The Securities and Exchange Commission charged a former Morgan Stanley (MS) executive with illegally funneling real estate investments to a Chinese official as part of a multimillion-dollar corruption scheme.

Garth Peterson, the managing director for the investment bank's real estate investment advisory business until he was fired in 2008, allegedly moved more than $1.8 million to both himself and the former chairman of China-based Yongye Enterprise between 2004 and 2007, according to the SEC. The funds were disguised as "finder's fees" that Morgan Stanley's funds owed to third parties.

The Chinese company is state-owned and holds influence over Morgan Stanley's success in Shanghai, the SEC alleges.

The SEC charged Peterson with violating securities laws and the Foreign Correct Practices Act.

Peterson settled the allegations by paying back more than $250,000 in profits and giving up his $3.4 million interest in Shanghai real estate he allegedly acquired, according to the SEC. He is permanently barred from the securities industry. A related criminal case from the Department of Justice is pending.

"Peterson crossed the line not once, but twice. He secretly bribed a government official to illegally win business for his employer and enriched himself in violation of his fiduciary duty to Morgan Stanley's clients," said Robert Khuzami, director of the SEC division of enforcement.

The SEC described Peterson as rogue employee who took advantage of his firm and its clients.

In an email acquired by the SEC, Peterson allegedly bragged about his relationship with the Chinese official and credited him with steering opportunities toward the investment bank.

"Everyone pls keep in mind the big picture here. (Yongye) gave us this deal. ... So we owe them a favor relating to this deal. ... This should be very easy and friendly," Peterson wrote in the email.