Garth Peterson was a United States citizen who, from 2002 to 2008, worked for Morgan Stanley and held various positions, including Managing Director in charge of the Morgan Stanley Real Estate Group's ("MSRE") Shanghai office in the People's Republic of China.
Morgan Stanley was a global financial services firm with more than 61,000 employees worldwide. Its shares were listed on the New York Stock Exchange. Morgan Stanley, through MSRE, created and managed real estate funds (the "MSREFs") for institutional investors and high net worth individuals. Morgan Stanley maintained a system of internal controls meant to ensure accountability for its assets and to prevent employees from offering, promising or paying anything of value to foreign government officials. Morgan Stanley’s internal policies, which were updated regularly to reflect regulatory developments and specific risks, prohibited bribery and addressed corruption risks associated with the giving of gifts, business entertainment, travel, lodging, meals, charitable contributions and employment. Morgan Stanley frequently trained its employees on its internal policies, the FCPA and other anti-corruption laws.
Between 2004 and 2007, Peterson conspired with others to circumvent Morgan Stanley's internal controls in order to sell an interest in a building to himself, a Chinese official, and a Canadian attorney. The Chinese Official worked for Shanghai Yongye Enterprise (Group) Co. Ltd. ("Yongye"), a limited liability corporation owned by the Luwan District government of the city of Shanghai. Peterson misrepresented to Morgan Stanley that the purchaser was Yongye, when in fact the real purchaser was a shell company created by the three co-conspirators. Peterson convinced Morgan Stanley to sell Yongye the property at a discount, which allowed the co-conspirators to realize a hefty profit. Peterson personally profited in the amount of $2,741,693 from the deal.
Peterson later caused a $2.2 million finder's fee to be paid to an investor in connection with a separate real estate development project. The investor transferred $1.6 million of this fee to Peterson, who gave nearly $700,000 to the Chinese official and kept the rest for himself.
On April 25, 2012, the SEC filed a three count Complaint in the Eastern District of New York against Peterson alleging violations of the anti-bribery provisions of the FCPA, knowing violations of the books & records and internal controls provisions of the FCPA, and aiding and abetting violations of Section 206 of the Advisers Act. On the same date, Peterson entered into a Consent Agreement with the SEC. Under the terms of the agreement and without admitting or denying the allegations in the Complaint, Peterson agreed to disgorgement of $3,667,713 plus prejudgment interest of $154,900.44, for a total amount of$3,822,613.44, representing profits gained as a result of the conduct alleged in the Complaint. However, the SEC agreed that Peterson lacked the means to make such a payment, and the court determined that the obligation would be satisfied by payment of $241,589 plus relinquishing his right to any title in the Project Cavity building and the various companies in which he owned a stake.
In a related, parallel criminal action, on April 25, 2012, the DOJ filed a single count Information in the Eastern District of New York against Peterson alleging conspiracy to violate the internal controls provisions of the FCPA. On the same date, Peterson pleaded guilty to the count, and on August 28, 2013, the court sentenced Peterson to 9 months imprisonment to be followed by 3 years of supervised release and a mandatory assessment of $100. This sanction represented a significant downward departure from the guidelines range. The court cited several factors for the departure, including Peterson's inability to pay a monetary fine, especially in light of the significant fine imposed on him in the parallel civil action brought by the SEC and his negative cash flow, and Peterson's history and personal characteristics. Peterson had had a particularly turbulent childhood, and the court determined that the reduced sanction would be sufficient to meet both general and specific deterrence goals.
