Arthur J. Villasanta – Fourth Estate Contributor
Kuala Lumpur, Malaysia (4E) – Malaysia demands $7.5 billion in reparations from the Goldman Sachs Group, Inc for its role as underwriter and arranger of three bond sales that raised $6.5 billion for scandal-hit 1Malaysia Development Berhad (1MDB).
This is the first criminal action against Goldman Sachs over the scandal, which also involves former Malaysian Prime Minister Najib Razak. Najib has been arrested but has posted bail. Malaysian prosecutors this week filed charges against Goldman Sachs in connection with the 1MDB scandal.
Malaysia also demands Goldman Sachs return $1 billion to cover $600 million in fees paid to it and bond coupons that were “higher than the market rate,” according to Malaysian Finance Minister Lim Guan Eng.
Lim also said that reparations should be more than $1.8 billion, the sum Goldman Sachs has told investors it had set aside to cover potential losses related to 1MDB legal proceedings.
“Their figure is $1.8 billion. Ours is $7.5 billion,” said Lim.
Lim also revealed Malaysia isn’t currently negotiating with Goldman, but the charges might bring the bank to the negotiating table.
Malaysia wants to imprison persons involved in the scandal. In addition, it wants billions in fines from Goldman Sachs and four individuals who allegedly misappropriated $2.7 billion from the 1MDB bond proceeds.
Malaysia and the DoJ have charged two former Goldman Sachs bankers, Tim Leissner and Roger Ng, for their roles in the 1MDB imbroglio. Leissner, the bank’s former Southeast Asia chairman, pleaded guilty in the U.S. for conspiring to launder 1MDB money and violate the Foreign Corrupt Practices Act.
The U.S. Department of Justice alleges a total of $4.5 billion was misappropriated from 1MDB and used to buy real estate in London and New York, expensive jewelry and artwork, and a private jet, among others.
Adding to Goldman’s troubles is news that Singapore has expanded its criminal investigation of 1MDB to include the American bank.
Goldman Sachs has denied any wrongdoing. It said the 1MDB bond offerings were meant to raise money to benefit Malaysia. Instead, “a huge portion of those funds were stolen for the benefit of members of the Malaysian government and their associates.”
Critics have said the fees earned by Goldman Sachs were far in excess of the normal 1% to 2% a bank traditionally earns from selling bonds.
Goldman explained the outsized fees related to additional risks. It said it also bought the unrated bonds while it sought investors.
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