WASHINGTON A former Morgan Stanley executive pleaded guilty to conspiring to evade internal controls required by a U.S. anti-bribery law, in a case that underlines the fall of a once high-flying dealmaker for the firm in China.
Garth Peterson, who was a managing director in Morgan Stanley's real estate investment and fund advisory business, also settled on Wednesday related charges with securities regulators, and agreed to roughly $3.7 million in sanctions and a permanent bar from the industry.
Peterson secretly arranged to have millions paid to himself and a Chinese official and disguised the payments as finder's fees charged to Morgan Stanley, regulators said.
Such payments violated the Foreign Corrupt Practices Act, which bars bribes to officials of foreign governments, the Securities and Exchange Commission said.
The charges come as both the SEC and the Justice Department have stepped up efforts to enforce the FCPA, extracting billions of dollars in penalties in recent years, but the case is among the first related to the financial services industry.
Morgan Stanley, which cooperated in the government's investigation, was not charged in the case. Lawyers for Peterson declined to comment.
"Mr. Peterson admitted today that he actively sought to evade Morgan Stanley's internal controls in an effort to enrich himself and a Chinese government official," Assistant Attorney General Lanny Breuer said in a statement announcing the plea.
Morgan Stanley spokesman Matt Burkhard said the firm was pleased the matter was resolved.
"We cooperated fully with the government and we are very satisfied with this outcome," Burkhard said. "Mr. Peterson's intentional circumvention of Morgan Stanley's internal controls was a deliberate and egregious violation of our values and policies."
Peterson, who is scheduled to be sentenced on July 17, faces up to five years in prison.
When Peterson joined Morgan Stanley's real estate investment operation in China in the early 2000s, his networking ability and language skills helped him gain a quick promotion.
Peterson, an American citizen who spoke fluent Mandarin and the Shanghai dialect, was described by his Morgan Stanley colleagues in 2009 as a serial networker, making friends with the sons and daughters of powerful Beijing and Shanghai leaders and charming the Chinese executives of multinational corporations.
His downfall, however, was just as precipitous. Morgan Stanley fired Peterson in December 2009 over suspicions that he had violated the FCPA.
Peterson had a personal friendship with the former chairman of a Chinese state-owned entity, Yongye Enterprise (Group) Co, which had influence over the success of Morgan Stanley's real estate business in Shanghai, the SEC said.
Peterson secretly arranged for both of them to acquire a valuable Shanghai real estate interest from a Morgan Stanley fund, it said.
The SEC said Peterson agreed to give up $250,000 in unlawful profits, and to relinquish his interest in $3.4 million of Shanghai real estate.
(Reporting By Aruna Viswanatha; Additional reporting by Jessica Dye in Brooklyn; Editing by Gary Hill and Tim Dobbyn)