DOJ/SEC Bring First FCPA Case Involving Private Fund Investment Adviser


On April 25, 2012, the Securities and Exchange Commission (the “SEC”) charged a former Managing Director in Morgan Stanley’s Chinese real estate investment and fund advisory group with violations of the Foreign Corrupt Practices Act (the “FCPA”), under Sections 30A(g) and 13(b)(5) of the Securities Exchange Act of 1934 (the “Exchange Act”). He is also charged with aiding and abetting Morgan Stanley wholly-owned investment advisers in violation of the anti-fraud provisions of the Investment Advisers Act of 1940 (the “Advisers Act”), namely Sections 206(1) and 206(2). On the same day, the executive pleaded guilty to DOJ’s one-count criminal information charging him with conspiring to evade internal accounting controls that Morgan Stanley was required to maintain under the FCPA. This case represents the first FCPA-related charges involving a private fund investment advisor.

The SEC and DOJ allege that Garth R. Peterson, 42, an American citizen living in Singapore, exploited his personal friendship and secret business relationship with a Chinese government official to steer business opportunities to the real estate investment funds managed by his employer, Morgan Stanley, as well as to “secretly acquire” millions of dollars worth of real estate investments for himself and the Chinese official. The Chinese official was the former Chairman of Yongye Enterprise (Group) Co., a Chinese state-owned and statecontrolled entity through which Shanghai’s Luwan District managed its own property and facilitated outside investment in the district. Robert Khuzami, Director of the SEC’s Division of Enforcement, summed up the case with the following statement: “Peterson crossed the line not once, but twice. He secretly bribed a government official to illegally win business for his employer and enriched himself in violation of his fiduciary duty to Morgan Stanley’s clients.”

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