This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.nytimes.com/2020/10/22/business/goldman-sachs-fraud-guilty-plea.html

The article has changed 9 times. There is an RSS feed of changes available.

Version 3 Version 4
Goldman Sachs Malaysia Arm Pleads Guilty in 1MDB Fraud Goldman Sachs Malaysia Arm Pleads Guilty in 1MDB Fraud
(about 1 hour later)
Goldman Sachs admitted its Malaysian subsidiary “knowingly and willingly” conspired to violate the Foreign Corrupt Practices Act because some former employees paid bribes to officials in connection with the looting of a sovereign wealth fund, a scandal that toppled that country’s leader and triggered criminal cases that spanned the globe. Goldman Sachs played a starring role in the dubious financial engineering that helped spark a global financial crisis last decade, and its 151-year history is dotted with scandals that ended in fines or governmental scoldings. But never before has it had to go before a U.S. judge and admit it was guilty of a crime.
The subsidiary pleaded guilty to a conspiracy charge on Thursday in Brooklyn federal court, and the bank itself entered into a three-year deferred prosecution agreement to resolve one of the biggest scandals in the Wall Street giant’s long history. The bank, one of Wall Street’s most powerful firms, admitted criminal wrongdoing by its Malaysian subsidiary on Thursday in a Brooklyn federal courtroom, bringing to a close a globe-spanning foreign bribery case that is the worst black eye in Goldman’s long history.
Separate from the penalties the bank will pay, the board of Goldman Sachs said it was taking steps to withhold or recoup $174 million in compensation from current and former executives — including its chief executive, David Solomon, and his predecessor, Lloyd Blankfein — either in lost pay or the return of money already paid. Goldman employees, the bank said, had taken part in a scheme to pay $1 billion in bribes to foreign officials. The bank, in turn, arranged the sale of bonds to raise $6.5 billionthat was intended to benefit the people of Malaysia but was instead looted by the country’s leaders and their associates.
In a statement, Mr. Solomon said Goldman “fell short” in overseeing its employees. In the end, the scandal, which netted the bank a relatively paltry $600 million in fees, will cost Goldman and its current and former executives dearly. The bank itself will pay more than $5 billion in penalties to regulators around the world, more than it had to pay for peddling bonds backed by risky mortgages a decade ago. And it has moved to recoup or withhold more than $100 million in compensation to those who had been in charge, a rare move for a Wall Street bank.
“While it is abundantly clear that certain former employees broke the law, lied to our colleagues and circumvented firm controls, this fact does not relieve me or anyone else at the firm of our responsibility to recognize two critical realities,” Mr. Solomon said. In a statement, Goldman’s chief executive, David Solomon, said the former employees had broken the law and concealed their actions. But he acknowledged the bank had nonetheless fallen short of its responsibilities by failing to stop their misdeeds.
Mr. Blankfein, reached by phone, declined to comment. “This fact does not relieve me or anyone else at the firm of our responsibility,” he said. He added: “When a colleague knowingly violates a firm policy, or much worse, the law, we — as a firm — have to accept responsibility and recognize the broader failure that individual behavior represents for our firm.”
All told, Goldman will pay billions in penalties and disgorgement in Malaysia, the United States and Hong Kong for its role in the looting of the 1Malaysia Development Berhad fund. The scandal ultimately brought down the government of Malaysia’s prime minister at the time, Najib Razak, and turned a financier with expensive tastes named Jho Low into an international fugitive. Mr. Solomon and other current executives, as well as the bank’s former chief executive, Lloyd Blankfein, will lose a total of $174 million over the leadership failures that took place in connection with the 1Malaysia Development Berhad fund, known as 1MDB. More than $2.7 billion was looted from the fund by powerful figures in Malaysia, including the family of the country’s prime minister at the time, Najib Razak, and Jho Low, a financier with expensive tastes who was the heist’s mastermind and remains an international fugitive.
As part of the plea deal, Goldman has agreed to a statement of facts compiled by federal authorities that it will not be able to dispute. That document outlines a number of internal control failings at Goldman that authorities said should have detected the wrongdoing by its former employees, as well as the involvement of Mr. Low in helping to arrange the deals and pay more than $1 billion in bribes to official in Malaysia. Karen Seymour, the bank’s general counsel, officially entered the guilty plea for Goldman’s Malaysian subsidiary, which admitted it had “knowingly and willingly” conspired to violate the Foreign Corrupt Practices Act. The parent company of the bank itself entered into a three-year deferred prosecution agreement on a similar charge, which will be dismissed if Goldman complies with the deal.
“Other personnel at the bank allowed this scheme to proceed by overlooking or ignoring a number of clear red flags,” said Brian C. Rabbitt, acting assistant attorney general for the Justice Department’s criminal division, said during a news conference. “It goes with the responsibility of leadership to accept some consequences for things that go wrong on your watch,” said Mr. Blankfein, who retired in 2018.
More than $2.7 billion raised for the fund in bond offerings arranged by Goldman financed lavish lifestyles for powerful Malaysians, including friends and family of Mr. Najib. The money bought paintings by van Gogh and Monet, a mega-yacht docked in Bali, a grand piano made of clear acrylic that was given to a supermodel as a gift, and a king’s ransom in jewelry. Pilfered money also financed a boutique hotel in Beverly Hills, a share of the EMI music publishing portfolio and the Hollywood movie “The Wolf of Wall Street.” All told, Goldman will pay billions in penalties and disgorgement in Malaysia, the United States and Hong Kong. The scandal also brought down Mr. Najib, Malaysia’s prime minister at the time, who is appealing his conviction in a corruption trial in Malaysia.
Goldman Sachs earned $600 million in fees to arrange the bond sales. As part of the plea deal, Goldman has agreed to a statement of facts compiled by federal authorities that it will not be able to dispute. That document outlines a number of internal control failings at Goldman that authorities said should have detected the wrongdoing by its former employees, as well as Mr. Low’s involvement.
Some within the bank were wary of Mr. Low, a flamboyant businessman who had befriended many Hollywood celebrities and was known for staging wild and extravagant parties in Las Vegas. The bank’s compliance department had rejected him as a client because it was unclear how he had amassed his wealth.
Even so, Mr. Low was able to meet with Mr. Blankfein at Goldman’s offices in New York in December 2012. That was just a few weeks before the bank arranged a third bond deal for 1MDB.
The statement of facts pointed out that from 2009 to 2014, top executives at the bank — none of whom are named — were at events with Mr. Low, including a meeting on a yacht in Southern France.
“Personnel at the bank allowed this scheme to proceed by overlooking or ignoring a number of clear red flags,” said Brian C. Rabbitt, acting assistant attorney general for the Justice Department’s criminal division, said during a news conference.
The money taken from 1MDB funded lavish lifestyles for powerful Malaysians, including friends and family of Mr. Najib. The money bought paintings by van Gogh and Monet, a mega-yacht docked in Bali, a grand piano made of clear acrylic that was given to a supermodel as a gift, and a king’s ransom in jewelry. Pilfered money also financed a boutique hotel in Beverly Hills, a share of the EMI music publishing portfolio and the Hollywood movie “The Wolf of Wall Street.”
Federal prosecutors had already brought charges against two Goldman bankers and Mr. Low, who is believed to be living in China. One of the bankers, Tim Leissner, the husband of the fashion designer and model Kimora Lee Simmons, has pleaded guilty and agreed to forfeit up to $43.7 million.Federal prosecutors had already brought charges against two Goldman bankers and Mr. Low, who is believed to be living in China. One of the bankers, Tim Leissner, the husband of the fashion designer and model Kimora Lee Simmons, has pleaded guilty and agreed to forfeit up to $43.7 million.
Prosecutors acknowledge that Mr. Leissner was deceptive and frequently misled or lied to others at Goldman about whether he was dealing with Mr. Low, even after he was warned to have nothing do with him. But authorities faulted Goldman for accepting those denials at “face value.”
Authorities said in the statement of facts that Goldman would have detected that Mr. Low still had his hands in the 1MDB deals had it conducted a better review of Mr. Leissner’s email and text messages.
Malaysian prosecutors also brought criminal charges against Goldman and more than a dozen executives, but the bank agreed in July to pay $2.5 billion to resolve that investigation. Goldman also pledged to cover any shortfall from the sale of $1.4 billion in assets that have been seized by prosecutors in the United States and Malaysia.Malaysian prosecutors also brought criminal charges against Goldman and more than a dozen executives, but the bank agreed in July to pay $2.5 billion to resolve that investigation. Goldman also pledged to cover any shortfall from the sale of $1.4 billion in assets that have been seized by prosecutors in the United States and Malaysia.
Much of the property seized belonged to Mr. Low, who has never appeared in court to face charges in the case. He has denied wrongdoing through representatives in the United States, but agreed last year to give up all claims to seized assets worth as much as $900 million. Much of the property seized belonged to Mr. Low, who has never appeared in court to face charges in the case. He has denied wrongdoing through representatives in the United States, but agreed last year to give up all claims to assets already seized by the government. Those assets, including apartments, a jet and more, are worth as much as $900 million.
While the legal saga is essentially over for Goldman, it will continue for some individuals: Mr. Leissner still awaits sentencing, and the other banker charged in the United States, Roger Ng, has pleaded not guilty and awaits trial. Another former Goldman executive, Andrea Vella, has been barred from the financial industry by the Federal Reserve. (Goldman’s board said it was taking steps to recoup tens of millions of dollars in compensation from them as well.) The bank’s Malaysian subsidiary is scheduled to be formally sentenced in December, allowing enough time for Goldman to secure waivers from the Department of Labor and other regulatory agencies to allow it keep operating as normal.
While the legal saga is essentially over for Goldman, it will continue for some of the people involved: Mr. Leissner awaits sentencing, and the other banker charged in the United States, Roger Ng, has pleaded not guilty and awaits trial. Another former Goldman executive, Andrea Vella, has been barred from the financial industry by the Federal Reserve. (Goldman’s board said it was taking steps to recoup tens of millions of dollars in compensation from those three as well.)
In Malaysia, Mr. Najib was convicted last July in a corruption case and sentenced to up to 12 years in prison, but the sentence was stayed on appeal.In Malaysia, Mr. Najib was convicted last July in a corruption case and sentenced to up to 12 years in prison, but the sentence was stayed on appeal.
Mr. Low’s exact whereabouts remain a mystery.Mr. Low’s exact whereabouts remain a mystery.