Wall Street firm Goldman Sachs has agreed to pay billions of dollars for its role in a scheme to loot Malaysia’s 1MDB investment fund that involved bribery, money laundering, a change of government and charges against 17 current and former Goldman executives.
The 1MDB scandal revolved around 1 Malaysia Development Berhad, a sovereign wealth fund that raised about $12 billion, much of which was said to be embezzled or laundered.
Goldman’s involvement concerns $6.5 billion in bonds that the bank helped 1MDB raise in 2012 and 2013. Much of it was allegedly extracted by people connected to the country’s former prime minister, Bloomberg reported. Goldman’s investment-banking group, led at the time by now-CEO David Solomon, collected an unusually high $600 million from the bond sales.
Malaysian prosecutors accused Goldman of misleading investors over the fundraising. Goldman denies any wrongdoing, insisting it is the one who was misled by the Malaysian government and 1MDB itself.
The fund was originally started in 2008 to ensure long-term sustainable development while safeguarding the economic well-being of residents in Terengganu, a state in Malaysia. The fund invested in PetroSaudi Holdings, real estate and energy, among others.
“This settlement represents Goldman’s acknowledgment of the misconduct of two of its former employees in the broader 1MDB fraudulent and corruption scheme,” Malaysia’s finance ministry said.
The settlement includes a $2.5 billion payment from Goldman to Malaysia to resolve the investigation into the bank’s role, the ministry of finance said on Friday. It also guarantees that at least $1.4 billion more will come from 1MDB assets seized by authorities around the world, according to a Goldman Sachs statement.
The 1MBD scandal was far-reaching with links to the movie “Wolf of Wall Street” film and the supermodel Miranda Kerr, Business Insider reported. Also implicated is Pras Michel, a founding member of the Fugees.
Malaysian prosecutors brought charges against Goldman in 2018, with additional accusations against 17 current and former Goldman executives in 2019.
Tim Leissner, former partner for Goldman Sachs in Asia, pleaded guilty to charges related to money laundering and corruption in the multibillion-dollar sovereign-wealth fund scandal, according to the U.S. Department of Justice. Leissner is the husband of fashion mogul and reality TV personality Kimora Lee Simmons. He admitted he bribed Malaysian and United Arab Emirates officials to get bond deals for the bank.
Haitian-American hip-hop artist Pras Michel, a founding member of the Fugees, was implicated in the scandal. According to a civil suit, Michel and former Department of Justice official George Higginbotham helped billionaire Malaysian businessman Low Taek Jho “in illegally depositing $73 million into four U.S. bank accounts as part of a plan to bribe other DOJ officials over a criminal investigation already in motion against Jho Low.”
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The settlement ends years of effort by Malaysia to recover billions of dollars lost through the scandal. In 2018, the scandal led to the country’s first change of government since its independence in 1957. Former Prime Najib Razak now faces charges related to 1MDB. Mahathir Mohamad took over as prime minister and Muhyiddin Yassin now has that job.
The settlement should come as a relief to Wall Street, Andrew Bary reported for Barron’s. “The scandal has been an overhang on the stock,” Bary wrote. “Goldman said it did not expect its asset guarantee to ‘present a significant risk exposure to the firm.'”
Goldman still faces an investigation by the U.S. Justice Department and has been talking to federal prosecutors.
Mike Mayo, a Wells Fargo banking analyst, estimates that a total settlement for Goldman—including a deal with the Justice Department related to the Foreign Corrupt Practices Act—could end up costing Goldman about $4.5 billion. That’s less than “the worst investor estimates of $10 billion.”
Goldman Sachs has a market capitalization of $73.26 billion.
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