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Goldman Sachs Malaysia Arm Pleads Guilty in 1MDB Fraud Goldman Sachs Malaysia Arm Pleads Guilty in 1MDB Fraud
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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.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 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.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.
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.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 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. 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 executive compensation, a rare move for a Wall Street bank.
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. In a statement, Goldman’s chief executive, David Solomon, said the former employees who had broken the law had concealed their actions. But he acknowledged the bank had fallen short, and employee subterfuge relieved neither he nor anyone else of their responsibilities.
“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.” “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.”
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. Mr. Solomon and other current and former executives — including 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.
“It goes with the responsibility of leadership to accept some consequences for things that go wrong on your watch,” Mr. Blankfein, who retired in 2018, said Thursday.
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.
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.”
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.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.
“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. While Goldman earned a reputation for ruthlessness during 2008 — its “great vampire squid” nickname still echoes in the public consciousness — it has long been a darling of authorities, and has offered something of a revolving door into public service, hence its other nickname: “Government Sachs.”
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. There was little real drama associated with the 1MDB investigation’s resolution: Goldman and prosecutors spent nearly two years working out the terms, and the bank had long ago set aside money for penalties it knew were coming. Three outside law firms worked on the matter for the bank, and earlier this year Goldman lobbied top officials with the Justice Department for a degree of leniency.
Dennis M. Kelleher, chief executive of Better Markets, a Wall Street watchdog, was underwhelmed by the settlement, calling it “highly favorable” to Goldman. The $2.3 billion fine, he said, was “virtually meaningless,” and he did not expect the Justice Department to show much interest in enforcing the deferred prosecution agreement.
A more serious penalty would have involved the appointment of an independent monitor to oversee the bank’s compliance procedures and a guilty plea by the bank itself, not a subsidiary.
“Goldman’s involvement with 1MDB was no ordinary crime in terms of scale, scope, consequence and egregiousness,” he said.
All told, Goldman will have to shell out billions in penalties and returned money 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 there.
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.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. Mr. Low, a flamboyant businessman who had befriended many Hollywood celebrities and was known for staging wild and extravagant parties in Las Vegas, was introduced to a Goldman banker, Tim Leissner, in 2009. Mr. Leissner, the husband of the fashion designer and model Kimora Lee Simmons, began talking to Mr. Low about finding ways for Goldman to increase its business activities in Malaysia, but encountered obstacles when some at Goldman objected to Mr. Low becoming a client of the bank 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. In early 2011, some in Goldman’s compliance division pushed backed on the idea of the bank doing business with two of Mr. Low’s companies. Prosecutors wrote that one person at Goldman in March 2011 went so far as to say, “To be clear, we have pretty much zero appetite for a relationship with this individual.”
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. Even so, Mr. Leissner and Mr. Low remained connected, and Goldman earned the fund’s business. By December 2012, just a few weeks before the bank arranged a third bond deal for 1MDB, Mr. Low met with Mr. Blankfein at Goldman’s offices in New York. — just one of several meetings that top executives at the bank had with him between 2009 and 2014. One meeting, prosecutors wrote, took place 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.“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 Mr. Leissner and another Goldman banker as well as Mr. Low, who is believed to be living in China. Mr. Leissner 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. But authorities faulted Goldman for accepting those denials at “face value.”
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 assets already seized by the government. Those assets, including apartments, a jet and more, are 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. His exact whereabouts remain a mystery.
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. The bank’s Malaysian subsidiary is scheduled to be formally sentenced in December, allowing enough time for Goldman to secure waivers from regulatory agencies to allow it to operate as normal afterward, such as a fiduciary for employee pension and retirement plans.
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.) 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.
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. Goldman’s board said it was taking steps to recoup tens of millions of dollars in compensation from those three as well.
Mr. Low’s exact whereabouts remain a mystery.