Malaysia’s Attorney General Tommy Thomas is preparing a civil suit against US investment bank Goldman Sachs that will seek US$4.5 billion in damages for the US bank’s role in raising funds that were later misappropriated from the 1Malaysia Development Berhad (1MDB) fund, official sources familiar with the preparations told Asia Times.
The legal action, soon to be filed in a US court according to the same official sources, will represent the latest legal action taken against Goldman for its dealings with the scandal-plagued sovereign fund. 1MDB is currently the subject of corruption and money-laundering investigations in at least six countries, including the US.
Thomas will justify the new case against Goldman as an institution by arguing that knowledge of the fraud reached the highest levels of the bank’s management. Those to be accused in the Malaysian case will include senior Goldman executives yet to be charged in a recently filed US Department of Justice (DoJ) criminal case, the same sources say.
Specifically, the case will argue that senior Goldman executives knew that proceeds from three 2012 1MDB bond issues the bank arranged were funneled into a company, Aabar BVI, that was set up in the British Virgin Islands to resemble a similarly named company, Aabar Investments, belonging to the guarantor of the bonds, Abu Dhabi’s International Petroleum Investment Company (IPIC).
On November 21, Abu Dhabi’s International Petroleum Investment Corp (IPIC) and its subsidiary, Aabar Investments, filed a civil legal action at the Supreme Court of New York against Goldman for damages incurred through its dealings with 1MDB. The amount sought was not disclosed in press reports.
The state-owned IPIC’s statement on the suit claimed Goldman “played a central role in a long-running effort to corrupt former executives of IPIC and its subsidiary Aabar Investments, and misled IPIC and Aabar.” A Goldman spokesman said the bank would contest the claims “vigorously”, reports said.
The US DoJ has charged in a criminal suit recently filed against ex-Goldman Sachs executives Tim Leissner and Roger Ng, and fugitive Malaysian financier Low Taek Jho, also known as Jho Low, that US$4.5 billion was misappropriated from the sovereign 1MDB fund.
The allegedly pilfered proceeds were reputedly laundered through various US-based transactions, ranging from luxury property to fine art to movie production investments. Jho Low has denied any wrongdoing through his association with 1MDB.
Malaysia’s new US$4.5 billion civil suit, when eventually filed, would significantly up the ante of the government’s earlier complaints against Goldman and could lead to a new sell-off of the New York-based investment bank’s publicly listed shares.
On November 12, Malaysian Finance Minister Lim Guan Eng said that the government would seek the return of US$600 million in fees Goldman earned in raising a total of US$6.5 billion for 1MDB in three separate bond issuances between 2012 and 2013.
At the time, he said the government would seek a “full refund” from Goldman. Lim also said he hoped that the US DoJ’s criminal investigation into 1MDB will establish Goldman’s culpability in the scam and thus bolster Malaysia’s claim to the sought sum, including losses suffered in the bond deals.
When Lim announced Malaysia’s planned action against Goldman, the US investment bank’s share price fell 7.5%, marking the biggest single-day drop of its shares since 2011 and leading down the entire New York Stock Exchange.
The following day, Malaysian Prime Minister Mahathir Mohamad said in an interview with American news broadcaster CNBC that “Obviously we have been cheated through the compliance by Goldman Sachs people.”
Malaysia’s prime minister-in-waiting, Anwar Ibrahim, echoed Mahathir that same day by calling for “more aggressive claims” against Goldman without elaborating. Attorney General Thomas’ preparation of the soon-to-be-announced civil suit seeking US$4.5 billion in damages would appear to answer Anwar’s call for tougher action.
It’s unclear how markets may react to the Malaysian government’s substantially higher sought amount in damages. Bloomberg estimated earlier this month that Goldman’s total litigation risks in the US peaked at US$2 billion, including more than US$1 billion from possible 1MDB-related matters.
In June, Malaysian officials first signaled they were considering to seek the return of the US$600 million in fees paid to Goldman by the previous Najib Razak-led government.
Najib, who created 1MDB and lost election to Mahathir in May, has since been charged in Malaysia for alleged money laundering over certain of the fund’s losses. The former long-serving leader has consistently denied any wrongdoing.
The stark jump in damages sought from US$600 million to US$4.5 billion, as well as Malaysia’s intent to file a formal civil case against Goldman, reflects a new level of confidence in the Mahathir government’s pursuit of justice for 1MDB-related fraud in foreign jurisdictions.
The moves also suggest that Mahathir is adopting an aggressive yet practical approach to fulfilling his campaign promise to swiftly recover billions of dollars pilfered from 1MDB. The vow to pursue justice was key to his ruling Pakatan Harapan’s landslide election win that deposed Najib and his long-ruling United Malays National Organization.
Until now, it appeared that Malaysia’s efforts to recoup lost 1MDB funds would rely largely on collaboration with the US DoJ in a global dragnet aimed at building civil and criminal cases against alleged 1MDB fraudsters to recover assets and funds scattered across over a dozen global jurisdictions.
While this apparently remains the cornerstone of Malaysia’s 1MDB recovery strategy, the slow pace of DoJ investigations into various individuals to date has evidently spurred Thomas to pursue a swifter legal remedy by targeting Goldman in US courts.
Thomas announced on October 30 that his offices would challenge a “consent award” signed by Najib and filed at London’s Court of Arbitration that requires Malaysia to pay US$5.78 billion to IPIC over five years as a guarantor of the 1MDB bonds Goldman helped to issue.
The fee includes substantial interest payments, which if paid, will inevitably be shouldered by Malaysian taxpayers. As of October 2018, the Malaysian government owed IPIC US$1.2 billion under the agreement, an amount Mahathir’s government has recently sought to set aside.
Thomas also stated on October 30 that his case against the consent award is based on the charge it was procured by fraud or in a manner contrary to public policy. The court challenge claims IPIC and Aabar Investments knew of the serious allegations made by the US DoJ against Najib and thus should not have entered into deals with the leader.
Malaysia’s challenge to the consent agreement is believed to have been a motivating factor behind IPIC’s move on Wednesday to file its own civil lawsuit against Goldman. Initial reports did not indicate how much IPIC may seek in damages from Goldman.
While former senior IPIC officials Khadem Abdulla al-Qubaisi and Mohamed Ahmed al-Husseiny have been identified as instrumental in facilitating the alleged pilferage of 1MDB bond proceeds through Aabar BVI, Malaysia’s challenge of the consent agreement is seen as a risky and time-consuming recovery strategy.
While Thomas is still pursuing this legal channel, some observers believe that the Malaysian government would have greater legal leverage and a better chance of winning in a civil action against Goldman in a US court.
Moreover, the US DoJ appears to have prioritized its probe into Goldman over the alleged fraud committed by the two rogue IPIC executives, who remain in custody in the United Arab Emirates.
On November 13, Bradley Hope, a Wall Street Journal reporter and co-author of a recent book on 1MDB called Billion Dollar Whale, told a London conference of lawyers and journalists that the DoJ’s key focus was on “whether or not to charge Goldman as an entity” or rather to only pursue criminal cases against specific managers.
“They’ve already brought criminal charges against individuals, but they have the power to criminally charge the bank itself if they feel the acts of those individuals rose high enough to make the bank responsible for criminal acts,” Hope said. “The final result could be anywhere from civil charges with a penalty to DoJ criminally charging Goldman.”
Goldman’s chief executive officer David Solomon has bid in recent days to separate the company from the charged former executives’ apparent rogue behavior.
“I am personally outraged that any employee of the firm would undertake the actions spelled out in the government’s pleadings,” Solomon said in a voicemail left to employees on November 14. “The behavior of those individuals is reprehensible and inconsistent with the good work and integrity that defines work that 40,000 of you do every day.”
The DoJ’s investigation into Goldman is benefiting from the recent cooperation it is receiving from accused ex-Goldman executive Leissner, who headed the bank’s Southeast Asia operations, and his Goldman colleague Ng, who is currently in detention in Kuala Lumpur pending extradition to the US.
DoJ prosecutors are now investigating new reports that Goldman’s longtime chairman and chief executive, Lloyd Blankfein, met with the now fugitive Jho Low at the bank’s Manhattan headquarters in December 2012.
The reports have raised new questions about whether Goldman’s involvement with 1MDB, as the bank has argued, is confined only to a group of rogue employees who slipped through compliance systems or rather reached the highest echelons of management.
It’s information Malaysia’s government will no doubt also aim to leverage in its soon-to-be-announced pursuit of US$4.5 billion in 1MDB-related damages from Goldman.