by Howard Haykin

 

On November 1, 2018, U.S. federal prosecutors announced criminal charges against 2 former Goldman Sachs bankers for their alleged roles in the 1MDB scandal, in which some $4.5 billion was misappropriated. On Monday, December 17th, Malaysia filed criminal charges against Goldman Sachs - which had been expected by investors.

 

That would account for the fact the decline in the value of Goldman Sachs shares, which have lost 26% of their value (declining from $227 a share to $168). Over that same period, the Financialish Stock Index has fallen 12%. Here are some of this week's news reports regarding newly-filed charges against Goldman Sachs.

 

 

Malaysia Files Criminal Charges Against Goldman Sachs in 1MDB probe [CNBC, 12/17]

"The charges arise from the commission and abetment of false or misleading statements by all the accused in order to dishonestly misappropriate $2.7 billion from the proceeds of three bonds issued by the subsidiaries of 1MDB, which were arranged and underwritten by Goldman Sachs." - - Malaysia AG Tommy Thomas.

 

Prosecutors will seek fines against the accused "well in excess" of the allegedly misappropriated $2.7Bn bond proceeds plus $600Mn in fees received by Goldman. Malaysia will also seek jail terms of up to 10 years for each of the individuals accused - Timothy Leissner and Roger Ng.

 

The U.S. Department of Justice has said about $4.5 billion was misappropriated from 1MDB, including some money that Goldman Sachs helped raise, by high-level officials of the fund and their associates from 2009 through 2014. U.S. prosecutors filed criminal charges against Leissner and Ng last month. Leissner pleaded guilty to conspiracy to launder money and conspiracy to violate the Foreign Corrupt Practices Act. Ng, detained in Malaysia, is facing extradition to the United States.

 

Goldman Sachs Fires Back … in 1MDB Probe [Reuters, 12/17]

This is the first time Goldman Sachs, which has consistently denied wrongdoing, has faced criminal charges in the 1MDB scandal.

 

“Certain members of the former Malaysian government and 1MDB lied to Goldman Sachs, outside counsel and others about the use of proceeds from these transactions. … 1MDB, whose CEO and Board reported directly to the prime minister at the time, also provided written assurances to Goldman Sachs for each transaction that no intermediaries were involved. … The bank will contest the allegations.” - - Goldman Spokesperson.

 

Goldman gets 15% of its revenue from Southeast Asia, which could be at risk if the scandal hurts Goldman’s reputation.

 

As Goldman's 1MDB Mess Deepens, Insiders Doubt Firm's Rogue Banker Defense [CNBC, 12/17]

While Goldman has insisted that just 2 employees are responsible for the burgeoning 1MDB scandal, insiders said the deals were approved by committees staffed by top executives, including CFO Stephen Scherr. CEO David Solomon and his predecessor, Lloyd Blankfein, also reviewed the deals.

 

The Goldman committees chose to approve the 1MDB deals on the condition that the bank explain to Malaysian officials that they had other, cheaper options to raise money - but the client chose the pricier route because they were in a hurry, the person said.

 

The bank ultimately reaped $600 million in fees, a higher-than-typical amount for $6.5Bn in issuance.

 

The Goldman executives who signed off on the deals couldn't have known that Malaysian financier Low Taek Jho, known as Jho Low, would allegedly plunder billions from the fund, according to this person. Still, the bank recognized the deals could garner media and regulatory scrutiny, but Goldman ignored that and concerns about Low in pursuit of revenue, according to the Wall Street Journal.

 

Now the firm could face 18 months to clean this mess and up to $5 billion in expenses, analyst Mike Mayo said Monday in a research note.

 

Also, U.S. documents filed by prosecutors cite a culture at Goldman that prioritized "consummating deals" over compliance. In related documents, prosecutors said "other employees and agents" of the bank had known about bribes related to 1MDB.

 

Goldman Shares Getting Hit Again ... in 1MDB Probe [CNBC, 12/17]

Goldman Sachs shares fell to new lows for 2018 when Malaysia filed criminal charges against Goldman Sachs and 2 former employees, Tim Leissner and Roger Ng, in connection with the money laundering probe involving Malaysia's state investment fund "1MDB." Goldman raised $6.5 billion in 2012 and 2013 for the fund through 3 bond deals.

 

The Bizarre Story of 1MDB … That Turned Into One of the Biggest Scandals in Financial History [Business Insider, 12/19]

It's one of the greatest scandals in financial history. "1MDB" started out as a government plan to fund infrastructure projects in Malaysia turned into an alleged swindle to tune of more than $3 billion. It brought down Malaysia's prime minister, the prime suspect is still on the run, and Goldman Sachs might be on the hook for crushing fines.

 

US and Malaysian authorities, as well as those in the UK, Australia and Singapore, among others, are continuing to figure out just what happened, and who is responsible. Malaysia this week filed the first criminal charges for Goldman Sachs and a few ex-bank and fund employees, while lawsuits are still being filed over billions in missing cash. Goldman Sachs says it is cooperating with authorities and will contest the charges.

 

Somehow actor Leonardo DiCaprio, model Miranda Kerr, and the estate of Jean-Michel Basquiat got dragged into the mess, too.

 

This is the history of 1MDB and the characters that made it.