Goldman Sachs, which has survived and thrived despite countless scandals over the years, may have finally stepped in a pile of trouble too deep to escape.
There’s even a Donald Trump angle to this latest great financial mess, but the outlines of that subplot – in a case that has countless – remains vague. The bank itself is in the most immediate danger.
The company’s stock rallied Thursday to close at 165, stopping a five-day slide in which the firm lost almost 12 percent of its market value. The company is down 35 percent for the year, most of that coming in the past three months as Goldman has been battered by headlines about the infamous 1MDB scandal.
Just before Christmas, Malaysian authorities filed criminal charges against Goldman, seeking a stunning $7.5 billion in reparations for the bank’s role in the scandal. Singapore authorities also announced they were expanding their own 1MDB probe to include Goldman.
In the 1MDB scheme, actors tied to former Malaysian Prime Minister Najib Razak allegedly siphoned mountains of cash out of a state investment fund. The misrouted money went to lavish parties with celebrity guests like Alicia Keys, a $35 million jet, works by Monet and Van Gogh, property in New York, Los Angeles and London, and (ironically) the funding of the movie The Wolf of Wall Street.
The cash for this mother of all bacchanals originally came from bonds issued by Goldman, which earned a whopping $600 million from the Malaysians. The bank charged prices for its bond issuance that analysts believe were suspiciously high – like a massage price that suggests you’re probably getting more than a massage.
Najib lost re-election in May, ending a 61-year reign for his party. National anger over 1MDB was a major reason for his downfall. The prime minister was allegedly central to the scam, which involved luring investors to national development projects that mostly never took place.
His election loss was a turning point. Until that time, international authorities had been unable to obtain cooperation from the Malaysian government, which under Najib insisted no crime had been committed. (...)
“It completely reversed the situation,” says John Pang, a former policy adviser to the prime minister’s office in Malaysia. “Before, you essentially had the victim saying there was no crime. Now, you had the Justice Department meeting with a 1MDB task force in Kuala Lumpur.”
The change resulted in a string of new indictments, suits and prosecutions surfacing in the second half of 2018. At year’s end, Goldman is known to be under investigation in the U.S., Singapore and Malaysia, while 1MDB probes are ongoing in at least 10 countries. Goldman has seen two ex-employees criminally charged in the U.S. since the summer, one of whom pleaded guilty.
What really set Wall Street afire was a pair of fall revelations. On November 8th, the Wall Street Journal reported longtime Goldman CEO Lloyd Blankfein – who stepped down on October 1st to “pursue other interests” – met on more than one occasion with one of the most infamous figures in the 1MDB scandal, Low Taek Jho, better known as “Jho Low.”
In that same week, Bloomberg reported Blankfein was an “unidentified high-ranking executive” in court filings associated with the case.
In December, outside analysts predicted the bank might need to set aside $1 billion or more for penalties. The company is having ongoing conversations with the Justice Department, but has not discussed numbers yet.
In addition to the Malaysian action seeking $7.5 billion, the company is facing two more class-action lawsuits filed by investors, and a significant amount of negative press.
For all that, the scandal is still not well understood. 1MDB was a twist on third-world kleptocracy, one that exposed a new flaw in the global financial system.
Dictators have always plundered national riches. But they could only steal assets that existed. For instance, in former Zaire, now the Democratic Republic of Congo, Mobutu Sese Seko shifted profits of mineral sales to private accounts. In the Philippines, Ferdinand and Imelda Marcos swiped proceeds of sales of sugar, tobacco, bananas, coconuts and everything else they could get their hands on. Saddam Hussein stole oil revenues.
Malaysia is rich in copper, timber and oil. But Najib and his cohorts didn’t have to steal any of those resources.
“He didn’t steal diamonds or bananas. He stole debt,” says Pang. “This is something completely new. And he couldn’t have done it without a bank the size of Goldman.” (...)
1MDB was a sovereign wealth fund, “owned and controlled by the Malaysian government, through its Ministry of Finance,” as our Justice Department put it in one of its court filings.
This fund was ostensibly created for development projects on behalf of the Malaysian people, in areas like “energy, real estate, tourism and agribusiness.”
Over the course of three major bond issues, 1MDB raised about $6.5 billion from investors around the world. According to the U.S. government, about $2.7 billion of that money was misappropriated and “distributed, in part, as bribes and kickbacks” to help keep the scheme going.
Other monies reportedly ended up in the hands of a small group of corrupt insiders close to Najib, who then laundered the cash via one of the great spending sprees of our time.
The key figure was Jho Low, who is currently an international fugitive and allegedly spent awesome sums ripped from the 1MDB pot. The chubby-cheeked Low, tabbed the “Billion Dollar Whale” in a book about the scandal by Tom Wright and Bradley Hope, is said to have used 1MDB funds to become an instant “Asian Great Gatsby,” traveling the planet and hurling cash in all directions, including parties in Vegas and London. The book claims he spent up to $500,000 on single parties that featured performances by the likes of Lady Gaga and Dr. Dre. Low was basically the Malaysian version of Jeff Spicoli hiring Van Halen to play his birthday party.
The idea that a figure as prominent as Blankfein might have granted a meeting to so incautious a figure as Low – who reportedly once used stationary from the Sultan of Brunei to procure seats at the London nightclub Chinawhite – is part of what has Wall Street so shaken. It’s a little like hearing the Pope was taking selfies at the Adult Video awards. (...)
What was in it for the bank? About $600 million in fees. Goldman may have made some of that money on gains while it held the bonds, i.e. not all of that widely quoted sum was a pure fee. Also, the deal was unusual in that the bank purportedly held all the risk on the bonds for a long time, as much as a year in the third transaction.
Still, Goldman charged Malaysia what by all accounts was a beyond-exorbitant price. The Billion Dollar Whale authors asserted the bank earned “two hundred times the typical fee.”
There’s even a Donald Trump angle to this latest great financial mess, but the outlines of that subplot – in a case that has countless – remains vague. The bank itself is in the most immediate danger.
The company’s stock rallied Thursday to close at 165, stopping a five-day slide in which the firm lost almost 12 percent of its market value. The company is down 35 percent for the year, most of that coming in the past three months as Goldman has been battered by headlines about the infamous 1MDB scandal.
Just before Christmas, Malaysian authorities filed criminal charges against Goldman, seeking a stunning $7.5 billion in reparations for the bank’s role in the scandal. Singapore authorities also announced they were expanding their own 1MDB probe to include Goldman.In the 1MDB scheme, actors tied to former Malaysian Prime Minister Najib Razak allegedly siphoned mountains of cash out of a state investment fund. The misrouted money went to lavish parties with celebrity guests like Alicia Keys, a $35 million jet, works by Monet and Van Gogh, property in New York, Los Angeles and London, and (ironically) the funding of the movie The Wolf of Wall Street.
The cash for this mother of all bacchanals originally came from bonds issued by Goldman, which earned a whopping $600 million from the Malaysians. The bank charged prices for its bond issuance that analysts believe were suspiciously high – like a massage price that suggests you’re probably getting more than a massage.
Najib lost re-election in May, ending a 61-year reign for his party. National anger over 1MDB was a major reason for his downfall. The prime minister was allegedly central to the scam, which involved luring investors to national development projects that mostly never took place.
His election loss was a turning point. Until that time, international authorities had been unable to obtain cooperation from the Malaysian government, which under Najib insisted no crime had been committed. (...)
“It completely reversed the situation,” says John Pang, a former policy adviser to the prime minister’s office in Malaysia. “Before, you essentially had the victim saying there was no crime. Now, you had the Justice Department meeting with a 1MDB task force in Kuala Lumpur.”
The change resulted in a string of new indictments, suits and prosecutions surfacing in the second half of 2018. At year’s end, Goldman is known to be under investigation in the U.S., Singapore and Malaysia, while 1MDB probes are ongoing in at least 10 countries. Goldman has seen two ex-employees criminally charged in the U.S. since the summer, one of whom pleaded guilty.
What really set Wall Street afire was a pair of fall revelations. On November 8th, the Wall Street Journal reported longtime Goldman CEO Lloyd Blankfein – who stepped down on October 1st to “pursue other interests” – met on more than one occasion with one of the most infamous figures in the 1MDB scandal, Low Taek Jho, better known as “Jho Low.”
In that same week, Bloomberg reported Blankfein was an “unidentified high-ranking executive” in court filings associated with the case.
In December, outside analysts predicted the bank might need to set aside $1 billion or more for penalties. The company is having ongoing conversations with the Justice Department, but has not discussed numbers yet.
In addition to the Malaysian action seeking $7.5 billion, the company is facing two more class-action lawsuits filed by investors, and a significant amount of negative press.
For all that, the scandal is still not well understood. 1MDB was a twist on third-world kleptocracy, one that exposed a new flaw in the global financial system.
Dictators have always plundered national riches. But they could only steal assets that existed. For instance, in former Zaire, now the Democratic Republic of Congo, Mobutu Sese Seko shifted profits of mineral sales to private accounts. In the Philippines, Ferdinand and Imelda Marcos swiped proceeds of sales of sugar, tobacco, bananas, coconuts and everything else they could get their hands on. Saddam Hussein stole oil revenues.
Malaysia is rich in copper, timber and oil. But Najib and his cohorts didn’t have to steal any of those resources.
“He didn’t steal diamonds or bananas. He stole debt,” says Pang. “This is something completely new. And he couldn’t have done it without a bank the size of Goldman.” (...)
1MDB was a sovereign wealth fund, “owned and controlled by the Malaysian government, through its Ministry of Finance,” as our Justice Department put it in one of its court filings.
This fund was ostensibly created for development projects on behalf of the Malaysian people, in areas like “energy, real estate, tourism and agribusiness.”
Over the course of three major bond issues, 1MDB raised about $6.5 billion from investors around the world. According to the U.S. government, about $2.7 billion of that money was misappropriated and “distributed, in part, as bribes and kickbacks” to help keep the scheme going.
Other monies reportedly ended up in the hands of a small group of corrupt insiders close to Najib, who then laundered the cash via one of the great spending sprees of our time.
The key figure was Jho Low, who is currently an international fugitive and allegedly spent awesome sums ripped from the 1MDB pot. The chubby-cheeked Low, tabbed the “Billion Dollar Whale” in a book about the scandal by Tom Wright and Bradley Hope, is said to have used 1MDB funds to become an instant “Asian Great Gatsby,” traveling the planet and hurling cash in all directions, including parties in Vegas and London. The book claims he spent up to $500,000 on single parties that featured performances by the likes of Lady Gaga and Dr. Dre. Low was basically the Malaysian version of Jeff Spicoli hiring Van Halen to play his birthday party.
The idea that a figure as prominent as Blankfein might have granted a meeting to so incautious a figure as Low – who reportedly once used stationary from the Sultan of Brunei to procure seats at the London nightclub Chinawhite – is part of what has Wall Street so shaken. It’s a little like hearing the Pope was taking selfies at the Adult Video awards. (...)
What was in it for the bank? About $600 million in fees. Goldman may have made some of that money on gains while it held the bonds, i.e. not all of that widely quoted sum was a pure fee. Also, the deal was unusual in that the bank purportedly held all the risk on the bonds for a long time, as much as a year in the third transaction.
Still, Goldman charged Malaysia what by all accounts was a beyond-exorbitant price. The Billion Dollar Whale authors asserted the bank earned “two hundred times the typical fee.”
by Matt Taibbi, Rolling Stone | Read more:
Image: Spencer Platt/Getty Images
