Malaysia files charges against Goldman Sachs and two bankers

Malaysian prosecutors have filed criminal charges against Goldman Sachs and two of its bankers for their role in the alleged embezzling of billions of dollars from the country’s scandal-wracked state investment fund, 1MDB.

The Malaysian attorney general’s office is seeking fines worth more than $3 billion (€2.7 billion) from Goldman subsidiaries and its former bankers, accused of helping “dishonestly misappropriate” $2.7 billion from bonds issued by 1MDB in 2012 and 2013.

The charges brought by Malaysia on Monday are the first time that Goldman has been directly targeted by prosecutors for its alleged role in the widening scandal. Kuala Lumpur’s move intensifies the scrutiny over the conduct of the investment bank after the US department of justice last month indicted the two former bankers on similar charges.

Employees

Tommy Thomas, Malaysia’s attorney general, said he was filing charges against subsidiaries of Goldman and former bankers Tim Leissner and Roger Ng Chong Hwa, whom he described as Goldman’s “key employees” in the case.

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The two bankers are accused of bribing Malaysian officials to secure involvement in the auction of $6.5 billion of bonds for 1MDB. Goldman received $600 million in fees for its role, according to Mr Thomas, a total that was “several times higher than the prevailing market rates and industry norms”.

Law-enforcement agencies from multiple countries, including the US justice department, allege that as much as $4.5 billion was misappropriated from the investment fund. The scandal has already engulfed former prime minister Najib Razak, founder of 1MDB, who has pleaded not guilty to charges of corruption.

A Goldman spokesperson said the bank disputed the allegations and would defend itself against the accusations. “We believe these charges are misdirected, we will vigorously defend them and look forward to the opportunity to present our case,” the spokesperson said. “The firm continues to co-operate with all authorities investigating these matters.”

Shares in Goldman Sachs fell 2.3 per cent in early trading in New York on Monday.

Malaysia also filed charges against Low Taek Jho, the fugitive Malaysian businessman also known as Jho Low who is being sought by Malaysian, Singaporean and other authorities in connection with 1MDB, and Jasmine Loo Ai Swan, the fund’s former general counsel.

A spokesperson for Mr Low said he maintains his innocence and “will not submit to any jurisdiction where guilt has been predetermined by politics and there is no independent legal process”.

If found guilty of breaching Malaysia’s securities law, the individuals charged on Monday face a maximum prison sentence of 10 years and a fine of at least a million Malaysian ringgits (€211,000).

Accusations

A partner at a Malaysian law firm involved in the financial services sector said Goldman could “at the very least” be liable for the $600 million in bond fees it charged 1MDB. Recouping more than that will depend on whether Goldman can successfully argue that its former bankers embroiled in the scandal acted independently, he said.

This person described the severity of Malaysia’s accusations against Goldman as “unprecedented” in the country’s banking sector and said they would “send chills down the spines of one or two expat bankers”.

The Malaysian charges closely mirror similar allegations filed by US prosecutors last month, which also charged Mr Ng and Mr Leissner for their role in the bond offerings. The US charges indicated Mr Leissner may be co-operating with authorities.

Malaysia said the offering circulars and private placement memorandum issued by Goldman for the three bonds contained statements that were “false, misleading, or from which there were material omissions” because they said proceeds of the bonds would be used for legitimate purposes.

“Offering circulars and private placement memorandums are serious documents, intended to be relied on, and, in fact, were relied on, by purchasers of the bonds,” it said.

Malaysia said the bond issues were structured for “ostensibly legitimate purposes when [the accused] knew that the proceeds thereof would be misappropriated and fraudulently diverted”.

“In addition to personally receiving part of the misappropriated bond funds, those employees and directors of Goldman Sachs received large bonuses and enhanced career prospects at Goldman Sachs and in the investment banking industry generally,” the attorney general’s office alleged.

Bonds

Malaysia’s new government has come down hard on Goldman for its role in the 1MDB affair. In an interview last month, Anwar Ibrahim, the likely future prime minister, described the bank’s involvement in raising money for the fund as “disgusting”, and said Goldman should return “significantly more” than the $600 million it was paid for the three bond issues.

Malaysian authorities said they would seek fines “well in excess” of the underwriting fees and $2.7 billion they alleged were embezzled from the funds raised.

“Their fraud goes to the heart of our capital markets, and if no criminal proceedings are instituted against the accused, their undermining of our financial system and market integrity will go unpunished,” said Mr Thomas.

“Having held themselves out as the pre-eminent global adviser/arranger for bonds, the highest standards are expected of Goldman Sachs. They have fallen far short of any standard. In consequence, they have to be held accountable.” – Copyright The Financial Times Limited 2018