Review process included chief executive David Solomon and predecessor Lloyd Blankfein.
- DoJ alleged much of the money raised with Goldman’s help was siphoned off by Jho Low
- Goldman was not concerned that the money was going to be stolen, but that 1MDB understood the fundraising
- The hefty fees 1MDB was willing to pay Goldman for the fundraising should have raised red flags
The Financial Times (FT) reported Wall Street bank Goldman Sachs helped 1Malaysia Development Fund (1MDB) sell about RM27.06 billion (US$6.5 billion) of bonds between 2012 and 2013, two years before Malaysian police raided the sovereign wealth fund’s offices to investigate allegations of massive fraud.
In a 2016 indictment, the US Department of Justice (DoJ) alleged that much of the money raised with Goldman’s help was syphoned off by Low Taek Jho, who channelled it into everything from Beverly Hills properties to Van Gogh paintings.
Company insiders were quoted saying the deal had been extensively scrutinised, since it involved not only the Malaysian sovereign wealth fund but also Abu Dhabi’s, which was tied up to buy some of the bonds.
“There were two sovereign wealth funds…everybody had a look at this,” said one banker who reviewed the deal. “You’re not going to find that what happened…(was) because there wasn’t an appropriate level of oversight.”
The source told FT that “everybody” included Blankfein and Solomon, who was head of Goldman’s investment banking division from 2006 to 2012, as well as Gary Cohn, then chief operating officer of the bank and Andrew Vella, a partner who was co-head of the firm’s Asia-Pacific investment banking division and is now the unit’s chairman.
Vella was put on leave, FT said, after the US Department of Justice indicted two of former Goldman Sachs bankers, Tim Leissner and Roger Ng Chong Hwa recently.
FT noted that a second person with knowledge of the deal’s approval process confirmed that more than 30 people at the bank reviewed it.
“There was no concern that the money was going to be stolen,” he said. “The concern was that this is a new sovereign wealth fund, the concerns expressed were ‘do they understand (the fundraising)?’
”Goldman received nearly RM2.487 billion (US$600 million) in fees from the deals. Rival bankers have said that the hefty fees the fund was willing to pay for the fundraising should have raised red flags.
FT reported that a senior official at Malaysia’s finance ministry this week said Goldman charged between 9 to 11 percent of funds raised.
The business daily reported that the second person with knowledge of the deal said Goldman offered 1MDB a menu of fee structures and that the fund picked one that involved the US bank taking the most risk on to its balance sheet. If the bond’s price had fallen, Goldman would have lost money.
Goldman Sachs is not expected to suffer much fallout, FT also reported, as clients in Asian markets other than Singapore and Malaysia were not bothered by the 1MDB scandal.