Ex-MS Banker in China Bribery Case: My Side of Story
CNBC Senior Correspondent
Garth Peterson’s timing was impeccable.
He had joined Morgan Stanley in Asia in 2002, just as the Chinese real estate market was taking off. His job would be making real estate deals for the firm, and Peterson seemed the ideal person for the position.
A blonde, blue-eyed American raised in Singapore, Peterson — then in his early 30s — was fluent in Mandarin, and in the local culture.
“The language is, you know, essential, I would say, being able to speak Mandarin well,” Peterson said. “But beyond that, I worked in the Chinese real estate industry since 1993.”
In 2006 alone, according to news reports at the time, Morgan Stanley invested $3 billion in Chinese real estate. Peterson, by then a vice president, was at the forefront.
“I was given more and more support, and the business just grew exponentially,” he said.
Today, his fortunes have drastically changed.
On Thursday, Peterson was sentenced to 9 months in prison and 3 years supervised release after pleading guilty to evading Morgan Stanley’s internal controls — a federal offense.
Prosecutors said he engineered a deal that transferred Morgan Stanley’s interest in a multi-million dollar Shanghai real estate development to a shell company secretly controlled by Peterson and a Chinese government official. The official, who was not identified, made an instant paper profit of $2.5 million. (Related:Former Morgan Stanley Director Pleads Guilty to Conspiracy.)
The Justice Department has held up the case as an example of tough enforcement of the Foreign Corrupt Practices Act — the anti-bribery law that is the subject of a multi-year crackdown.
When the case came to light in 2009, it was a bombshell in the wild and wooly Asian property business. Morgan Stanley placed two other executives on leave. Both were cleared of wrongdoing, as was Morgan Stanley, which first reported the conduct to the authorities. Morgan Stanley fired Peterson in December, 2008.
“We cooperated fully with the government throughout this process,” Morgan Stanley said in a statement following Peterson’s sentencing. “Mr. Peterson’s intentional circumvention of Morgan Stanley’s internal controls was a deliberate and egregious violation of our values and policies.”
Those policies have won praise from the government.
“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,” the Justice Department said in a statement.
But in an exclusive interview conducted on the eve of his sentencing, Peterson told Investigations Inc. there is more to his case than meets the eye — and less than the victory against corruption that Morgan Stanley and the government are claiming.
“What I feel bad about is the government lying to the public and saying that they (Morgan Stanley) had this wonderful compliance program, when in fact the government knows that it wasn’t getting into people’s heads, which is what really matters,” he said.
Peterson also insisted that the real estate deal in question was not about bribing the Chinese official as the government claims, but was about recouping his own investment in the real estate development, which he said pre-dated his employment at Morgan Stanley. He said he was angry when the firm required him to divest his interest in the deal.
“I brought them in, and then they were forcing me out,” he said. “And so, about a year after that, I found a way to buy back in at the same price that I'd been forced out at.”
By then, of course, the real estate market had gone even higher. So Peterson — and the Chinese official who was secretly helping front the deal — were buying at a deep discount.
Peterson admits the deal was wrong.
“I probably shouldn’t have secretly invested. But I never bribed him. I never bribed anybody.”
He believes the government — and Morgan Stanley — are making a show of his case to highlight the Foreign Corrupt Practices Act. But he says in fact, there was little attention paid to the anti-bribery law during his time in Asia.
“The Department of Justice particularly, also the SEC maybe to a lesser extent, are so keen on finding some example they can get by the scruff of the neck and say, ‘See here? Remember this law? You know, nobody do this again.’ They’re getting it, at the expense of truth,” he said.
A former colleague of Peterson’s at Morgan Stanley, speaking on the condition of anonymity, agrees that little attention was paid to the U.S. anti-bribery laws during the Chinese real estate boom, and says most employees “knew very little” about the FCPA until Peterson’s activities were uncovered in 2008.
“The system got much better after that,” the person said.
The Justice Department, in praising Morgan Stanley’s compliance efforts, said the firm trained various groups of Asia-based employees on anti-corruption policies 54 times between 2002 and 2008, but the source says the lack of specifics in the Justice Department’s statement is telling.
“You notice they don’t put dates,” the person said.
A Morgan Stanley spokesman declined to comment on whether the firm’s policies were strengthened after Peterson found a way around them.