Goldman’s 1MDB fiasco nears end with $3.9b Malaysia pact

Bloomberg

Goldman Sachs Group Inc has reached a $3.9 billion pact with Malaysia, marking a big step in the Wall Street giant’s efforts to resolve its worst scandal since the financial crisis.
The settlement includes a payment of $2.5 billion to Malaysia to resolve probes into the US bank’s role in a scheme to plunder the Asian nation’s 1MDB investment fund, the ministry of finance said. It also guarantees that at least an additional $1.4 billion will come from 1MDB assets seized by authorities around the world, according to a Goldman Sachs statement.
Over much of a decade, 1MDB has become shorthand for one of the world’s most daring heists — a conspiracy that spawned probes in Asia, the US and Europe. Authorities spent years tracking funds that allegedly flowed from 1MDB into high-end art and real estate, a super yacht and, ironically, the hit Hollywood movie “The Wolf of Wall Street,” chronicling an earlier era of financial crimes.
The case against the Wall Street firm focuses on its work raising $6.5 billion in 2012 and 2013 for the fund formally known as 1Malaysia Development Bhd, much of which was allegedly siphoned off by people connected to the country’s former prime minister.
Goldman’s investment-banking group, led at the time by now-Chief Executive Officer David Solomon, collected an unusually high $600 million from the bond sales.
“This settlement represents Goldman’s acknowledgment of the misconduct of two of its former employees in the broader 1MDB fraudulent and corruption scheme,” Malaysia’s finance ministry said.
The pact doesn’t resolve other pending governmental and regulatory probes related to 1MDB, including one from the US Department of Justice. The firm is nearing a deal with the DOJ that could be announced next month.
Much of the 1MDB saga centered around Jho Low, a once-obscure Malaysian financier whom prosecutors accused of orchestrating the theft.
Low, who long professed his innocence, remains at large. But probes also drew in a number of Goldman employees: A former partner pleaded guilty to bribing government officials, his deputy was arrested and a top dealmaker in Asia was barred from the industry for life.
The pact follows a decade that the Wall Street firm had spent trying to rehabilitate its image in the wake of the 2008 financial crisis. The bank has long mounted a defense centered on the argument that it was duped by rogue staff, and that it had no idea the money it helped raise for 1MDB would be diverted from development projects.
Goldman Sachs said it expects to restate the second-quarter earnings it announced last week to “materially increase” provisions for litigation and regulatory proceedings due to the settlement.