New boss faces major challenge after charges against bankers
Goldman Sachs scandal
The new chief executive of Goldman Sachs, part-time DJ David Solomon, was probably hoping to give his image a more professional sheen when he stepped into the top job at the world’s most famous investment bank. The institution’s deepening entanglement in a major corruption scandal is certainly a serious matter that will limit his leisure time.
The Wall Street giant’s work for Malaysia’s state investment fund – known as 1MDB – was not a secret, but a recent US Department of Justice investigation and subsequent charges against former Goldman bankers have put pressure on Lloyd Blankfein’s successor.
Goldman’s legal team is preparing for a meeting with the DoJ next week, as Goldman faces the prospect of reputational and financial damage from the alleged multi-billion dollar fraud at 1MDB. Goldman is under fire for two issues: its work in raised funds that were later said to have been misused by conspirators and Malaysian official; and for also charging fees of around $600m (£460m) for its efforts.
The US last week unveiled charges against two former Goldman bankers for conspiring to launder billions of dollars embezzled from 1MDB. Tim Leissner, a former Goldman partner in Asia, has pleaded guilty to conspiring to launder money and breach the Foreign Corrupt Practices Act by bribing Malaysian and Abu Dhabi officials and sidestepping internal accounting controls. He has been ordered to hand over $43m as a result of those crimes. Another former Goldman banker, Roger Ng, has been arrested in Malaysia on bribery charges. Meanwhile, the lender has reportedly put its former co-head of Asia investment banking Andrea Vella on leave.
Reports have also identified Solomon’s predecessor, Lloyd Blankfein, as the executive who attended initial meetings with a key financier Jho Low – also charged by the DoJ but still at large – and the now-ousted Malaysian prime minister, Najib Razak. Blankfein remains a senior figure at Goldman as chairman.
Around $4bn eventually vanished from 1MDB, with US prosecutors claiming the diverted cash was used by conspirators to buy luxury real estate in the likes of New York, pricey artwork, and fund the production of Hollywood films including The Wolf of Wall Street.
When pushed to respond to the US indictments, Solomon characterised the former Goldman bankers as rogue employees who breached the lender’s own standards. Solomon told Bloomberg TV: “It is obviously very distressing to see that two former Goldman Sachs employees went so blatantly around our policies and so blatantly broke the law.”
A Goldman representative told the Guardian that “the firm continues to cooperate with all authorities investigating this matter.”
The bank has reportedly defended the hefty bill, citing the risks involved. It has pointed to transactions including buying un-rated bonds from 1MDB in an effort to generate quick cash for the fund while it continued to search for outside investors.
A hit from a prospective DoJ
‘It is very distressing to see two former Goldman Sachs employees went so blatantly around our policies and blatantly broke the law’ Goldman chief
settlement or any move towards restitution on behalf of the Malaysian government could risk denting the bank’s earnings, which have managed to beat analyst estimates so far this year.
The US bank warned in its third quarter results this month that it was “unable to predict the outcome” of the DoJ investigations.
“Any proceedings by the DoJ or other governmental or regulatory authorities could result in the imposition of significant fines, penalties and other sanctions,” the bank explained.
Malaysian politician and prime minister-in-waiting, Anwar Ibrahim, said earlier this month that it would be “inexcusable” if Goldman was found to have been complicit to the “excesses and crime” while “the country and the people suffer”.
That was after the country’s finance minister, Lim Guan Eng, suggested in June that the country’s government would also be exploring whether to seek claims from Goldman over the scandal.
Any details outlining Goldman’s complicity in the fraudulent behaviour would also put a black mark on its reputation as Wall Street marks 10 years since the crash.
Solomon will be tested by how copes with the fallout, having been tipped to engineer a cultural shift at the bank. He has been noted for keeping a tighter grip on the Goldman’s inner circle, having anointed the smallest number of new partners in decades earlier this week. But only when he puts the question of the bank’s misconduct around 1MDB to rest will Solomon be able to shift focus back to his DJ decks.
US prosecutors said cash diverted from 1MDB helped fund films such as The Wolf of Wall Street, with Leonardo DiCaprio. Right: Lloyd Blankfein