Fed intensifies Goldman probe over Malaysia scandal
You can add another headache into the mix for Goldman Sachs.
The Federal Reserve is ramping up its investigation into how executives dodged the bank’s internal controls while helping Malaysian authorities raise billions of dollars that later went missing, according to people briefed on the matter. The probe examines the actions of Goldman Sachs as well as individuals and has been gaining momentum in recent weeks, the people said, asking not to be identified because the inquiry is confidential.
Add a Department of Justice probe already in an advanced stage, the Malaysian government’s push for fee refunds and a lawsuit from a pair of Abu Dhabi investment funds, and the bank’s troubles look far from a resolution. The stock has lost a quarter of its value this year after falling again Friday, and another analyst cut his rating, saying the issue “could linger for a while.”
The Fed has previously interviewed current and former employees at the firm, prying into how easy it is to short-circuit compliance systems, the people said. In recent weeks, representatives from Goldman Sachs met with the regulator and defended the bank’s controls, according to a person with knowledge of the matter. The central bank doesn’t have the powers of a criminal prosecutor, but it can and often does sanction people involved in banking scandals.
As Goldman Sachs’s main regulator, the Fed has broad authority to penalize the bank or impose other changes. Earlier this year, it capped Wells Fargo’s size until the lender shores up internal controls.
“It is the Federal Reserve’s policy not to confirm or deny the existence of investigations,” the central bank said in an emailed statement. “We refer criminal violations to the Department of Justice as necessary and exercise our enforcement and safety and soundness authorities if the facts are warranted.”
The stock fell as much as 2.9 percent in New York trading. The risks surrounding 1Malaysia Development Bhd., a Malaysian state investment company that investigators say was plundered, prompted Bank of America Merrill Lynch’s Michael Carrier to cut its recommendation on the stock on Friday morning.
“While we view the current valuation as discounting most of the potential negative scenarios related to 1MDB, we only have limited information and the uncertainty could linger for a while,” he wrote.
In a guilty plea unveiled this month, Goldman Sachs’s former head of Southeast Asia, Tim Leissner, said he and others conspired to conceal facts from the firm’s compliance and legal staff. Leissner said he and his colleagues hid, for example, the involvement of controversial financier Low Taek Jho while setting out to raise more than $6 billion on behalf of 1MDB.