An investigation by Morgan Stanley into possible foreign corrupt practices in its real estate operations in China has found no evidence that the group’s former global head, Sonny Kalsi, “caused or authorised” the alleged misuse of assets, it was confirmed today.
Kalsi was placed on administrative leave from Morgan Stanley Real Estate Investing in February, after it emerged that “actions” by a former employee “appear[ed] to have violated the [US] Foreign Corrupt Practices Act”.
Today, an indepth report by Reuters said that following a nine-month investigation Morgan Stanley had turned its findings over to the US Department of Justice and Securities and Exchange Commission, which have opened their own probes.
It is believed the possible violations were centred on the conduct of a single former employee in the Shanghai real estate office … [in a] discrete number of instances, investment assets were used for improper purposes not authorised by senior management. Investor letter from Morgan Stanley, 29 October, as cited by Reuters
It is believed the possible violations were centred on the conduct of a single former employee in the Shanghai real estate office … [in a] discrete number of instances, investment assets were used for improper purposes not authorised by senior management.
Investor letter from Morgan Stanley, 29 October, as cited by Reuters
The letter reportedly went on to state that in a “discrete number of instances, investment assets were used for improper purposes not authorised by senior management”. Reuters’ sources identified Garth Peterson as the man at the centre of the probe.
A spokeswoman for Kalsi told PERE that the internal investigation conducted by Morgan Stanley found “no evidence that Sonny caused or authorised the alleged misuse of assets.” She added that when the allegations of misconduct came to light “Sonny played a key role in initiating Morgan Stanley's internal investigation and has continued to cooperate fully with the firm's investigation”.
A Morgan Stanley spokeswoman added: “We cannot confirm the accuracy of the statements made by Mr. Kalsi and we decline to comment further given ongoing regulatory investigations.”
Kalsi has since resigned from Morgan Stanley to pursue other interests. His spokeswoman added that he was “proud of his tenure at Morgan Stanley and looks forward to building on his accomplishments as he continues his career”.
According to the Reuters report, Peterson joined Morgan Stanley Real Estate's Hong Kong Office in mid-2002 as an associate to focus on China properties. He was promoted to vice president in 2003, and executive director two years later, and by early 2006, Peterson relocated to Shanghai. He spoke fluent Mandarin and the Shanghai dialect and was seen as a natural networker. After a series of profitable investments, Peterson was appointed managing director in December 2007, making him responsible for property investments across the nation.
It wasn’t until late 2008, following the departure of Peterson's boss, Zain Fancy, a Pakistani who was based in Hong Kong, and three others that Kalsi was dispatched to Shanghai to oversee activities in the region. A region-wide review, led by the Asia management team in mid-2008, found some projects handled by Peterson to have “suspected problems” and were reported internally by Morgan Stanley compliance officers, Reuters said. Peterson was fired in December 2008.
In February, Morgan Stanley said in a regulatory filing it had uncovered actions by an employee in China that “appear to have violated the Foreign Corrupt Practices Act”. Reuters’ sources identified that employee as Peterson. As a result of the disclosure, Kalsi and Andrew Yoon, the chief financial officer for the Asian real estate business, were placed on administrative leave. Yoon is planning to return to the firm.
The Reuters report said Morgan Stanley lawyers interviewed employees and reviewed more than 7.4 million pages of email and related documents, all at Morgan Stanley's expense.
Friends of Peterson told Reuters that once the investigations conclude, he plans a “second act in the real estate investment industry”. Peterson is living in Singapore, and has told a friend he is unlikely to return to China, but would explore other emerging markets in South East Asia, according to Reuters.