Ex-Morgan Stanley executive gets prison time in bribery case

NEW YORK, Fri Aug 17, 2012 – A former Morgan Stanley real estate dealmaker was sentenced to nine months in prison on Thursday for skirting the bank’s internal controls in an effort to enrich himself and a Chinese government official.

Garth Peterson, 43, had pleaded guilty in April to conspiring to evade internal accounting controls that Morgan Stanley was required to maintain under the U.S. Foreign Corrupt Practices Act, an anti-bribery law.

Peterson, a managing director in Morgan Stanley’s real estate investment and fund advisory business in Shanghai, was fired in 2008 amid a probe into a suspect real estate deal, court records showed.

While federal investigators have increased efforts in recent years to enforce the FCPA, which is intended to thwart illicit payments to foreign officials, Peterson’s case is among the first related to the financial services industry.

The sentence, imposed by U.S. District Judge Jack Weinstein in Brooklyn, New York, was much shorter than the 51- to 60-month term sought by prosecutors.

A spokesman for U.S. Attorney Loretta Lynch in Brooklyn declined to comment.

During Thursday’s sentencing hearing, Peterson apologized to his family and his former employer, saying he went down “the wrong track” when he entered a suspect real estate deal with an unnamed official from Yongye, a state-owned real estate investment corporation in Shanghai.

Prosecutors accused Peterson of helping the official and a Canadian lawyer they did not identify secretly buy a stake, at a discounted price, in a valuable Shanghai property owned by a Morgan Stanley fund.

California’s prison needs to attract investors; idea needs traction

SAN FRANCISCO ― The Golden State may be ushering in a golden era for investing in jails.

California’s prisons “realignment” begins this month with counties taking charge of low-level felons to help unclog state prisons, which are under court order to ease overcrowding.

Thinning the most populous U.S. state’s prison population involves setting free 30,000 inmates. That will require county sheriffs and probation officers to manage many who run afoul of the law, along with nonviolent offenders.

But California’s cash-strapped government has not cemented funds for its realignment program for the long haul. It has state money only through this fiscal year, raising the prospect of an unfunded mandate that worsens crowding in local jails.

“We’re estimating about 1,200 individuals will be released to San Diego County in the first year,” said Don Steuer, chief financial officer for San Diego County. “By the end of the second-year implementation, we’re looking at between 2,000 and 4,000.”

But as for permanent funds, “We don’t see it right now,” Steuer said. “It just adds to the uncertainty.”

Money for adding space for more felons locally will be critical for public safety, said Assemblyman Anthony Portantino: “It’s going to lead to the early release of inmates without any infrastructure to deal with it.”

Counties do have some funds available for adding correctional facilities, but not much, said Nick Warner of the Sacramento, California advocacy firm Warner & Pank Llc.

“There is $650 million in unused bond authority that will be available to counties,” said Warner, who represents the California sheriffs’ association. “But it’s probably only going to cover a sliver of the statewide need.”

That opens the door to counties selling additional bonds on their own, said Michael Harling of Dallas-based investment bank Municipal Capital Markets Group Inc, which has done about 60 financing deals over the last decade for correctional projects.

Selling bonds to build out jails and treatment centers may, however, be easier said than done because local voters may balk at taking on debt to boost spending on felons.

“Financing for schools or parks is more emotionally appealing,” said Steven Frates of the Davenport Institute at Pepperdine University’s School of Public Policy.

Buddy Johns of CGL Capital Solutions Llc aims to put into play a third option: Bypass the bond market and let investors build jails that counties can lease and eventually take over.

“We’re trying to simplify it for speed purposes,” said Johns, president of the Scottsdale, Arizona-based sister company to corrections facilities planner Carter Goble Lee.

Johns’s idea may raise eyebrows in California, where so-called public-private partnerships allowing investors to build public infrastructure have not gained much traction.

However, local governments’ financial woes may prompt a new look at the tie-ups, which Johns aims to promote with a team of architecture, engineering, construction, law and consulting firms.

Their effort will not include proposals for private management of correctional facilities, which would guarantee a bitter political fight with unionized guards.

“We’re not suggesting that the private sector take over any management services,” Johns said. “I want to stay out of politics. All I want to do is a good financing model for what they need.”

Johns has lined up investors, who expect returns on leases slightly higher than returns on county general obligation debt. The group also aims to impress counties with offers to maintain facilities it builds and to take on their project risks.

“If we think it’s going to be an $80 million jail and it turns out to be a $95 million project, that’s our problem,” Johns said.