RPT-SPECIAL REPORT-A Morgan Stanley star falls in China =4
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 U.S. 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. (Reporting by Steve Eder in New York and George Chen in Shanghai; Editing by Jim Impoco)