Goldman Sachs is facing one of the biggest scandals in its history, a multi-billion dollar international fraud that, according to the researchers, was organized by a flamboyant financier with the flavor of Hollywood and carried out with the help of Bankers of the signature of Wall Street.
Federal prosecutors released a guilty plea to a former Goldman Sachs banker on Thursday and announced charges of corruption and money laundering against a second banker in a billion-dollar malpractice investigation.
A public investment fund in Malaysia . Prosecutors have also filed charges against the Malaysian businessman who, according to them, stole some of the money: Jho Low, who has spent millions of dollars in gifts to celebrities such as actor Leonardo DiCaprio and model Miranda Kerr.
The money was used to buy a Picasso painting, diamond necklaces and Birkin handbags, as well as to pay for Hollywood blockbuster “The Wolf of Wall Street.”
Najib Razak, the Malaysian prime minister who created and directed the so-called sovereign wealth fund, lost his candidacy for re-election after the scandal, in which US prosecutors said that $ 731 million of the lost money had been deposited. your own bank accounts.
The charges against executives at a major US bank, a rare move in the decade after the financial crisis, put enormous pressure on Goldman Sachs and its new chief executive, David M. Solomon. US prosecutors continue to investigate other bankers and Goldman himself, according to three people familiar with the matter.
The bank has spent years trying to rehabilitate a reputation badly damaged by accusations of misconduct and putting profits before customers during the financial crisis. Goldman executives today highlight how good their bank is in companies around the world: the efforts that the bank’s role in Malaysia’s vast scandal could undermine.
The lengthy documents submitted by prosecutors in Brooklyn paint a sad image for Goldman, who raised funds for the fund, 1 Malaysia Development Berhad or 1 MDB.
According to court documents, the former bankers bribed foreign executives to bribe foreign investors to guarantee the $ 6 billion Goldman $ 6 billion bond subscription contracts. Dollars.
Officials said at least one senior manager in the bank’s Asian operations was aware of the scheme, which prevented Goldman from establishing systems to detect the payment of bribes.
This person, not identified in the court documents, was not charged. According to three people familiar with the matter, the executive was Andrea Vella, co-director of Goldman’s investment banking business in Asia.
Federal prosecutors said Tim Leissner, a former Goldman financial banker who had spent years courting Low, pleaded guilty in August to participating in the bribery and money laundering scheme. He left the firm in 2016 after the first appearance of the scandal.
The courtrooms were sealed until Thursday, when the other two men, Low and Roger Ng, the former Leissner deputy, were indicted. Ng, who left Goldman in 2014, was arrested in Malaysia; Low stays in the race.
Although the bank knew that Leissner was at the center of the investigation, the magnitude of the charges seemed to have taken Goldman by surprise. The bank did not expect an executive from its Asian investment bank to be involved.
On Thursday Goldman suspended Vella, according to a person with direct knowledge, but was not allowed to speak in public.
Goldman has repeatedly played down his role in the 1MDB scandal, claiming he did not know how the fund’s money was being used. The company said in a statement that it was cooperating with the investigation.
The president of Goldman, Lloyd Blankfein, tried to present the problem as a criminal act committed by dishonest employees.
“These are men who have escaped our guarantees, and they lie, things like that will happen,” Blankfein said on the sidelines of the New York Times DealBook conference on Thursday. “Someone will use phones outside the home, and staff for that, and staff for that,” he said, referring to personal devices.
Federal prosecutors have described Low as the brains behind the strategy to loot Malaysia’s sovereign wealth fund. During an exchange with Leissner, Low said that it was necessary to “chew” the leaders of the 1MDB, including sending “cake”.
The court records, which were not sealed on Thursday, showed that federal prosecutors had been founded from the first day they filed a complaint against Leissner in June. At that time, the charges contained no reference to the co-conspirator identified by people close to the case, Vella. But the court documents associated with Leissner’s argument of August 28 are valid.
Vella could not be reached for comment. He hired a lawyer, according to three people familiar with the case, but these people refused to identify him.
The court documents filed by federal prosecutors describe a ploy initiated in 2009 by Goldman’s bankers to hide Low’s involvement in fund activities and the money he paid for his advice.
These bribes and bribes helped secure the bank’s business, while a group of people closely linked to the former prime minister of Malaysia stole a portion of the debt’s profits to fuel his bankruptcy. sumptuous lifestyle.
Prosecutors say the bankers had to hide Low’s unofficial intervention in the fund because Goldman’s legal team was concerned about the source of his wealth.
Leissner and other Goldman bankers helped 1MDB raise money through three bond issues while earning hundreds of millions of dollars in commissions.
During each transaction, Leissner followed Low’s instructions on the granting of bribes to obtain contracts for the internal nicknames “Magnolia Project,” “Maximus Project,” and “Project Catalyze.” ”
The money raised would be spent on projects to help the Malays, such as those described in the financial documents of the contract.
Instead, the court filings describe a plan developed to channel millions of dollars in bond products to the so-called front companies controlled by Low and others. Some of the money went to bank accounts in Hong Kong.
The internal emails, included in court documents, show that Leissner and his team have qualified one of the Bank’s oldest contracts with the “Tiara Project” of Malaysia. Among the luxuries seized later, they were bought with 1MDB money: 14 tiara with diamonds.
Until recently, the public attention on the scandal focused mainly on the fate of this money. Federal prosecutors in Los Angeles have filed several civil suits to recover assets purchased with some of the money.
According to these demands, Najib’s wife, Rosmah Mansor, allegedly received $ 30 million in purchased jewelry of $ 1 million, including a 22-carat pink diamond necklace worth $ 27.3 million. Dollars
Leissner also kept some of the funds, according to the authorities. By pleading guilty, he was sentenced to lose nearly $ 44 million that he had earned through the stratagem.
Leissner’s lawyer did not return a request for comment. We did not know who Ng was.
A spokesman for Low said Low was innocent.
“As stated in the indictment today, Low had no official obligations in the 1MDB, and Goldman Sachs never used it,” spokesman Jim Haggerty said.
He added: “In addition, bond offers described in the accusation were made openly and legally between experienced and well-regulated financial institutions and government entities.”
The fraud led Malaysian voters to expel Najib in May; Prosecutors filed corruption charges against him in July. The new prime minister, Mahathir Mohamad, quickly opened an investigation. The Malaysian government is demanding a return from Goldman Sachs.