How greed got the better of this Morgan Stanley star

The Guanxi Network

There was nothing subtle about Peterson's pursuit of guanxi and riches.

In July 2003, Morgan Stanley Real Estate and Shanghai Yongye Group announced their first partnership - a roughly USD 90 million investment in a real estate project to build a top-end apartment building in the Xintiandi area, a famous bar and nightlife area in downtown Shanghai.

As a result of that deal, Peterson became more influential in Shanghai's property and government circles.

Shanghai Yongye was backed by Shanghai's local Luwan district government. Luwan is to Shanghai as midtown is to New York city. Shanghai Mayor Han Zheng is a former Luwan district chief.

Wu Yonghua, former chairman of Shanghai Yongye Group, was a friend of Peterson's who introduced him other Chinese officials, expanding the American banker's guanxi network.

Wu's daughter, Linda Wu, was hired by Peterson to join Morgan Stanley Real Estate's Shanghai office as an associate after she finished her studies in the United States. She resigned around the same time Peterson was fired in late 2008.

A source with direct knowledge of the situation told Reuters that US and Chinese investigators were interested to know more about the connections between Wu Yonghua, Wu's daughter and Peterson and wanted to investigate if her hiring was part of a quid pro quo.

Shanghai Dragon

About one year after the first Shanghai Yongye project, Morgan Stanley Real Estate announced an alliance with Shanghai Dragon Investment Co, a low-profile but highly important investment arm of the city government.

The purpose of the partnership was to seek investment opportunities in Shanghai's real estate deals, according to Chinese media reports at that time.

The deal came complete with guanxi opportunities. Shanghai Dragon was led by a government entity. Chen Liangyu, Shanghai's then-Communist Party Chief and effectively the city's top boss, often oversaw Shanghai Dragon directly.

Shanghai Dragon rents a villa in the Xingguo Hotel as its office. The Xingguo Hotel, a state guest house near the US Consulate-General in Shanghai, was one place where Mao Zedong, the founder of the People's Republic of China, and his third wife, Jiang Qing, often stayed.

Corruption Probe

In late 2006, Chen was detained by investigators from the central Chinese government amid a snowballing corruption probe, which cost dozens of senior Shanghai and Beijing officials' jobs or even lives.

Between 2007 and 2008, the city's state asset supervision commission, which was in charge of Shanghai Dragon, was shaken up as most senior officials at the commission were arrested, sentenced or fired.

Shanghai Yongye's Wu, a government official-turned businessman, resigned in mid-2007 amid a widening investigation into senior Shanghai officials, including a long-time strong government ally of Wu.

When Beijing sent dozens of investigators to Shanghai for the Chen Liangyu case, some officials suspected connections between Peterson and Shanghai officials, but evidence was scant, according to one government source familiar with the situation.

At the time Peterson was fired by Morgan Stanley in 2008, Beijing investigators were alerted and monitored the Peterson case closely, the government source added.

The investigation by the Shanghai city government targeting local officials related to the Peterson case is still ongoing, according to the government source.

A comeback?

Once the investigations conclude, Peterson plans a second act in the real estate investment industry, a friend said.

He is unlikely to be jailed as he and the firm are expected to pay damages and fees, possibly through a deferred prosecution agreement, said industry sources who were not directly involved in the Peterson case but familiar with similar FCPA cases.

Peterson, meanwhile, is now living in Singapore. He told a friend that he is unlikely to return to China, but would explore other emerging markets in Southeast Asia.

Wherever he ends up, he won't be able to count on his guanxi.