Chip Off The Gold Block - 1MDB Scandal

By Adenekan Eniola Oloyede

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Goldman Sachs recently agreed to a $3.9 billion settlement with the Malaysian government in order to end the 1MDB scandal that shook the financial world.

In 2012-2013, Goldman Sachs arranged bond sales in order to raise money for the Malaysian sovereign wealth fund. Authorities have reported that billions of dollars were stolen, siphoned, or redirected into everything from elaborate Vegas parties to funding a movie about a financial conman called ‘The Wolf of Wall Street’. It has been reported that at the centre of the scandal was Jho Low, a Malaysian businessman and international fugitive, who is accused of diverting money from the 1MDB into personal accounts disguised to look like a legitimate business.

Between 2012 and 2013, Goldman arranged three bonds worth $6.5 billion for 1MDB with fees totalling $593 million, or 9% of the total, higher than the average fees paid on such deals, according to critics. Malaysian prosecutors claim that Goldman Sachs made false statements and omitted key facts in offering circulars for the bonds it sold for Malaysian state fund 1MDB.Goldman denied the allegations, telling various news reports: "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. Under the Malaysian legal process, the firm was not afforded an opportunity to be heard prior to the filing of these charges against certain Goldman Sachs entities, which we intend to vigorously contest. These charges do not affect our ability to conduct our current business globally."

The Wall Street investment bank is paying $2.5 billion to the Malaysian government and promised another $1.4 billion from the sale of the seized assets related to the scandal. The scandal has damaged the reputation of Goldman Sachs, which saw more than a dozen of its executives charged in Malaysia last year for their role of the fraud. The bank still faces possible charges in the US related to the deal, which American prosecutors say earned the firm about $600m.

Unfortunately, Goldman Sachs will still have to settle with the DOJ to move on completely and if past major foreign corrupt practice cases are a good indicator, the DOJ settlement could wipe out most of the great second quarter they just put up.

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Key Takeaways

The deal resolves charges in Malaysia that the firm had misled investors when it helped raise $6.5bn for the country's sovereign wealth fund that was stolen and redirected into elaborate Vegas parties and real estate.