WSJ: Goldman blew past red flags in chase for 1MDB account

Malaysia is pursuing both civil and criminal action against Goldman Sachs over its role in allegedly defrauding 1MDB via bond issues orchestrated by billionaire financier Low Taek Jho. — Reuters pic
Malaysia is pursuing both civil and criminal action against Goldman Sachs over its role in allegedly defrauding 1MDB via bond issues orchestrated by billionaire financier Low Taek Jho. — Reuters pic

KUALA LUMPUR, Dec 18 — US investment bank Goldman Sachs ignored repeated internal alarm bells that were tripped during its pursuit of Malaysian investment firm 1MDB’s business, according to a Wall Street Journal report today.

In the report co-written by Tom Wright, one of the two authors of Billion Dollar Whale, the article showed that the investment bank’s senior bankers had met as early as 2012 to discuss misgivings about 1MDB that was still obscure at the time.

The bankers were ostensibly wary of the media attention the deal would bring as well as the possible scrutiny that the firm’s “above average” commissions from such deals would invite.

Goldman’s internal regulators were especially wary of billionaire financier Low Taek Jho or Jho Low, who is now a fugitive wanted in Malaysia over various charges related to the state investment firm.

According to internal Goldman communications from 2011, one internal regulator pointed out that there was no indication of how Low came to possess the wealth he was already flaunting at the time.

However, the allure of the promised windfall won over the bulk of the objections.

“Jho Low’s appearance is not welcome. But if he is in a very minor role then we may be able to live with it,” said one compliance officer in a 2013 exchange.

Malaysia is pursuing both civil and criminal action against Goldman Sachs over its role in allegedly defrauding 1MDB via bond issues orchestrated by Low and what the investment bank has categorised as rogue actors both from itself and the Malaysian government.

Putrajaya filed criminal charges against Goldman and Low here yesterday, ahead of a planned lawsuit in the US seeking the return of US$600 million (RM2.5 billion) that the bank earned from the bond issues as well as other damages.

Goldman responded by saying it had acted in good faith on information provided at the time by key government officials whom it said had assured it that all the dealings were above board.

It also highlighted that 1MDB and its then-directors reported to the prime minister at the time, Datuk Seri Najib Razak.

Low, through an Australian publicist, similarly rejected the latest charges against him and maintained that he would not submit himself before the Malaysian courts that he said would not offer him a fair trial.

Attorney-General Tommy Thomas explained yesterday that the charges were related to securities violations by Goldman Sachs, its former bankers Tim Leissner and Roger Ng, former 1MDB employee Jasmine Loo and Low over the bond issuance.

According to US prosecutors previously, the investment bank generated an “above average” US$600 million in fees for its work with 1MDB, which included three bond offerings in 2012 and 2013 that raised US$6.5 billion.

Goldman Sachs and Low have repeatedly denied wrongdoing in the matter, but the issue is more muddy for the investment bank as Leissner has pleaded guilty to criminal charges in the US related to 1MDB and provided statements that potentially implicate the bank.

Previous reports have shown that Goldman Sachs chairman Lloyd Blankfein was both aware of and personally involved in securing the 1MDB account, undermining the bank’s position that the episode was restricted to a few rogue bankers.

Aside from Low, Malaysia has also charged Najib, former 1MDB chief executive Arul Kanda Kandasamy, former chief of the Treasury Tan Sri Irwan Serigar and several others over the corruption scandal that has spanned at least 10 countries.

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