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Goldman Sachs: The Rest of the Story

0 | By Shah Gilani

Here’s what we know about The Goldman Sachs Group Inc. (NYSE:GS) and their involvement in the outrageous 1MDB fraud scheme:

On the heels of Goldman Sachs’s horrific 2008, the then-investment bank was forced, on a Sunday night in September, to become a bank holding company to get saved by the Federal Reserve on Monday, staving off insolvency and its likely bankruptcy. It gathered itself and set its sights on greener pastures.

Recognizing that Asian institutions held more than $12 trillion in assets and Goldman had relationships with only about 15% of managers controlling those assets, CEO Lloyd Blankfein pointed his finger towards Southeast Asia.

But you knew that. I told you all about it on Tuesday.

In 2010, Blankfein’s rallying cry was “we need to ‘be Goldman Sachs in more places.'”

The bank proceeded to double its staff in the targeted area. That included Andrea Vella, the former aeronautical engineer and JPMorgan Chase & Co. (NYSE:JPM) derivatives designer, and Tim Leissner, subsequently a 10-year partner at Goldman, as rainmakers.

And make it rain, they did.

In 2012, Vella, Leissner, and Leissner’s deputy, Roger Ng, brought a debt deal to the Goldman bond deal committee in Hong Kong for consideration and due diligence.

The charge was to raise $1.75 billion for the newly formed Malaysian government investment company, 1Malaysia Investment Bhd., for the fund to purchase energy assets from Tanjong Energy Holdings, owned by Malaysian billionaire Tatparanandam Ananda Krishnan.

It didn’t go so well. The committee cited “potential media and political scrutiny” and noted the fund’s “scant record.” But, Vella, Leissner, Ng, and the credit traders they enlisted to help them prevailed.

Here’s the conclusion to Tuesday’s story, and I’ll tell you about a once-in-a-lifetime opportunity you won’t want to miss out on…

Here’s what we know about The Goldman Sachs Group Inc. (NYSE:GS) and their involvement in the outrageous 1MDB fraud scheme:

On the heels of Goldman Sachs’s horrific 2008, the then-investment bank was forced, on a Sunday night in September, to become a bank holding company to get saved by the Federal Reserve on Monday, staving off insolvency and its likely bankruptcy. It gathered itself and set its sights on greener pastures.

Recognizing that Asian institutions held more than $12 trillion in assets and Goldman had relationships with only about 15% of managers controlling those assets, CEO Lloyd Blankfein pointed his finger towards Southeast Asia.

But you knew that. I told you all about it on Tuesday.

In 2010, Blankfein’s rallying cry was “we need to ‘be Goldman Sachs in more places.'”

The bank proceeded to double its staff in the targeted area. That included Andrea Vella, the former aeronautical engineer and JPMorgan Chase & Co. (NYSE:JPM) derivatives designer, and Tim Leissner, subsequently a 10-year partner at Goldman, as rainmakers.

And make it rain, they did.

In 2012, Vella, Leissner, and Leissner’s deputy, Roger Ng, brought a debt deal to the Goldman bond deal committee in Hong Kong for consideration and due diligence.

The charge was to raise $1.75 billion for the newly formed Malaysian government investment company, 1Malaysia Investment Bhd., for the fund to purchase energy assets from Tanjong Energy Holdings, owned by Malaysian billionaire Tatparanandam Ananda Krishnan.

It didn’t go so well. The committee cited “potential media and political scrutiny” and noted the fund’s “scant record.” But, Vella, Leissner, Ng, and the credit traders they enlisted to help them prevailed.

Here’s the conclusion to Tuesday’s story, and I’ll tell you about a once-in-a-lifetime opportunity you won’t want to miss out on…

When One Deal Closes, Another One Opens

The next problem they faced was getting an independent opinion on the assets to be purchased.

For that they enlisted Lazard Ltd. (NYSE:LAZ). That didn’t go so well. Lazard declined to offer an opinion, noting the buyers were overpaying and the deal had overtones of political corruption.

That didn’t stop the rain from falling.

In May 2012, Goldman, commanding an exorbitant fee for the raise because they told the fund they’d have to take the whole deal down themselves, sold themselves $1.75 billion of Project Magnolia’s 5.99% coupon bonds.

They immediately placed the bonds with outside investors, whom they’d had lined up all along.

What wasn’t known at the time was that, according to the U.S. Justice Department, Leissner had stolen $200 million to bribe officials at 1MDB to get Goldman exclusive rights to do a series of deals.

That corrupt beginning was immediately followed by the overpayment for the Tanjong power assets, which 1MDB shortly thereafter wrote down by some $400 million.

Before the write-down, a $175 million donation to IMDB’s charity arm was made by Tanjung’s seller, Ananda Krishnan.

That $175 million would be part of a giant slush fund used by Prime Minister Najib Razak.

Shortly after the successful deal, in October 2012, Goldman floated another $1.75 billion of 5.75% coupon bonds for 1MDB’s Project Maximus, to buy domestic power assets from Genting Bhd.

Now, thanks to the Justice Department, Malaysian investigators, and Swiss government officials, we know that 40% of the $3.5 billion raised, a whopping $1.4 billion, was diverted to a Swiss account belonging to a Virgin Islands entity connected to Jho Low.

That fact that Jho Low attended a meeting with Lloyd Blankfein in 2012 may be a coincidence. Or not. Goldman Sachs acknowledges Low was at a meeting where Blankfein was speaking but says that the two never met “one-on-one.”

The timing just doesn’t look good.

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A Pitiful Unravelling

In March 2013, Goldman raised another $3 billion for 1MDB’s Project Catalyze. The proceeds of that raise with its surprisingly smaller 4.4% coupon, were to fund “new strategic economic initiatives between Malaysia and Abu Dhabi.” Those initiatives included development of a 70-acre plot in Kuala Lumpur to be named after Najib Razak’s father.

For its hard work raising $6.5 billion for 1MDB, Goldman earned fees of $600 million. That means the bank charged the fund about 9.2% of the money it raised, based on the fees it collected and the amount raised.

That’s an exorbitant fee by any measure.

According to Bloomberg data on comparable deals in 2013, banks fees averaged 1.32%.

Why was Goldman paid so much? Was it because it knew what the game was?

Tim Leissner has already admitted to stealing $200 million and bribing officials to get Goldman the fund’s business. He’s been charged by the Justice Department and is under investigation by several regulatory bodies and justice departments in multiple countries. So is Roger Ng.

Andrea Vella is on a leave of absence from Goldman and hasn’t been charged to date.

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These three aren’t the only Goldman people at fault.

Where were Goldman’s compliance officers? Were they all hoodwinked by the trio, or did they let things slip through the cracks on purpose? After all, $600 million is a lot of income.

Where was Lloyd Blankfein? Why was Low ever in a meeting with him in 2012, right before the first deal was sealed?

Where was David Solomon, Goldman’s new CEO, who was head of investment banking when all this happened?

Why didn’t officials at Goldman do more to investigate the deals and Jho Low when Leissner tried to open an account for him at Goldman?

Is Goldman Sachs full of bad actors, or harboring a just a few?

Or, is Goldman Sachs a criminal enterprise?

You know what I think.

Sincerely,

Shah

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