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| Goldman Sachs Malaysia Arm Pleads Guilty in 1MDB Fraud | Goldman Sachs Malaysia Arm Pleads Guilty in 1MDB Fraud |
| (about 5 hours later) | |
| 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 had 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 had 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, took 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 billion that 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, took 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 billion that 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 executive compensation, 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 who had broken the law had concealed their actions. But he acknowledged that the bank had fallen short, and that employee subterfuge relieved neither he nor anyone else of responsibility. | 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 that the bank had fallen short, and that employee subterfuge relieved neither he nor anyone else of responsibility. |
| “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,” he said. | “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,” he said. |
| 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. | 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. | “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. | 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.” | 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. |
| 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.” | 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.” |
| 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 law firms worked on the matter for the bank, and this year Goldman lobbied top officials with the Justice Department for a degree of leniency. | 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 law firms worked on the matter for the bank, and 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, is “virtually meaningless,” and he did not expect the Justice Department to show much interest in enforcing the deferred prosecution agreement. | 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, is “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. | 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,” Mr. Kelleher said. | “Goldman’s involvement with 1MDB was no ordinary crime in terms of scale, scope, consequence and egregiousness,” Mr. Kelleher 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, the former prime minister, who is appealing his conviction in a corruption trial in Malaysia. | 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, the former prime minister, who is appealing his conviction in a corruption trial in Malaysia. |
| 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. |
| 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’s becoming a client of the bank 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’s becoming a client of the bank because it was unclear how he had amassed his wealth. |
| In early 2011, some in Goldman’s compliance division pushed back on the idea of the bank’s 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.” | |
| 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. | 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,” 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,” Brian C. Rabbitt, acting assistant attorney general for the Justice Department’s criminal division, said during a news conference. |
| 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 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. |
| 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. But authorities faulted Goldman for accepting those denials at “face value.” |
| 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 and a jet, are worth as much as $900 million. His exact whereabouts remains a mystery. | |
| The bank’s Malaysian subsidiary is scheduled to be formally sentenced in December, allowing enough time for Goldman to secure waivers from regulatory agencies so it can operate as normal afterward, such as a fiduciary for employee pension and retirement plans. | The bank’s Malaysian subsidiary is scheduled to be formally sentenced in December, allowing enough time for Goldman to secure waivers from regulatory agencies so it can 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. | 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. | Goldman’s board said it was taking steps to recoup tens of millions of dollars in compensation from those three as well. |