A pioneering twist on third-world corruption might be the biggest scandal the Vampire Squid has ever faced
Goldman Sachs, which has survived and thrived despite countless scandals over the years, may have finally stepped in a pile of trouble too deep to escape.
There’s even a Donald Trump angle to this latest great financial mess, but the outlines of that subplot – in a case that has countless – remains vague. The bank itself is in the most immediate danger.
The company’s stock rallied Thursday to close at 165, stopping a five-day slide in which the firm lost almost 12 percent of its market value. The company is down 35 percent for the year, most of that coming in the past three months as Goldman has been battered by headlines about the infamous 1MDB scandal.
Just before Christmas, Malaysian authorities filed criminal charges against Goldman, seeking a stunning $7.5 billion in reparations for the bank’s role in the scandal. Singapore authorities also announced they were expanding their own 1MDB probe to include Goldman.
In the 1MDB scheme, actors tied to former Malaysian Prime Minister Najib Razak allegedly siphoned mountains of cash out of a state investment fund. The misrouted money went to lavish parties with celebrity guests like Alicia Keys, a $35 million jet, works by Monet and Van Gogh, property in New York, Los Angeles and London, and (ironically) the funding of the movie The Wolf of Wall Street.
The cash for this mother of all bacchanals originally came from bonds issued by Goldman, which earned a whopping $600 million from the Malaysians. The bank charged prices for its bond issuance that analysts believe were suspiciously high – like a massage price that suggests you’re probably getting more than a massage.
Najib lost re-election in May, ending a 61-year reign for his party. National anger over 1MDB was a major reason for his downfall. The prime minister was allegedly central to the scam, which involved luring investors to national development projects that mostly never took place.
His election loss was a turning point. Until that time, international authorities had been unable to obtain cooperation from the Malaysian government, which under Najib insisted no crime had been committed.
Najib was one of the first world leaders to congratulate Donald Trump on his win in 2016. At least at one time, the two men were pals. They golfed together once at the Trump National Golf Club in Bedminster, New Jersey. Najib even claimed he had an autographed photo on his desk from Trump reading, “To my favorite Prime Minister. Great win!” Trump hosted Najib at the White House last year, thanking the soon-to-be-ousted leader for “all the investment you’ve made in the United States.” Najib appeared to stay at one of Trump’s hotels on that trip.
On November 30th of this year, the Justice Department filed a civil forfeiture suit targeting more than $73 million funneled into the country by 1MDB players. There is email evidence the money may have been intended to help influence the Trump administration to drop the case.
But Najib’s electoral loss changed the picture. With his ouster, the new Malaysian government was suddenly eager to help outside investigators.
“It completely reversed the situation,” says John Pang, a former policy adviser to the prime minister’s office in Malaysia. “Before, you essentially had the victim saying there was no crime. Now, you had the Justice Department meeting with a 1MDB task force in Kuala Lumpur.”
The change resulted in a string of new indictments, suits and prosecutions surfacing in the second half of 2018. At year’s end, Goldman is known to be under investigation in the U.S., Singapore and Malaysia, while 1MDB probes are ongoing in at least 10 countries. Goldman has seen two ex-employees criminally charged in the U.S. since the summer, one of whom pleaded guilty.
What really set Wall Street afire was a pair of fall revelations. On November 8th, the Wall Street Journal reported longtime Goldman CEO Lloyd Blankfein – who stepped down on October 1st to “pursue other interests” – met on more than one occasion with one of the most infamous figures in the 1MDB scandal, Low Taek Jho, better known as “Jho Low.”...MUCH MORE
In that same week, Bloomberg reported Blankfein was an “unidentified high-ranking executive” in court filings associated with the case.
This was devastating news. The key question about 1MDB had always been whether the thefts were the actions of a few “rogue” bankers in a foreign outpost, or if the scam snaked higher.
The mere mention of Blankfein’s name in conjunction with a 1MDB court filing sent Goldman’s share price into freefall.
The closing price of Goldman stock on November 8th was $231.65. By November 12th, after investors had a weekend to digest the WSJ and Bloomberg articles, it had fallen to $206.05, reaching a low of $151.70 before bouncing back up a bit this week.
Goldman has been forceful in addressing the charges that Blankfein met with Low. Reached for comment this week, the bank said it has identified three meetings at which Low might have been present, but has only been able to confirm Low’s presence at one.
“Mr. Blankfein had an introductory, high-level meeting in December 2012 with the CEO of Aabar, which was an existing client of the firm,” says company spokesman Michael DuVally. “At Aabar’s request, Mr. Low accompanied the CEO to that meeting.”
Duvally insists, however, that the firm has no evidence of any contact more extensive than that.
“Mr. Blankfein does not recall any one-on-one meeting with Mr. Low, nor have we seen any record to suggest such a meeting occurred.”
In December, outside analysts predicted the bank might need to set aside $1 billion or more for penalties. The company is having ongoing conversations with the Justice Department, but has not discussed numbers yet.
In addition to the Malaysian action seeking $7.5 billion, the company is facing two more class-action lawsuits filed by investors, and a significant amount of negative press.
For all that, the scandal is still not well understood. 1MDB was a twist on third-world kleptocracy, one that exposed a new flaw in the global financial system.
Dictators have always plundered national riches. But they could only steal assets that existed. For instance, in former Zaire, now the Democratic Republic of Congo, Mobutu Sese Seko shifted profits of mineral sales to private accounts. In the Philippines, Ferdinand and Imelda Marcos swiped proceeds of sales of sugar, tobacco, bananas, coconuts and everything else they could get their hands on. Saddam Hussein stole oil revenues.
Malaysia is rich in copper, timber and oil. But Najib and his cohorts didn’t have to steal any of those resources.
“He didn’t steal diamonds or bananas. He stole debt,” says Pang. “This is something completely new. And he couldn’t have done it without a bank the size of Goldman.”...
If interested see also:
"The Billion-Dollar Mystery Man and the Wildest Party Vegas Ever Saw "
The 1MDB Fraud as told by the FBI
Questions America Wants Answered: Was Leo DiCaprio’s ‘Wolf of Wall Street’ Paid for With Stolen Money?