Update on Morgan Stanley

Guilty.

Garth Peterson, a former real estate investment managing director for Morgan Stanley was sentenced to nine months in prison on August 16th, 2012 for violations of the anti-bribery laws under the U.S. Foreign Corrupt Practices Act (FCPA). Peterson plead guilty to conspiring to evade internal accounting controls which were maintained by his former employer, Morgan Stanley.

Bribery.

Prosecutors accused Peterson of enabling a Chinese government official and a Canadian lawyer to secretly buy a valuable Morgan Stanley property in Shanghai for $5 million dollars less than its value. The Chinese government official promised to help Peterson find investment opportunities for Morgan Stanley in the Chinese real estate market in exchange for the discounted property deal.

Guanxi.

According to the court filings, Peterson tried to explain how he exchanged favors with the Chinese government official by referring to “guanxi”. A well known custom in Asia, guanxi is an expression to describe the exchange of favors in professional relationships. His defense did not hold. Peterson had to relinquish his share in the real estate deal and the U.S. Securities and Exchange Commission will never let him work in the securities industry again.

Exonerated.

A spokesman for Morgan Stanley said, “Mr. Peterson’s intentional circumvention of Morgan Stanley’s internal controls was a deliberate and egregious violation of our values and policies.” Morgan Stanley was not charged in the case because both the Department of Justice and the Securities Exchange Commission determined the company had appropriate anti-bribery training and internal controls set in place. Morgan Stanley conducted an internal investigation, took immediate action to resolve the violations and cooperated with authorities.

 

The case is U.S. v. Peterson, U.S. District Court, Eastern District of New York, No. 12-cr-00224.