Gold­man Sachs un­der spot­light in Malaysian fund scan­dal

The Pak Banker - - COMPANIES/BOSS -

Gold­man Sachs' work with Malaysian sov­er­eign wealth fund 1MDB is un­der the spot­light over US gov­ern­ment al­le­ga­tions that bil­lions of dol­lars were di­verted for the per­sonal use of of­fi­cials and some peo­ple as­so­ci­ated with them.

The Wall Street bank helped 1MDB, which was founded by Malaysian Prime Min­is­ter Na­jib Razak in Septem­ber 2009, raise $6.5 bil­lion in three bond sales in 2012 and 2013 to in­vest in en­ergy projects and real es­tate to boost the Malaysian econ­omy. In­stead, more than $2.5 bil­lion raised from those bonds was mis­ap­pro­pri­ated by high-level 1MDB of­fi­cials, their rel­a­tives and as­so­ciates, ac­cord­ing to US Depart­ment of Jus­tice civil law­suits filed in court on Wed­nes­day.

Pros­e­cu­tors said the money was used to buy art­work, in­clud­ing paint­ings by Vin­cent Van Gogh and Claude Monet, lux­ury prop­er­ties in New York and Lon­don and to pay off gam­bling debts in Las Ve­gas.

Gold­man Sachs, which earned close to $600 mil­lion to ar­range and un­der­write the 1MDB bonds, has not been ac­cused of any wrong­do­ing.

Still, the law­suits al­lege in­vestors were not prop­erly in­formed about the use and na­ture of the bonds.

The U.S. Jus­tice Depart­ment said that the of­fer­ing cir­cu­lars for two of the bonds is­sued in 2012 con­tained "ma­te­rial mis­rep­re­sen­ta­tions and omis­sions" over what the pro­ceeds of the bonds would be used for and the na­ture of the re­la­tion­ship be­tween 1MDB and In­ter­na­tional Petroleum In­vest­ment Com­pany (IPIC), an en­tity owned by the Abu Dhabi gov­ern­ment.

IPIC guar­an­teed one bond di­rectly and another one in­di­rectly. The U.S. gov­ern­ment also al­leged in its Wed­nes­day law­suit that no ref­er­ence to IPIC's in­di­rect guar­an­tee was in­cluded on one of the of­fer­ing cir­cu­lar.

"We helped raise money for a sov­er­eign wealth fund that was de­signed to in­vest in Malaysia. We had no vis­i­bil­ity into whether some of those funds may have been sub­se­quently di­verted to other pur­poses," a spokesman for the bank said. The FBI and other US reg­u­la­tors, in­clud­ing New York's Depart­ment of Fi­nan­cial Ser­vices, have been in­ves­ti­gat­ing Gold­man Sachs' busi­ness re­la­tion­ship with 1MDB.

The Wall Street bank had deep ties with 1MDB and Malaysia. In May 2012, it had helped 1MDB raise $1.75 bil­lion in a bond deal it dubbed "Pro­ject Mag­no­lia", and $1.75 bil­lion in a sep­a­rate bond is­sue it called "Pro­ject Max­imus" in Oc­to­ber 2012.

Gold­man's for­mer South­east Asia chair­man Tim Leiss­ner had helped ar­range the sale of U.S. dol­lar bonds for 1MDB. Leiss­ner re­signed in Fe­bru­ary after he al­legedly vi­o­lated the firm's in­ter­nal rules, a per­son fa­mil­iar with the mat­ter has said.

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