We talked about this on Tuesday, and now there’s more news out about Goldman Sachs’s potential hit for its part in the 1MDB global scandal.
While Goldman and the U.S. Justice Department are reportedly negotiating a $2 billion fine and criminal rap for its Asian-based banker’s part in the sensational multi-billion scandal and theft of assets from a Malaysian sovereign wealth fund, Malaysia’s attorney general said last week he’s going after the bank for $8 billion to $9 billion.
Anything close to a $10 billion hit to Goldman would be devastating.
1Malaysia Development Berhad (1MDB) was supposed to be a sovereign wealth fund. But it was only that in name only and probably only referred to as a sovereign wealth fund to aid and abet bankers raising billions in debt for what turned out to be a slush fund.
Instead of investing in Malaysian infrastructure for the good of the country (to earn a sufficient return to pay off the fund’s debt, which now totals a reported $11.73 billion), 1MDB bought out private utility companies owned by friends of the country’s then prime minister, Najib Razak. It invested in property owned by insiders and daisy-chained deals globally to hide the real purpose of the fund.
Where the Situation Began
Razak lost an election last year to the current prime minister, Dr. Mahathir Mohamad. The controversy was over accusations of theft of as much as a billion dollars of the fund’s assets, which he supposedly used to bribe officials and line his own pockets.
He’s currently on trial for criminal breach of trust, money laundering, and abuse of power.
Jho Low, the Malaysian financier who brought the fund idea to Razak, reportedly siphoned off $4.5 billion, according to the U.S. Justice Department. Low allegedly used the money to finance Hollywood hit “The Wolf of Wall Street,” buy a $350 million yacht, purchase Picasso paintings, and buy properties in New York, among other things.
The Justice Department and the Malaysian government are now searching for Low…whose whereabouts are unknown.
Meanwhile, one Goldman banker, Tim Leissner, pleaded guilty in the U.S. to stealing $200 million from the fund and is now cooperating with Justice Department investigators.
Goldman, who raised $6.5 billion in debt for the fund and charged it a whopping $600 million in fees for the privilege, is hanging its Asian subsidiary out to dry as the wet-dog responsible for whatever the company says the home office had no idea was going on.
Tommy Thomas, the Malay general Attorney isn’t going along with that. He’s pursuing criminal charges against the Goldman subsidiary, 17 Goldman current and former bankers, and Goldman Sachs itself.
Dr. Mahathir Mohamad has said the country wants Goldman to repay the $6.5 billion it raised and lost, with interest.
The attorney general wants Goldman to pay fines totaling another $2 billion to $4 billion.
Hitting Goldman where it hurts, in its pocketbook, would be bad for the company’s capital structure, but not nearly as devastating as Goldman having to plead guilty in the U.S. and internationally on criminal charges.
A criminal rap of the magnitude contemplated here would knock Goldman out of banking deals around the world and potentially threaten its licenses to do business in multiple international jurisdictions.
I’ll be following the story closely as it continues to develop, and you’ll be the first to hear about what you’re hearing, what’s really going on, and how you could profit from the mess.
PS: Remember to keep an eye on your inbox for this coming Monday. I started a series of columns debunking the market’s false narratives under your Capital Wave Forecast two weeks ago, and the “manufacturing recession” narrative I want to talk to you about in two days is one of my favorites. Stay tuned.