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Judge (Again) Significantly Rejects DOJ’s Recommendation In Sentencing Garth Peterson, Peterson Goes On Offense And Says The DOJ Is Lying About Morgan Stanley’s FCPA Compliance Procedures

While FCPA enforcement is largely devoid of judicial scrutiny, sentencing of individual FCPA defendants remains a judicial function and provides an opportunity for someone other than the DOJ to have input on some aspect of the DOJ’s positions when it comes to FCPA enforcement.

While there are a few examples of federal court judges harshly sentencing defendants consistent with DOJ sentencing recommendations (the majority of those sentences have been issued by Judge Jose Martinez in the S.D. of Florida), the clear trend is for judges to significantly reject the DOJ’s FCPA sentencing recommendations.  See here, here, here and here for previous posts among others.

Given this trend, it is not surprising that last week Judge Jack Weinsten (E.D.N.Y.) significantly rejected the DOJ’s sentencing recommendation of 51-60 months in sentencing Garth Peterson to 9 months in prison.  See here for the Reuters article.  See here for the previous post discussing the April 2012 DOJ and SEC enforcement action against Peterson.

Of note, in its sentencing memo (here), the DOJ accused Peterson of making several misrepresentations in his sentencing submission.  The DOJ stated as follows.  “Peterson’s efforts to mislead the Court concerning the genesis of his crime – a crime fundamentally based upon deceit – call into serious question his assertion that he understands the gravity of the crime he committed, that he is unlikly to engage in such deception in the future, and that he accepts responsibiity for his wrongful conduct.  Peterson should be sentenced within the advisory guidelines because he circumvented Morgan Stanley’s internal controls to bribe an official of the Chinese government – an action that has serious consequences for the United States and for American companies transacting business in China.”

The sentencing memos of both parties (see here for Peterson’s sentencing submission and here for his reply) also shed light on additional information relevant to Morgan Stanley’s so-called declination (see here for the prior post).  In its submission, the DOJ stated that Peterson “repeatedly and consistently lied to his Moran Stanley supervisors and c0-workers” concerning the conduct at issue and that  “each of Peterson’s [Morgan Stanley required FCPA certifications] was but another lie that lulled his employer in trusting Peterson.”  In his sentencing submission, Peterson stated as follows concerning the Chinese Official he had a relationship with prior to joining Morgan Stanely.  “The Chinese Official was a close friend of Peterson’s – in many ways a father figure to him – and Peterson helped him in order to repay the help that the Chinese Official had given him through his career.”  Peterson also asserts that his attempt to influence the “father figure” Chinese Official in the investment project giving rise to the enforcement action was an attempt to recoup an investment for this mother.


On the eve of his sentence, Peterson sat for an exclusive interview on CNBC.  See here a video clip, here for the transcript.

In the interview, Peterson stated as follows concerning the investment at issue in the enforcement action.

“The government hasn’t released some important background about that. I made that investment before I joined Morgan Stanley. When I joined, I declared it to Morgan Stanley. Then, Morgan Stanley became familiar with that deal, and decided they wanted to buy in as well. So, I helped them to do that. Then, in– two– about a year and a half after that– essentially, just to make it very simple, Morgan Stanley forced me out of that deal. And I felt that was unfair, because it had been something I’d had before. Then, I brought them in, and then they were forcing me out. 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. That’s still—a wrong action. When Morgan Stanley forced me out of the deal, I should’ve either quit, and thereby kept the investment, or I should’ve just accepted that they didn’t want me to be involved in the deal as long as the company was involved. But I don’t believe that that should be characterized as a, “web of deceit,” and whatever, to– you know, to take things from Morgan Stanley.”

The following exchange occurred between Scott Cohn (CNBC) and Peterson as to his decision to plead guilty.

COHN: So, why did you plead guilty to anything?

PETERSON: You know, it’s– I think, hopefully most people will never be in the position I had to be in. But when you’re an individual against the weight of the U.S. Government– and the U.S. Government, the Department of Justice, the SEC, perhaps it’s their way of doing things. They can have—a heavy stick, you know. That if you don’t cooperate with us, you’ll– you know, we’re going to do all these other things. And so, I just cooperated. You know, everybody’s different. Some people are fighters. I guess I’m not.

COHN: But, I mean, you– you’re giving away a lot. You’re– potentially giving away your freedom for a number of years?

PETERSON: In some sense, they took that away a long time ago in reality. Because once I started to cooperate– when they wanted to speak to me, I had to go speak to them. They were– literally, the SEC was harassing my family for years. But– at the end of the day, like I said, I agreed to cooperate, and so, I took that path.

In the interview Peterson criticized Morgan Stanley’s FCPA procedures and said the DOJ is lying to the public.

COHN: Do you– do you– do you feel like Morgan Stanley threw you overboard?

PETERSON: Yeah. Look, I did things wrong. I deserved to get fired. I never bribed anybody, so it’s still a mystery, a little bit why– you know, this whole case is– has been focused on that. Because as I’ve said, I know what I did. These are the things I did wrong.  Morgan Stanley got off scot-free. And I think, you know, I have no– you know, desire for them to be harmed in any way, or you know. So– it’s not that. But what I feel bad about is– the government lying to the– to the public. And– saying that– they 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.

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