Ex-Morgan Stanley Executive Pleads Guilty in Conspiracy

Garth R. Peterson, a former Morgan Stanley (MS) executive, pleaded guilty to conspiracy for his role in the transfer of a multimillion dollar ownership interest in a Shanghai building to himself and a Chinese public official.

Peterson, 42, who was a managing director in Morgan Stanley’s real estate investment business, pleaded guilty yesterday in federal court in Brooklyn, New York, to conspiring to evade accounting controls, the Justice Department said in an e-mailed statement.

“I decided from the beginning that that I would mislead Morgan Stanley about who would be investing as a Chinese partner,” Peterson told U.S. District Judge Jack B. Weinstein. “I know what I did was wrong and I apologize for my actions.”

Peterson “lied and cheated his way to millions in personal profit,” Assistant U.S. Attorney General Lanny A. Breuer, head of the Justice Department’s criminal division, said in the statement. “Because of his corrupt conduct, he now faces the prospect of prison time.”

Peterson is scheduled to be sentenced July 17. He faces as long as five years in prison and a maximum fine of $250,000, prosecutors said.

Morgan Stanley is required, under the Foreign Corrupt Practices Act, to maintain the internal accounting controls Peterson violated, according to the Justice Department. The controls ensure accountability for the bank’s assets and prevent employees from paying or promising anything of value to foreign government officials, the Justice Department said.

Received Training

From 2002 to 2008, Peterson received training on the Foreign Corrupt Practices Act from Morgan Stanley seven times, and he was reminded about his duty to comply with it at least 35 times, the Justice Department said.

Peterson told Morgan Stanley that the bank’s interest a Shanghai real estate deal was being sold to a state-controlled entity, though it was actually sold to a shell company controlled by Peterson, a Chinese official and a Canadian lawyer, according to the Justice Department.

Morgan Stanley sold the real estate at a discount, allowing the conspirators to realize an immediate profit of more than $2.5 million, according to the statement. Peterson and his co- conspirators collected equity distributions from the deal as the real-estate appreciated in value, the Justice Department said.

The U.S. Securities and Exchange Commission also accused Peterson of violating the Foreign Corrupt Practices Act and securities laws in a lawsuit filed yesterday in federal court in New York, according to a separate statement from that agency.

Finder’s Fees

Peterson arranged to have at least $1.8 million paid to himself and the Chinese official that he disguised as finder’s fees, the SEC said in its statement. Peterson, who led Morgan Stanley’s effort to build a Chinese real estate portfolio, also agreed as part of a settlement with the SEC to be permanently barred from the securities industry and relinquish his interest in the Shanghai real estate investment, currently valued at about $3.4 million, the SEC said.

A May 2 settlement hearing is scheduled for the SEC case.

“We cooperated fully with the government, and we are very satisfied with this outcome,” Mark Lake, a spokesman for the New York-based Morgan Stanley, said in a statement. “Mr. Peterson’s intentional circumvention of Morgan Stanley’s internal controls was a deliberate and egregious violation of our values and policies.”

Frank Wohl, Peterson’s lawyer, declined to comment after the hearing on the guilty plea.

The criminal case is U.S. v. Peterson, 12-cr-00224, U.S. District Court, Eastern District of New York (Brooklyn). The civil case is Securities and Exchange Commission v. Peterson, 12-cv-02033, U.S. District Court, Eastern District of New York (Brooklyn).

To contact the reporters on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net; Thom Weidlich in New York at tweidlich@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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