SEC v. Garth Peterson (E.D.N.Y. 2012)

• Case Name
• SEC v. Garth Peterson (E.D.N.Y. 2012)

• Date Filed
• 05/03/2012

• Enforcement Agency
• SEC

• Countries
• China

• Foreign Official
• Executive at Shanghai Yongye Enterprise (Group) Co. Ltd. (“Yongye”), a state-owned, limited liability corporation incorporated by the Luwan District government.

• Date of Conduct
• 2004 to 2007

• Nature of Business
• Garth Peterson was a managing director in charge of Morgan Stanley’s Real Estate Group’s (“MSRE”) Shanghai office.  Morgan Stanley is a global financial services firm listed on the New York Stock Exchange.  Morgan Stanley, through MSRE, created and managed real estate funds for institutional investors and high-net-worth investors.

• Influence to be Obtained
• According to the SEC’s complaint, from at least 2004 to 2007, Peterson secretly acquired millions of dollars in real estate investments from Morgan Stanley’s funds for himself and for the former Chairman of Yongye (the “Chinese Official”).  Yongye was a state-owned entity with influence over the success of Morgan Stanley’s real estate business in China.  Peterson had a pre-existing business and personal relationship with the Chinese Official.  Peterson also arranged to have at least $1.8 million paid to himself and the Chinese Official in what he fraudulently represented were finders’ fees Morgan Stanley’s funds owed to third parties.  In exchange for offers and payments from Peterson, the Chinese Official helped Peterson and Morgan Stanley obtain business while personally benefitting from some of these same investments. 
  
  In 2004, MSRE was negotiating to purchase a tower of a Shanghai building.  To do so, MSRE required the approval of the Chinese Official.  The Chinese Official approved of MSRE’s purchase, but secretly, Peterson, the Chinese Official, and a Canadian attorney conspired to purchase a real estate interest in the tower.  The three co-conspirators set up an offshore shell entity and misrepresented to Morgan Stanley that Yongye sought to purchase an interest through an offshore subsidiary, which was actually a shell entity collectively owned by the three conspirators.  Morgan Stanley ultimately sold the interest to the shell entity at a discount, which further enriched Peterson and his co-conspirators.

• Enforcement
• Peterson settled with the SEC, and the court entered a final judgment against Peterson, ordering him to disgorge approximately $3.82 million (comprised of his shares in the investment vehicle, worth $3.4 million, $241,589 in cash, and prejudgment interest).  The SEC also permanently barred Peterson from associating with investment advisors, broker-dealers, municipal securities dealers, municipals advisors, transfer agents, and other nationally recognized ratings organizations.
  
  In a related criminal action brought by the DOJ, Peterson pleaded guilty to conspiring to evade Morgan Stanley’s internal controls and was sentenced to nine months in prison.

• Amount of the Value
• Not Stated

• Amount of Business Related to Payment
• Not Stated

• Intermediary
• Offshore shell company.

• Citizenship of Parent Entity
• United States

• Total Sanction
• $ 3,822,613

• Compliance Monitor
• No

• Reporting Requirements
• No

• Case is Pending?
• No

• Total Combined Monetary Sanction
• $ 3,822,613

• Related Enforcement Actions

Garth Peterson

• Citation
• SEC v. Peterson, No. 1:12-cv-2033 (E.D.N.Y. May 3, 2012).

• Date Filed
• 05/03/2012

• Filed Under Seal
• No

• FCPA Statutory Provision
• • Anti-Bribery
  • Internal Controls

• Other Statutory Provision
• Aiding and Abetting (Sections 206(1) and 206(2) of the Advisers Act).

• Disposition
• Complaint and Consent Order

• Defendant Jurisdictional Basis
• Agent of Issuer

• Defendant's Citizenship
• United States