his own pockets and those of an influential Chinese official.”