Foreign Confidential ™
Foreign News and Analysis Since April 2005 -- formerly China Confidential -- What's Really Happening in the World
Sunday, April 29, 2012
SEC Charges Wall Street Executive With Bribing Chinese Official
Alleged Secret Business Relationship With State-Owned Entity
The Securities and Exchange Commission last week charged a former executive at Morgan Stanley with violating the Foreign Corrupt Practices Act (FCPA) as well as securities laws for investment advisers by secretly acquiring millions of dollars worth of real estate investments for himself and an influential Chinese official who in turn steered business to Morgan Stanley’s funds.
The SEC alleges that Garth R. Peterson, who was a managing director in Morgan Stanley’s real estate investment and fund advisory business, had a personal friendship and secret business relationship with the former Chairman of Yongye Enterprise (Group) Co.--a Chinese state-owned entity with influence over the success of Morgan Stanley’s real estate business in Shanghai. Peterson secretly arranged to have at least $1.8 million paid to himself and the Chinese official that he disguised as finder’s fees that Morgan Stanley’s funds owed to third parties. Peterson also secretly arranged for him, the Chinese official, and an attorney to acquire a valuable Shanghai real estate interest from a Morgan Stanley fund. Peterson was acquiring an interest from the fund but negotiated both sides of the transaction. 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. Peterson’s deception, self-dealing, and misappropriation breached the fiduciary duties he owed to Morgan Stanley’s funds as their representative.
Peterson agreed to a settlement of the SEC’s charges in which he will be permanently barred from the securities industry, pay more than $250,000 in disgorgement, and relinquish his interest in the valuable Shanghai real estate (currently valued at approximately $3.4 million) that he secretly acquired through his misconduct. The U.S. Department of Justice has filed a related criminal case against Peterson.
“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,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This case illustrates the SEC’s commitment to holding individuals accountable for FCPA violations, particularly employees who intentionally circumvent their company's internal controls.”
Lined His Pockets and Those of an Influential Official
Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, added, “As a rogue employee who took advantage of his firm and its investment advisory clients, Peterson orchestrated a scheme to illegally win business while lining his own pockets and those of an influential Chinese official.”
According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Peterson’s violations occurred from at least 2004 to 2007. His principal responsibility at Morgan Stanley was to evaluate, negotiate, acquire, manage and sell real estate investments on behalf of Morgan Stanley’s advisers and funds. He was terminated in 2008 due to his FCPA misconduct.
The SEC alleges that Peterson led Morgan Stanley’s effort to build a Chinese real estate investment portfolio for its real estate funds by cultivating a relationship with the Chinese official and taking advantage of his ability to steer opportunities to Morgan Stanley and his influence in helping with needed governmental approvals. Morgan Stanley thus partnered with Yongye on a number of significant Chinese real estate investments. At the same time, Peterson and the Chinese official expanded their personal business dealings both in a real estate interest secretly acquired from Morgan Stanley as well as by investing together in Chinese franchises of well-known U.S. fast food restaurants. Peterson failed to disclose these investments in annual disclosures that Morgan Stanley required him to make as part of his employment.
According to the SEC’s complaint, Peterson openly credited the Chinese official with helping obtain approvals required from other Chinese government entities for a deal to close. He wrote to several Morgan Stanley employees in response to an e-mail discussing the terms of one of Yongye’s purported investments, “Everyone pls keep in mind the big picture here. YY gave us this deal. ... So we owe them a favor relating to this deal. ... This should be very easy and friendly.” In another e-mail a week later, Peterson described “YYI” as “our friends who are coming in because WE OWE THEM A FAVOR.”
Ignored Compliance Reminders
The SEC alleges that a Morgan Stanley compliance officer specifically informed Peterson in 2004 that employees of Yongye, a Chinese state-owned entity, were government officials for purposes of the FCPA. Peterson also received at least 35 FCPA compliance reminders from Morgan Stanley, but nonetheless committed the FCPA violations.
The SEC’s complaint charges Peterson with violations of the anti-bribery, books and records and internal control provisions of the FCPA, and with aiding and abetting violations of the anti-fraud provisions of the Investment Advisers Act of 1940. Peterson consented to a court order requiring him to disgorge $254,589 and relinquish to a court-appointed receiver the interest he secretly acquired from Morgan Stanley’s fund in the Jin Lin Tiandi Serviced Apartments. Peterson’s interest has a current estimated value of approximately $3.4 million. The proposed settlement is subject to court approval. Peterson also has consented to permanent industry bars based on the anticipated entry of the injunctions against him and his criminal conviction.
The SEC acknowledges the assistance of the Fraud Section of DOJ’s Criminal Division, the U.S. Attorney’s Office for the Eastern District of New York, and the Federal Bureau of Investigation. Morgan Stanley, which is not charged in the matter, cooperated with the SEC’s inquiry and conducted a thorough internal investigation to determine the scope of the improper payments and other misconduct involved.
The SEC’s investigation was conducted by David Neuman of the Asset Management Unit and Assistant Director Greg Faragasso, and the litigation was led by Richard Hong.
Jordanian Protestors Escalate Pressure
Slogans Become More Daring
Mona Alami reports from Amman:
On a warm Friday afternoon, police cars blocked the roads around the Al Husseini mosque, where hundreds of men were kneeling for the noon prayers. At the end of the service, the crowds rose and marched in a compact protest behind a car bearing a banner for the Islamic Action Front (IAF), the Jordanian branch of the Muslim Brotherhood.
"With our blood, our soul, we sacrifice ourselves for Jordan," chanted the crowd.Such protests have become a weekly sight in the Hashemite Kingdom, but they have been relatively peaceful, contrary to uprisings in neighbouring countries.
"Protestors are slowly upping the ante, with slogans becoming more daring day by day," observed Mohamad Masri, a political scientist at the Centre for Strategic Studies at Jordan University.
North Korean Elite Enjoy Good Life in Capital
Supply Networks Evade Embargo on Luxury Goods
Gilles Campion reports from Pyongyang:
Nuclear-armed North Korea has been under heavy sanctions for years but there is little sign of any effect on the elite in Pyongyang, who enjoy unfettered access to upmarket cars and consumer goods.
The economy of the isolated North--where famine killed hundreds of thousands in the 1990s--is widely believed to be battered and stuttering, but the luxury shops of the showcase capital tell a different story….
And outside Pyongyang is another country--one where, according to the UN, a third of under-fives still suffer from chronic malnutrition and an entire generation is stunted in growth after the 1990s famine.
Click here to read the entire AFP report.
Overlooked: N. Korea Reiterated 'Ashes' Threat
Regime Again Vows 'Special Action' Against Seoul
North Korea last Thursday reiterated its dire threat to reduce the South Korean government "to ashes with unprecedented means." Read more.
Saturday, April 28, 2012
Iran Appears to Threaten EMP Attack on US
Threat to East Coast Implies Asymmetric Warfare
Iran has threatened the East Coast of the United States in a way that could mean that the mullahocracy has already deployed seemingly civilian cargo ships equipped with camouflaged (containerized) systems capable of launching nuclear-tipped missiles--in order to strike U.S. coastal cities or effectively destroy the U.S. in a surprise EMP attack. Click here for the news.
The Iranian threat follows a North Korean EMP threat against the U.S. homeland.
A taboo question: Could Iran have bought one or more nuclear weapons from its proliferation partner, North Korea, including, possibly, primitive bombs and warheads and radiological (dirty) bombs?
Related: Iranian Admiral Threatens New York
Israeli Leaders More Outspoken on Syria
Israeli leaders are increasingly outspoken on the Syrian crisis. There is now a broad consensus that Syrians and Israelis--and the region in general--would be better off without the current Syrian regime. In fact, intelligence reportedly makes Israel's leaders more hopeful that a pro-Western Sunni government will replace Shiite Islamist Iran's secular ally, Bashar al-Assad.
Given the involvement of the clerical fascist (Islamist) Muslim Brotherhood in the Syrian uprising and the support that it has from MB-backing Turkey's supposed "moderate" Islamist government, one can only hope that the intelligence is accurate. On the one hand, Assad's alliance with Iran (and North Korea) has posed a serious threat to Israel; on the other hand, the last thing Israel needs is another Islamist neighbor on its northern border. Lebanon, which is in the grip of Iran's Shiite Islamist proxy, Hezbollah, is a big enough problem for Israel--the Hitlerian terrorist group has been allowed to amass an arsenal of tens of thousands of missiles capable of striking targets across the Jewish State.
It's hard to believe that there was a time when it was commonly believed by Israelis and their supporters and friends abroad that Lebanon--back in the days when Beirut was "the Paris of the Middle East"--would be the second Arab country to sign a peace treaty with Israel. Nowadays, it looks like Lebanon will be the last to sign.
Then, again, it's also hard to believe that there was a time when Iran was an ally of both the United States and Israel. But that's another story.
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